Days Inn
Hospitality
Founded 19701,235 locationsCompany Profile
Year Founded:1970
Days Inn Franchise Cost
| Franchise Fee: | $35,000Key Metric |
| Total Investment: | $7,610,000 - $9,410,000Key Metric |
| Liquid Capital: | $1,612,500 |
| Royalty Fee: | 6% of gross sales |
| Marketing Fee: | 4% of gross sales |
Quick ROI Calculator
Based on Days Inn's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:1,235
Scale relative to 1,000 locations
Franchised Units:1,235
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AI-Powered Due Diligence Analysis
Our advanced AI analyzes Franchise Disclosure Documents (FDDs) to identify potential risks and opportunities across 10 critical categories.
13
High Risk
Critical items
34% of total
21
Medium Risk
Monitor closely
55% of total
4
Low Risk
Manageable items
11% of total
38
Total Items
Factors analyzed
10 categories
6.18
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
6 risks identified
2
3
1
Potential for Intra-Brand Competition and Conflict
High
Explanation:
- The FDD discloses that Wyndham (parent company) and its affiliates may own, manage, or franchise other hotels in the same territory as the franchisee, potentially creating direct competition.
- The FDD states that conflict resolution regarding territory, customers, and support is solely at the franchisor's discretion, leaving the franchisee with limited recourse.
- Lack of a defined conflict resolution process with other Wyndham brand franchisees increases the risk of unresolved disputes and potential market share erosion.
Potential Mitigations:
- Carefully analyze the existing hotel landscape in your target territory to assess the potential for direct competition from Wyndham affiliates.
- Negotiate specific provisions in the Franchise Agreement to address potential conflicts, such as protected territories or guaranteed customer allocation.
- Consult with a franchise attorney to understand your rights and options in case of disputes.
FDD Citations:
- Item 1 and Item 20: Disclosure of Wyndham and affiliate ownership/management of other hotels and conflict resolution process.
Reservation System Bias and Lack of Compensation
High
Explanation:
- The FDD states that Wyndham prioritizes its own chain facilities in its reservation system, potentially diverting customers away from the franchisee's hotel.
- Franchisees receive no compensation for bookings made through Wyndham's distribution channels unless the reservation is made on their behalf.
- This creates a potential disadvantage for franchisees, as they may lose revenue to other Wyndham hotels even if they offer comparable services and pricing.
Potential Mitigations:
- Develop a strong local marketing strategy to attract direct bookings and reduce reliance on Wyndham's reservation system.
- Negotiate with Wyndham for better representation in their reservation system or explore alternative booking platforms.
- Analyze the potential impact of this reservation system bias on projected revenue and profitability.
FDD Citations:
- Item 20: Disclosure of reservation system prioritization and compensation structure.
Net Decrease in Number of Outlets
Medium
Explanation:
- Item 20, Table 22 shows a net decrease of 27 outlets in 2023. This indicates potential challenges within the franchise system, such as declining profitability, market saturation, or brand weakness.
Potential Mitigations:
- Thoroughly investigate the reasons behind the decline in outlets. Inquire about closure rates, reasons for closures, and the franchisor's support for struggling franchisees.
- Analyze market trends and competitor performance to assess the overall health of the hotel industry in your target area.
FDD Citations:
- Item 20, Table 22: Data on the number of outlets at the start and end of the year.
Significant Number of Outlet Transfers
Medium
Explanation:
- A high number of outlet transfers (88 in 2021, 103 in 2022, and 40 in 2023) could indicate franchisee dissatisfaction, financial difficulties, or operational challenges within the system.
Potential Mitigations:
- Contact existing and former franchisees to understand their reasons for transferring ownership. Inquire about their experience with the franchisor, profitability, and support provided.
- Analyze the transfer data in relation to the total number of outlets to determine the transfer rate and its trend over time.
FDD Citations:
- Item 20, Table 22: Data on the number of outlet transfers.
Potential Future Acquisitions and Brand Integration Challenges
Medium
Explanation:
- The FDD mentions that Wyndham may acquire additional hotel chains in the future. This could lead to brand integration challenges, changes in brand standards, and potential shifts in strategic direction, impacting franchisee operations.
Potential Mitigations:
- Inquire about Wyndham's acquisition strategy and its potential impact on existing franchisees.
- Assess your ability to adapt to potential changes in brand standards and operational requirements.
FDD Citations:
- Item 20: "WHR or Wyndham Hotel Group may acquire additional hotel chains in the future…"
Lack of Litigation History Disclosure Specificity
Low
Explanation:
- While Item 20 states there are no significant pending actions "other than routine litigation incidental to the business," it lacks specific details about the nature and extent of this routine litigation. This makes it difficult to fully assess the franchisor's legal standing and potential risks.
Potential Mitigations:
- Request further information from the franchisor regarding the nature and volume of "routine litigation incidental to the business." Consider consulting with a legal professional to assess any potential impact.
FDD Citations:
- Item 20, Section B
Disclosure & Representation Risks
3 risks identified
2
1
Enforceability of Termination on Bankruptcy
Medium
Explanation:
- The FDD states that the Franchise Agreement allows for termination upon bankruptcy, but acknowledges this may not be enforceable under federal bankruptcy law. This creates uncertainty for both the franchisor and franchisee in a bankruptcy scenario.
Potential Mitigations:
- Consult with a bankruptcy attorney specializing in franchise law to understand the interplay between the Franchise Agreement and federal bankruptcy code.
- Negotiate with the franchisor for clearer language regarding termination events related to financial distress, exploring alternatives to outright termination.
FDD Citations:
- Item 23, California Addendum 1: "The Franchise Agreement provides for termination upon bankruptcy. This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.)."
Choice of Law Provision Enforceability
Medium
Explanation:
- The Franchise Agreement mandates the application of New Jersey law, which may conflict with California law. This could lead to legal disputes and uncertainty regarding which jurisdiction's laws govern the franchise relationship.
Potential Mitigations:
- Consult with legal counsel in both California and New Jersey to understand the potential conflicts of law and how they might impact the franchise agreement.
- Negotiate with the franchisor to consider applying California law, especially if the franchisee's primary business operations are in California.
FDD Citations:
- Item 23, California Addendum 2: "The Franchise Agreement requires application of the laws of New Jersey. This provision may not be enforceable under California law."
Enforceability of General Release of Claims
Low
Explanation:
- Requiring a general release of claims upon renewal or transfer may be void under California law, potentially exposing the franchisor to unforeseen liabilities.
Potential Mitigations:
- Review the specific language of the release with legal counsel to understand its scope and potential implications.
- Negotiate with the franchisor to remove or modify the release provision to ensure compliance with California law.
FDD Citations:
- Item 23, California Addendum 3: "If the Franchise Agreement requires you to execute a general release of claims upon renewal or transfer of the Franchise Agreement, California Corporations Code Section 31512 provides that...any waiver of your rights under the Franchise Investment Law...is void."
Financial & Fee Risks
3 risks identified
3
Initial Franchise Fee Use Discretion
Medium
Explanation:
- The franchisor has full discretion over how the initial franchise fee is used. This lacks transparency and raises concerns that the funds may not be directly reinvested in franchisee support or brand development.
- This could lead to underfunding of crucial areas like marketing, technology upgrades, or training, potentially hindering franchisee success.
Potential Mitigations:
- Inquire about the typical allocation of initial franchise fees during the due diligence process.
- Request a detailed breakdown of how the franchisor plans to use the funds in the first year of the franchise agreement.
- Negotiate for greater transparency regarding the use of franchise fees.
FDD Citations:
- Item 5: "The initial franchise fee constitutes part of our general operating funds and will be used as such in our discretion."
Mandatory Technology Upgrades
Medium
Explanation:
- The franchisor can mandate future subscriptions to systems like the MOP system, potentially incurring significant unforeseen costs for franchisees.
- This lack of predictability makes budgeting and financial planning challenging.
Potential Mitigations:
- Carefully review Item 6 and Exhibit C-8 for details on potential mandatory systems and associated costs.
- Inquire about the franchisor's history of mandating technology upgrades and the typical cost implications.
- Negotiate for a cap on mandatory technology upgrade expenses or a longer implementation timeframe.
FDD Citations:
- Item 6 & Exhibit C-8 (Referenced in relation to Wyndham WIFI and MOP System)
- Item 6: "With written notice, we may mandate subscription to the MOP system or a similar system and supplier in the future, by updating System Standards."
Dependence on Third-Party Vendors
Medium
Explanation:
- Reliance on third-party vendors for essential services like WIFI creates potential vulnerabilities. Vendor performance issues, pricing changes, or contract disputes could negatively impact franchisees.
Potential Mitigations:
- Research the reputation and financial stability of the third-party vendors involved.
- Review the terms and conditions of the vendor agreements carefully.
- Negotiate for service level agreements (SLAs) with the vendors to ensure performance and uptime.
FDD Citations:
- Item 6 & Exhibit C-8 (Referenced in relation to Wyndham WIFI)
- Item 6: "If you choose to participate you will sign an agreement with a third-party vendor for equipment and installation of the WIFI solution and an agreement with us for support under our Hotel Connectivity Solutions Support Agreement."
Legal & Contract Risks
7 risks identified
3
3
1
Conflict between Franchise Agreement and State Franchise Laws (VA, WA, WI)
High
Explanation:
- The FDD includes addenda for Virginia, Washington, and Wisconsin, each stating that their respective state franchise laws supersede the Franchise Agreement in case of conflict. This creates potential ambiguity and increases the risk of legal disputes over termination, renewal, non-competition, and other key aspects of the franchise relationship.
- Specifically, Virginia's Retail Franchising Act requires "reasonable cause" for termination, Washington's Franchise Investment Protection Act dictates specific provisions regarding termination, renewal, and non-compete clauses, and Wisconsin's Fair Dealership Law imposes restrictions on termination and requires specific notice periods.
- Navigating these varying state laws can be complex and costly, especially if the Franchise Agreement isn't perfectly aligned with each state's requirements.
Potential Mitigations:
- Carefully review the Franchise Agreement and the relevant state addenda with legal counsel specializing in franchise law in each respective state.
- Ensure the Franchise Agreement is compliant with the strictest of the applicable state laws to minimize risk across all locations.
- Request clarification from the franchisor on how they handle conflicts between the Franchise Agreement and state laws, and document their responses.
FDD Citations:
- Item 17.h, Virginia Addendum
- Washington Addendum: References to RCW 19.100.180, RCW 49.62.020, RCW 49.62.030, RCW 49.62.060
- Wisconsin Addendum: Reference to Wis. Stat. Ch. 135
Waiver of Rights Limitations (VA, WA, WI)
Medium
Explanation:
- The FDD states that franchisees cannot waive claims under state franchise laws, including fraud in the inducement. While this is generally protective of the franchisee, it can create complexities in resolving disputes.
- Specifically, the Washington addendum notes that waivers are only valid in negotiated settlements with independent counsel after the agreement is in effect.
Potential Mitigations:
- Consult with experienced franchise counsel before signing any documents to fully understand the implications of these limitations on waivers.
- Ensure any future settlements are conducted with independent legal representation and adhere to the specific requirements of the Washington addendum.
FDD Citations:
- Virginia Addendum: Waiver of claims clause
- Washington Addendum: Release or waiver of rights clause
- Wisconsin Addendum: Waiver of claims clause
Franchise Broker Relationship
Medium
Explanation:
- The FDD mentions the use of franchise brokers and cautions against relying solely on their information. This highlights the inherent risk of biased information from brokers who are incentivized to sell franchises.
Potential Mitigations:
- Conduct independent research and due diligence, including speaking with current and former franchisees, to verify information provided by brokers.
- Be aware that brokers represent the franchisor, not the franchisee.
FDD Citations:
- Washington Addendum: Use of Franchise Brokers section
Non-Competition Covenants (WA)
Medium
Explanation:
- The Washington addendum specifies limitations on non-competition covenants based on employee and independent contractor earnings. This could impact the franchisor's ability to enforce non-compete agreements and protect their brand and business model in Washington.
Potential Mitigations:
- Carefully review the non-competition clause in the Franchise Agreement with legal counsel specializing in Washington franchise law.
- Understand the specific earnings thresholds that trigger the enforceability of non-compete agreements in Washington.
FDD Citations:
- Washington Addendum: RCW 49.62.020 and RCW 49.62.030 references
Fair and Reasonable Pricing (WA)
High
Explanation:
- The Washington addendum highlights RCW 19.100.180(2)(d), which prohibits selling products or services to franchisees for more than a "fair and reasonable price." This introduces a potential area of dispute, as "fair and reasonable" can be subjective and difficult to define.
Potential Mitigations:
- Compare prices for goods and services with other Days Inn franchisees and industry benchmarks.
- Negotiate pricing terms upfront and document any agreements in writing.
- Consult with legal counsel specializing in Washington franchise law to understand the implications of this provision.
FDD Citations:
- Washington Addendum: Reference to RCW 19.100.180(2)(d)
Jurisdictional Application of Addenda
Low
Explanation:
- The addenda for VA, WA, and WI all state that their provisions are effective only if the jurisdictional requirements of the respective state's franchise laws are met. This could lead to confusion about which laws apply in specific situations.
Potential Mitigations:
- Confirm with legal counsel which state's laws govern the franchise relationship based on the specific location and circumstances.
FDD Citations:
- Virginia Addendum: Jurisdictional clause
- Washington Addendum: Jurisdictional clause
- Wisconsin Addendum: Jurisdictional clause
Enforceability of Termination and Renewal Provisions (WA)
High
Explanation:
- The Washington addendum states that RCW 19.100.180 and court decisions may supersede the franchise agreement regarding termination and renewal. This creates uncertainty and potential legal challenges related to the enforceability of these crucial provisions.
Potential Mitigations:
- Carefully review the termination and renewal provisions in the Franchise Agreement with legal counsel specializing in Washington franchise law.
- Seek clarification from the franchisor on how they interpret and apply these provisions in light of Washington law and court decisions.
FDD Citations:
- Washington Addendum: Reference to RCW 19.100.180
Territory & Competition Risks
3 risks identified
2
1
No Exclusive Territory
High
Explanation:
- The FDD explicitly states that franchisees are not granted exclusive territories. This means you will face competition from other Days Inn franchisees, company-owned Days Inns, and potentially other brands owned by Wyndham.
- Competition can be particularly intense if these competing hotels are located nearby, potentially impacting your occupancy rates and revenue.
Potential Mitigations:
- Carefully negotiate the Protected Territory to encompass a strategically advantageous area.
- Focus on differentiating your hotel through superior service, amenities, and local marketing efforts to attract and retain customers.
- Thoroughly research the existing competitive landscape in your target area before signing the franchise agreement.
FDD Citations:
- Item 12: "You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own or manage, or from other channels of distribution or competitive brands that we control."
Competition from Wyndham Affiliates
High
Explanation:
- Wyndham and its affiliates operate numerous other hotel brands. These other brands may compete directly with your Days Inn, potentially for the same customer segment.
- The FDD indicates Wyndham may acquire additional hotel chains in the future, further increasing potential competition.
Potential Mitigations:
- Research the presence and performance of other Wyndham brands in your target market.
- Focus on the specific niche and target customer of Days Inn and tailor your marketing and operations accordingly.
- Understand the potential impact of future Wyndham acquisitions on the competitive landscape.
FDD Citations:
- Item 12: "Our affiliates may own, manage or franchise in your trading area under their service marks... transient lodging facilities."
- Item 12: "WHR or Wyndham Hotel Group may acquire additional hotel chains in the future which have company owned/operated or franchised properties in your trading area."
Limited Protected Territory
Medium
Explanation:
- While a Protected Territory is offered, it's not guaranteed to be a substantial area and there's no minimum size specified. This limits your protection from encroachment by other Days Inn franchises.
- The factors considered in determining the Protected Territory are numerous and subject to negotiation, making it difficult to predict its ultimate size and effectiveness.
Potential Mitigations:
- Aggressively negotiate for the largest possible Protected Territory, taking into account local market dynamics and potential future development.
- Clearly understand the criteria used to define the Protected Territory and how it applies to your specific location.
FDD Citations:
- Item 12: "There is no minimum Protected Territory that we offer."
- Item 12: "We will negotiate the Protected Territory with you, before you sign the Franchise Agreement."
Regulatory & Compliance Risks
6 risks identified
2
3
1
Conflict Resolution Bias
High
Explanation:
- The FDD states that conflict resolution between the franchisor and franchisee is at the franchisor's discretion. This creates a significant power imbalance and raises concerns about potential bias in favor of the franchisor, especially regarding territory, customers, and support.
- The lack of a defined process for resolving disputes with other brand franchisees further exacerbates this risk, potentially leading to unfair competition and unresolved issues.
Potential Mitigations:
- Negotiate for a more balanced conflict resolution mechanism in the Franchise Agreement, potentially involving third-party mediation or arbitration.
- Clearly define territories and customer allocation in the agreement to minimize potential conflicts.
- Seek legal counsel to review the Franchise Agreement and advise on potential risks related to conflict resolution.
FDD Citations:
- Item 1: "Any conflicts between you and us regarding territory, customers and our support will be resolved under the Franchise Agreement. We have no procedure for resolving conflicts between you and franchisees of other brands. However, any resolution of any conflicts regarding territory, customers or support services will be entirely within our discretion."
Reservation System Bias & Lack of Compensation
High
Explanation:
- The franchisor prioritizes their own chain facilities in their reservation system, potentially diverting customers away from the franchisee's hotel even if it meets the guest's criteria.
- Franchisees receive no compensation for bookings made through the franchisor's channels unless the reservation is made on their behalf, creating a potential loss of revenue.
Potential Mitigations:
- Negotiate for greater transparency in the reservation system and explore options for increased visibility for the franchisee's hotel.
- Develop alternative booking strategies, such as direct bookings through the hotel's website and partnerships with online travel agencies.
- Analyze the potential impact of the reservation system bias on revenue projections and factor this into the investment decision.
FDD Citations:
- Item 1: "You will receive no compensation for sales through our distribution channels, unless we make a reservation on your behalf...However, we will prioritize Chain Facilities over other hotels..."
Competition from Affiliated Brands
Medium
Explanation:
- The franchisor and its affiliates may operate other hotels in the same trading area, potentially creating direct competition for the franchisee.
- The FDD mentions the possibility of future acquisitions of hotel chains, which could further increase competition.
Potential Mitigations:
- Carefully analyze the competitive landscape in the designated territory, including the presence of existing affiliated brands.
- Negotiate for territorial exclusivity or limitations on the number of affiliated hotels in the area.
- Develop a strong marketing and differentiation strategy to compete effectively with other hotels.
FDD Citations:
- Item 1: "Our affiliates may own, manage or franchise in your trading area...WHR or Wyndham Hotel Group may acquire additional hotel chains in the future which have company owned/operated or franchised properties in your trading area."
Dependence on Franchisor's Reservation System
Medium
Explanation:
- Franchisees are heavily reliant on the franchisor's central reservation system (CRS) for bookings, which creates a dependence on the franchisor and limits their control over customer acquisition.
Potential Mitigations:
- Develop a diversified marketing strategy that includes direct bookings, online travel agencies, and other channels.
- Negotiate for favorable terms regarding access to the CRS and explore options for greater control over booking processes.
FDD Citations:
- Item 1: "We provide information about and book reservations for hotels franchised by the Lodging Affiliates through CRS toll-free reservation numbers or consumer website(s)."
Franchisor's Right to Provide Reservation Services to Others
Medium
Explanation:
- The franchisor has the right to provide reservation services to non-affiliated hotels and other parties, potentially diverting resources and customers away from the franchisee.
Potential Mitigations:
- Seek clarification on the franchisor's policy regarding providing reservation services to competitors and assess the potential impact on the franchisee's business.
- Focus on building a strong brand identity and customer loyalty to mitigate the impact of competition.
FDD Citations:
- Item 1: "We have the right to provide reservation services to lodging facilities other than Chain Facilities or to other parties."
Lack of Recent Bankruptcy History
Low
Explanation:
- Item 4 discloses the absence of bankruptcy filings by the franchisor and its affiliates in the recent past. While this is generally positive, it provides limited insight into the long-term financial stability of the franchisor.
Potential Mitigations:
- Conduct thorough due diligence on the franchisor's financial health, including reviewing financial statements and seeking advice from financial professionals.
- Request updated financial information beyond what is provided in the FDD.
FDD Citations:
- Item 4: "Neither the franchisor, its affiliate, its predecessor, officers, or general partner during the 10-year period immediately before the date of the offering circular: (a) filed as debtor...a petition to start an action under the U.S. Bankruptcy Code..."
Franchisor Support Risks
2 risks identified
2
Limited Marketing Fund Transparency (Except Maryland)
Medium
Explanation:
- The FDD amendment specifies how Maryland franchisees can access marketing fund expenditures, implying limited transparency for franchisees in other states. This lack of clear access to fund usage raises concerns about potential misuse, inefficiency, and lack of accountability.
- Franchisees outside Maryland may struggle to understand how their marketing contributions are being utilized, hindering their ability to assess the effectiveness of national and regional campaigns.
Potential Mitigations:
- Request detailed information from the franchisor regarding marketing fund allocation and spending across all states. Compare Maryland's access provisions with those offered to other franchisees.
- Form a franchisee association to collectively advocate for greater transparency and standardized reporting on marketing fund activities.
- Negotiate with the franchisor to include specific clauses in the franchise agreement that guarantee regular access to marketing fund reports and expenditure breakdowns.
FDD Citations:
- Item 11, Marketing and Advertising: "Franchisees who are Maryland residents or will operate a Facility in Maryland may receive an accounting of expenditures from the Fund..." This highlights the special provision for Maryland and implies a lack of similar provisions elsewhere.
Complexity of Financial Reporting
Medium
Explanation:
- Referring franchisees to the Annual Report on Form 10-K and a separate list in Item 15 for financial statements creates complexity and potential difficulty in accessing and understanding the franchisor's financial health.
- This indirect approach may obscure critical financial information and make it challenging for prospective franchisees to assess the financial stability and performance of the franchisor.
Potential Mitigations:
- Carefully review the referenced 10-K report and Item 15 financial statements with a qualified financial advisor experienced in franchise investments.
- Request simplified financial summaries and explanations directly from the franchisor to clarify key performance indicators and financial trends.
- Compare the franchisor's financial performance with industry benchmarks and competitors to gain a better understanding of their relative financial strength.
FDD Citations:
- Item 8: "The financial statements required... are appended to this Annual Report on Form 10-K."
- Item 15: "A list of the financial statements filed herewith is found in Part IV, Item 15 commencing on page F-1 hereof."
Exit & Transfer Risks
3 risks identified
3
Termination and Non-Renewal Restrictions (WA)
High
Explanation:
- Washington's Franchise Investment Protection Act (FIPA) may supersede the franchise agreement regarding termination and renewal, potentially limiting the franchisor's ability to terminate or not renew the agreement even for cause.
- Court decisions in Washington could further restrict termination and renewal rights.
Potential Mitigations:
- Carefully review the FIPA and relevant case law to understand the limitations on termination and renewal.
- Consult with a franchise attorney specializing in Washington law to ensure compliance and understand potential risks.
- Develop strong operational practices and maintain open communication with the franchisor to minimize the risk of termination.
FDD Citations:
- Washington Addendum: "RCW 19.100.180 may supersede the franchise agreement in your relationship with the franchisor including the areas of termination and renewal of your franchise. There may also be court decisions which may supersede the franchise agreement in your relationship with the franchisor including the areas of termination and renewal of your franchise."
Non-Compete Restrictions (WA)
High
Explanation:
- Washington law significantly restricts the enforceability of non-compete agreements against employees and independent contractors, potentially impacting the franchisee's ability to protect their business after termination or non-renewal.
- The high-income thresholds for enforceability ($100,000 for employees, $250,000 for independent contractors, adjusted for inflation) may make it difficult to enforce non-compete clauses.
Potential Mitigations:
- Consult with a Washington State attorney to draft enforceable non-compete agreements that comply with state law, focusing on protecting confidential information and trade secrets.
- Implement strong employee training and knowledge management practices to minimize reliance on individual employees.
- Develop other strategies for protecting competitive advantages, such as strong customer relationships and unique service offerings.
FDD Citations:
- Washington Addendum: "Pursuant to RCW 49.62.020, a noncompetition covenant is void and unenforceable against an employee..."
Employee Solicitation Restrictions (WA)
High
Explanation:
- Washington law prohibits franchisors from restricting franchisees from soliciting or hiring employees of other franchisees or the franchisor itself. This could lead to increased employee turnover and difficulty retaining skilled staff.
Potential Mitigations:
- Develop a strong company culture and competitive compensation packages to attract and retain employees.
- Invest in employee training and development programs to enhance employee loyalty and skills.
- Focus on building strong relationships with employees to foster a positive work environment.
FDD Citations:
- Washington Addendum: "RCW 49.62.060 prohibits a franchisor from restricting, restraining, or prohibiting a franchisee from (i) soliciting or hiring any employee of a franchisee of the same franchisor or (ii) soliciting or hiring any employee of the franchisor."
Operational & Brand Risks
2 risks identified
2
Lack of Transparency in Marketing Fund Expenditures (Except Maryland)
Medium
Explanation:
- The FDD specifies how Maryland residents or franchisees operating in Maryland can access an accounting of marketing fund expenditures. This implies that franchisees in other states may not have the same level of access or transparency.
- Lack of transparency can lead to distrust and concerns about how marketing funds are being utilized, potentially impacting the effectiveness of marketing campaigns and franchisee profitability.
Potential Mitigations:
- Request clarification from the franchisor regarding access to marketing fund expenditures for franchisees outside of Maryland.
- Negotiate for greater transparency in the franchise agreement regarding the use of marketing funds.
- Form a franchisee association to collectively advocate for greater transparency and accountability in marketing fund management.
FDD Citations:
- Item 11, D. Marketing and Advertising: "Franchisees who are Maryland residents or will operate a Facility in Maryland may receive an accounting of expenditures from the Fund..." This implies a lack of explicit access for other franchisees.
Potential Financial Reporting Complexity
Medium
Explanation:
- The FDD mentions financial statements being appended to the Annual Report on Form 10-K and referenced in Item 15. This cross-referencing between different documents and sections can create complexity in understanding the franchisor's financial health.
- Difficulty in accessing and interpreting financial information can hinder a franchisee's ability to make informed decisions about the investment and ongoing operations.
Potential Mitigations:
- Carefully review all referenced financial statements in both Item 8 and Item 15 of the FDD.
- Consult with a financial advisor experienced in franchise investments to analyze the franchisor's financial performance and stability.
- Request simplified financial summaries or explanations from the franchisor to better understand their financial position.
FDD Citations:
- Item 8: "The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K."
- Item 15: "A list of the financial statements filed herewith is found in Part IV, Item 15 commencing on page F-1 hereof."
Performance & ROI Risks
3 risks identified
1
2
No Guaranteed ROI
High
Explanation:
- Item 17.7.4 explicitly states that no promises or information about projected sales, revenues, income, profits, or expenses have been provided except as stated in Item 19. This disclaimer indicates that the franchisor does not guarantee any specific financial performance or return on investment.
- The absence of financial performance representations creates significant uncertainty about the potential profitability of the franchise. Relying solely on Item 19, which may contain limited or historical data, is insufficient for making informed investment decisions.
Potential Mitigations:
- Carefully review Item 19 for any available financial performance information, even if limited. Consider this data in context and understand its limitations.
- Conduct independent market research and financial analysis to develop realistic projections for the specific location and market conditions.
- Consult with experienced hospitality industry professionals and financial advisors to assess the feasibility and potential profitability of the franchise investment.
FDD Citations:
- Item 17.7.4: "You acknowledge that no salesperson has made any promise or provided any information to you about actual or projected sales, revenues, income, profits or expenses from the Facility except as stated in Item 19 of the FDD or in a writing that is attached to this Agreement and signed by us."
Force Majeure Impact on Performance
Medium
Explanation:
- While Item 17.8 outlines force majeure events that protect both parties from liability for non-performance, these events (natural disasters, strikes, legal restrictions, etc.) can significantly impact the franchise's operations and financial performance.
- The clause states that recurring fees and other amounts due to the franchisor are still payable even during force majeure events, unless prohibited by a governmental or judicial order. This continued financial obligation during periods of potentially severely disrupted operations poses a substantial risk to the franchisee's financial stability.
Potential Mitigations:
- Develop a comprehensive business continuity plan that addresses potential force majeure events and outlines strategies for mitigating their impact on operations and finances.
- Secure appropriate insurance coverage to protect against losses and damages resulting from force majeure events.
- Negotiate with the franchisor to potentially include provisions for temporary fee relief or deferral in the event of significant disruptions caused by force majeure.
FDD Citations:
- Item 17.8: "Neither you nor we shall be liable for loss or damage or deemed to be in breach of this Agreement if the failure to perform obligations results from any of the following events... Any delay resulting from any of such causes shall extend performance accordingly or excuse performance... except that no such cause shall excuse payment of amounts owed..."
No Offset Against Fees
Medium
Explanation:
- Item 17.9 prohibits the franchisee from withholding or offsetting any amounts, damages, or monies allegedly due by the franchisor against recurring fees or other fees due under the agreement.
- This restriction can be problematic if disputes arise with the franchisor regarding services, support, or other contractual obligations. The franchisee is obligated to continue paying fees even if they believe the franchisor has breached the agreement.
Potential Mitigations:
- Carefully review the entire FDD and Franchise Agreement to understand all fee obligations and potential dispute resolution mechanisms.
- Seek legal counsel to negotiate favorable terms regarding fee payment and dispute resolution before signing the agreement.
- Maintain detailed records of all financial transactions and communications with the franchisor to support any potential claims or disputes.
FDD Citations:
- Item 17.9: "You acknowledge and agree that you will not withhold or offset any liquidated or unliquidated amounts, damages or other monies allegedly due you by us against any Recurring Fees or any other fees due us under this Agreement."
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FDD Year: 2024
Uploaded: 8/25/2025
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