Howard Johnson by Wyndham
Hospitality
Founded 1990139 locationsCompany Profile
Year Founded:1990
Howard Johnson by Wyndham Franchise Cost
| Franchise Fee: | $35,000Key Metric |
| Total Investment: | $6,680,000 - $11,540,000Key Metric |
| Liquid Capital: | $1,580,000 |
| Royalty Fee: | 5% of gross sales |
| Marketing Fee: | 2% of gross sales |
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Based on Howard Johnson by Wyndham's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:139
Scale relative to 1,000 locations
Franchised Units:139
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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.
9
High Risk
Critical items
26% of total
21
Medium Risk
Monitor closely
60% of total
5
Low Risk
Manageable items
14% of total
35
Total Items
Factors analyzed
10 categories
5.57
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
5 risks identified
1
3
1
Potential for Increased Competition from Affiliated Brands
Medium
Explanation:
- The FDD discloses that Wyndham and its affiliates may operate or franchise other hotel brands in the same territory as the Howard Johnson franchisee. This creates potential for direct competition from brands under the same parent company, impacting market share and profitability.
- The disclosure mentions that conflict resolution regarding territory and customers is at Wyndham's discretion, potentially favoring their other brands.
Potential Mitigations:
- Carefully review Item 1 and the Franchise Agreement to understand the specific brands and potential overlap in your territory.
- Negotiate specific territorial protections or exclusivity clauses within the Franchise Agreement to minimize direct competition from affiliated brands.
- Assess the market position and strength of existing Wyndham brands in the target territory to gauge the potential impact on the Howard Johnson franchise.
FDD Citations:
- Item 1: "Our affiliates may own, manage or franchise in your trading area under their service marks described in Item 1 (other than the Marks) (i) transient lodging facilities, or (ii) time share resorts…"
- Item 1: "Any conflicts between you and us regarding territory, customers and our support will be resolved under the Franchise Agreement."
Reservation System Bias and Lack of Compensation
Medium
Explanation:
- The FDD states that Wyndham prioritizes its other chain facilities in the reservation system, potentially diverting customers away from Howard Johnson locations even if they meet the search criteria.
- Franchisees receive no compensation for bookings made through Wyndham's central reservation system unless the reservation is specifically made on their behalf.
Potential Mitigations:
- Analyze the potential impact of this reservation system bias on occupancy rates and revenue projections.
- Explore alternative booking channels and marketing strategies to reduce reliance on the franchisor's system.
- Negotiate for improved representation or compensation for bookings generated through the central reservation system.
FDD Citations:
- Item 1: "…we will prioritize Chain Facilities over other hotels in a destination…"
- Item 1: "You will receive no compensation for sales through our distribution channels, unless we make a reservation on your behalf…"
Lack of Conflict Resolution Mechanisms with Other Franchisees
Low
Explanation:
- The FDD indicates no established procedure for resolving conflicts between Howard Johnson franchisees and franchisees of other Wyndham brands. This could lead to unresolved disputes regarding territory, customers, or support services.
Potential Mitigations:
- Request clarification from the franchisor on how such conflicts are typically handled in practice.
- Consider including a mediation or arbitration clause in the Franchise Agreement to address potential disputes with other franchisees.
FDD Citations:
- Item 1: "We have no procedure for resolving conflicts between you and franchisees of other brands."
Risk of Brand Dilution or Strategic Shift
High
Explanation:
- The FDD states that Wyndham may acquire additional hotel chains in the future. This raises the risk of brand dilution for Howard Johnson if resources are diverted to newer acquisitions or if the brand's strategic positioning is altered.
Potential Mitigations:
- Inquire about Wyndham's long-term strategy for the Howard Johnson brand and how future acquisitions might impact it.
- Assess the financial strength and stability of Wyndham to ensure they can support all their brands effectively.
- Seek assurances regarding continued brand investment and support for Howard Johnson in the Franchise Agreement.
FDD Citations:
- Item 1: "WHR or Wyndham Hotel Group may acquire additional hotel chains in the future…"
Potential for Franchisee Turnover/Closures
Medium
Explanation:
- Item 20 provides data on the status of franchised outlets, including terminations, non-renewals, and ceased operations. While the provided excerpt is incomplete, the presence of these metrics suggests the need for careful review of the full table to understand franchisee turnover trends. A high rate of terminations or non-renewals could indicate underlying issues within the franchise system.
Potential Mitigations:
- Carefully analyze Item 20 in its entirety to understand the reasons behind terminations, non-renewals, and ceased operations.
- Compare the turnover rates of Howard Johnson with industry averages to assess the relative health of the franchise system.
- Speak with existing franchisees to gain insights into their experiences and challenges within the system.
FDD Citations:
- Item 20: "Table 3 – Status of Franchised Outlets…" (Full table analysis required)
Disclosure & Representation Risks
3 risks identified
2
1
Termination Upon Bankruptcy Risk
Medium
Explanation:
- The FDD discloses that the Franchise Agreement allows for termination upon bankruptcy. While this is a common clause, it may not be enforceable under federal bankruptcy law, creating potential conflict and uncertainty.
- This could lead to costly legal battles and potentially jeopardize the franchisee's investment if they face financial hardship.
Potential Mitigations:
- Consult with a bankruptcy attorney to understand the implications of this clause and potential legal recourse in case of bankruptcy.
- Negotiate with the franchisor to modify or remove this clause, although this may be difficult.
- Develop a strong financial plan and maintain adequate reserves to minimize the risk of bankruptcy.
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 Risk
Low
Explanation:
- The Franchise Agreement mandates the application of New Jersey law. This may not be enforceable under California law, creating potential jurisdictional conflicts.
- This could complicate legal proceedings and increase costs for California-based franchisees.
Potential Mitigations:
- Consult with a California-based franchise attorney to understand the implications of this clause and its enforceability in California.
- Negotiate with the franchisor to apply California law, although this may be challenging.
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."
Release of Claims Risk
Medium
Explanation:
- Requiring a general release of claims upon renewal or transfer is disclosed and may be void under California law. This could prevent franchisees from pursuing legitimate claims against the franchisor.
Potential Mitigations:
- Consult with a California franchise attorney to understand your rights and the enforceability of this clause.
- Negotiate with the franchisor to remove or modify this clause.
- Document all interactions and potential claims thoroughly.
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...Section 31512 voids a waiver of your rights under the Franchise Investment Law...California Business and Professions Code Section 20010 voids a waiver of your rights under the Franchise Relations Act..."
Financial & Fee Risks
3 risks identified
2
1
Arbitrary Use of Initial Franchise Fee
Medium
Explanation:
- The FDD states that the initial franchise fee becomes part of the franchisor's general operating funds and will be used at their discretion. This lacks transparency and raises concerns about how the funds are allocated and whether they directly benefit franchisees.
- There's no guarantee that the fees will be reinvested in franchisee support, marketing, or brand development, potentially hindering the franchisee's success.
Potential Mitigations:
- Request clarification from the franchisor on how initial franchise fees are typically used and what percentage is allocated to franchisee-specific programs.
- Compare this information with other franchise opportunities to assess the value proposition.
- Negotiate for greater transparency regarding the use of fees in the franchise agreement.
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 and Costs
Medium
Explanation:
- The franchisor reserves the right to mandate upgrades to technology systems, including the Mobile Operations Platform (MOP) and other systems, which could lead to unforeseen and potentially substantial costs for franchisees.
- This lack of cost predictability makes budgeting and financial planning difficult.
Potential Mitigations:
- Inquire about the franchisor's history of mandating technology upgrades and the associated costs.
- Negotiate for a cap on mandatory technology expenditure increases within a specific timeframe.
- Request a clear process for evaluating and approving future technology upgrades, ensuring franchisee input.
FDD Citations:
- 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."
Discontinuation of Provided Technology Services
Low
Explanation:
- The franchisor reserves the right to discontinue providing certain technology services, such as the branded email account, at their sole discretion. This could disrupt operations and communication.
Potential Mitigations:
- Develop contingency plans for alternative communication and operational systems in case of service discontinuation.
- Negotiate for a reasonable notice period for any service discontinuation to allow for a smooth transition.
- Explore alternative providers for these services as a backup.
FDD Citations:
- Item 6: "We reserve the right to discontinue providing email services at any time at our sole discretion."
Legal & Contract Risks
3 risks identified
1
1
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 impacts termination, renewal, and non-compete clauses, and Wisconsin's Fair Dealership Law imposes restrictions on termination and requires specific notice and cure periods.
- Navigating these varying state laws can be complex and costly, especially if the franchisee operates in multiple states with conflicting regulations.
Potential Mitigations:
- Carefully review the Franchise Agreement and all state-specific addenda with legal counsel specializing in franchise law in each relevant state.
- Ensure a clear understanding of how state laws impact termination, renewal, non-compete clauses, and other critical provisions.
- Develop a strong working relationship with the franchisor and maintain open communication to address any potential conflicts proactively.
FDD Citations:
- Virginia Addendum: "Pursuant to Section 13.1-564 of the Virginia Retail Franchising Act…that provision may not be enforceable."
- Washington Addendum: "RCW 19.100.180 may supersede the franchise agreement…including the areas of termination and renewal."
- Wisconsin Addendum: "The Wisconsin Fair Dealership Law…supersedes any provisions of the Franchise Agreement that are inconsistent."
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 protects the franchisee, it also means potential disputes could be more complex and litigious.
- Washington's addendum further restricts waivers of rights under its Franchise Investment Protection Act except in specific, legally-advised settlement scenarios.
Potential Mitigations:
- Consult with experienced franchise counsel to fully understand the implications of these limitations on waivers.
- Conduct thorough due diligence and investigate the franchisor's history and reputation to minimize the risk of fraud or misrepresentation.
FDD Citations:
- Virginia, Washington, Wisconsin Addenda: "No statement, questionnaire, or acknowledgment…shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement…"
- Washington Addendum: "A release or waiver of rights…may not include rights under the Washington Franchise Investment Protection Act…except when executed pursuant to a negotiated settlement…"
Franchise Broker Relationship (WA)
Low
Explanation:
- The Washington addendum discloses the potential use of franchise brokers and emphasizes that they represent the franchisor. This creates a potential conflict of interest, as the broker's incentive is to close the deal, not necessarily to act in the franchisee's best interest.
Potential Mitigations:
- Conduct independent research and due diligence, including speaking with current and former franchisees, rather than relying solely on information provided by the broker.
- Seek independent legal counsel to review the franchise agreement and related documents.
FDD Citations:
- Washington Addendum: "Use of Franchise Brokers. The franchisor [uses/may use] the services of franchise brokers…Do no rely only on the information provided by a franchise broker…"
Territory & Competition Risks
3 risks identified
1
2
No Exclusive Territory
High
Explanation:
- The FDD explicitly states no exclusive territories are granted. This exposes franchisees to direct competition from other Howard Johnson by Wyndham locations, including those owned, managed, or franchised by Wyndham or its affiliates.
- Competition can come from various lodging types like timeshares and vacation clubs, potentially impacting market share and profitability.
- Competition can be particularly intense if these other properties are located nearby.
Potential Mitigations:
- Carefully negotiate the Protected Territory to maximize the buffer zone around your location.
- Thoroughly research the existing competitive landscape within and around the proposed Protected Territory, including other Howard Johnson locations and other Wyndham brands.
- Develop a strong local marketing strategy to differentiate your hotel and build customer loyalty.
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."
- Item 12: "These competitive outlets could be adjacent, adjoining or proximate to your Chain Facility."
Protected Territory Limitations
Medium
Explanation:
- While a Protected Territory is offered, it's not absolute. Existing Howard Johnson franchisees within the Protected Territory can renew, expand, or be replaced by a larger hotel (up to 120% larger).
- Wyndham can operate other brands or lodging types outside the Protected Territory without restriction, potentially drawing customers away.
- There's no guaranteed minimum size for the Protected Territory, leaving its effectiveness variable.
Potential Mitigations:
- Negotiate aggressively for the largest possible Protected Territory, considering factors like market demographics and potential future development.
- Research potential future development plans within and around the Protected Territory to anticipate future competition.
- Understand the criteria used to define the Protected Territory and ensure it aligns with your business plan.
FDD Citations:
- Item 12: "any Chain Facility located within the Protected Territory...may have its franchise renewed or reissued, expanded...or replaced with a replacement Chain Facility having not more than 120% of the guest rooms."
- Item 12: "We may own, operate, lease, manage or franchise Chain Facilities anywhere outside of the Protected Territory without restriction or obligation."
- Item 12: "There is no minimum Protected Territory that we offer."
Competition from Wyndham Affiliates
Medium
Explanation:
- Wyndham and its affiliates can operate other hotel brands in your trading area, creating competition for customers.
- Wyndham's reservation system prioritizes Howard Johnson, but only if availability and guest criteria are met, meaning other brands could still capture bookings.
- Wyndham may acquire additional hotel chains in the future, potentially increasing competition.
Potential Mitigations:
- Research the presence of other Wyndham brands in your target market and understand their positioning.
- Focus on differentiating your Howard Johnson hotel through superior service, amenities, or targeting a specific niche market.
- Leverage the Howard Johnson brand and Wyndham's reservation system to attract customers.
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."
Regulatory & Compliance Risks
6 risks identified
2
3
1
Territorial Encroachment and Brand Competition
High
Explanation:
- The FDD discloses that Wyndham and its affiliates may operate or franchise other hotels, including competing brands, in the same territory. This creates a risk of market cannibalization and reduced revenue potential for the franchisee.
- The FDD states that conflict resolution regarding territory and customers is "entirely within [Wyndham's] discretion," giving the franchisor significant power and potentially disadvantaging the franchisee.
- The lack of a defined conflict resolution process with other brand franchisees increases uncertainty and potential for disputes.
Potential Mitigations:
- Carefully review the Franchise Agreement for specific terms related to territorial protection and dispute resolution. Negotiate for stronger protections if possible.
- Thoroughly research the existing hotel market in the target territory, including the presence of other Wyndham brands and competitors.
- Consult with a franchise attorney experienced in the hospitality industry to assess the risks and potential legal recourse in case of territorial disputes.
FDD Citations:
- Item 1 and subsequent paragraphs discussing affiliate brands and conflict resolution.
Reservation System Bias and Lack of Compensation
High
Explanation:
- The FDD states that Wyndham prioritizes its "Chain Facilities" in its 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 Wyndham's distribution channels unless the reservation is made on their behalf, creating a potential loss of revenue and control over customer acquisition.
Potential Mitigations:
- Negotiate for clearer terms regarding reservation system fairness and potential compensation for bookings generated through Wyndham's channels.
- Develop a strong local marketing strategy to attract customers directly, reducing reliance on the franchisor's reservation system.
- Explore alternative booking platforms and partnerships to diversify customer acquisition channels.
FDD Citations:
- Item 1 and subsequent paragraphs discussing reservation system priorities and compensation.
Future Acquisitions and Increased Competition
Medium
Explanation:
- The FDD discloses that Wyndham may acquire additional hotel chains in the future, which could introduce new competing brands into the franchisee's territory.
Potential Mitigations:
- Request information from Wyndham about their acquisition strategy and potential impact on existing franchisees.
- Continuously monitor the hospitality market for mergers and acquisitions that could affect the competitive landscape.
- Maintain flexibility in business operations to adapt to changing market conditions.
FDD Citations:
- Item 1: "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 Systems and Support
Medium
Explanation:
- The franchisee's success is heavily reliant on Wyndham's reservation system, brand recognition, and support services. Any disruption or inadequacy in these areas could negatively impact the business.
Potential Mitigations:
- Thoroughly evaluate the quality and reliability of Wyndham's systems and support during due diligence.
- Develop contingency plans for potential disruptions in reservation systems or other essential services.
- Build strong local relationships and marketing channels to reduce dependence on the franchisor.
FDD Citations:
- Item 1 and related discussions about reservation systems and support services.
Lack of Transparency in Conflict Resolution
Medium
Explanation:
- The FDD states that conflict resolution is "entirely within [Wyndham's] discretion," lacking transparency and potentially favoring the franchisor's interests over the franchisee's.
Potential Mitigations:
- Negotiate for clearer and more balanced conflict resolution mechanisms in the Franchise Agreement.
- Seek legal counsel to understand the implications of the franchisor's discretionary power.
- Document all communications and interactions related to potential conflicts.
FDD Citations:
- Item 1: "However, any resolution of any conflicts regarding territory, customers or support services will be entirely within our discretion."
No Recent Bankruptcy Filings by Franchisor or Affiliates
Low
Explanation:
- The FDD explicitly states that neither the franchisor nor its affiliates have filed for bankruptcy in the recent past. This reduces the risk of business disruption due to franchisor insolvency.
Potential Mitigations:
- Review the provided financial statements in Item 8 to assess the franchisor's current financial health.
FDD Citations:
- Item 3: Addition to Item 4 regarding bankruptcy filings.
- Item 4: Details of bankruptcy history (or lack thereof).
- Item 8: Reference to financial statements.
Franchisor Support Risks
2 risks identified
2
Limited Marketing Fund Transparency for Non-Maryland Franchisees
Medium
Explanation:
- The FDD amendment specifies how Maryland residents or franchisees operating in Maryland can access marketing fund expenditures. This implies limited transparency for franchisees outside of Maryland, raising concerns about how marketing funds are used and whether they benefit all franchisees equally.
- Lack of transparency can lead to distrust and disputes between the franchisor and franchisees.
Potential Mitigations:
- Request clarification from the franchisor regarding access to marketing fund expenditures for non-Maryland franchisees. Inquire about the rationale behind the Maryland-specific provision.
- Negotiate for greater transparency in the Franchise Agreement regarding the use of marketing funds and reporting mechanisms.
- Consult with a franchise attorney to understand the legal implications and potential recourse if marketing funds are misused.
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..."
Complexity of Financial Reporting
Medium
Explanation:
- Referring franchisees to a separate Annual Report on Form 10-K and a list of financial statements in Part IV, Item 15 creates complexity in accessing and understanding the franchisor's financial health.
- This complexity can make it difficult for prospective franchisees to assess the financial stability and performance of the franchisor, increasing the risk of making an uninformed investment decision.
Potential Mitigations:
- Carefully review all referenced documents, including the Form 10-K and the list of financial statements in Item 15.
- 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 8: "A list of the financial statements filed herewith is found in Part IV, Item 15 commencing on page F-1 hereof."
Exit & Transfer Risks
5 risks identified
2
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 if the franchisee breaches the agreement.
- 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 non-renewal.
- Consult with a franchise attorney specializing in Washington law to ensure compliance and understand potential risks.
- Develop strong franchisee relationships and address performance issues proactively to minimize the risk of termination disputes.
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 and Employee Solicitation Restrictions (WA)
High
Explanation:
- Washington law significantly restricts the enforceability of non-compete agreements with employees and independent contractors, limiting the franchisor's ability to protect its brand and confidential information.
- Washington law also prohibits restrictions on franchisees soliciting or hiring employees of the franchisor or other franchisees, potentially increasing competition and employee turnover.
Potential Mitigations:
- Consult with legal counsel specializing in Washington law to draft enforceable non-compete agreements that comply with the specific income thresholds and other requirements.
- Implement strong confidentiality and trade secret protection policies and practices.
- Develop a positive work environment and competitive compensation packages to retain employees.
FDD Citations:
- Washington Addendum: "Pursuant to RCW 49.62.020, a noncompetition covenant is void and unenforceable..."
- Washington Addendum: "RCW 49.62.060 prohibits a franchisor from restricting..."
Transfer Fee Limitations (WA)
Medium
Explanation:
- Washington law limits transfer fees to the franchisor's reasonable estimated or actual costs, potentially reducing the franchisor's revenue from franchise transfers.
Potential Mitigations:
- Maintain detailed records of all costs associated with franchise transfers to justify any fees charged.
- Consult with legal counsel to ensure compliance with Washington's transfer fee limitations.
FDD Citations:
- Washington Addendum: "Transfer fees are collectable to the extent that they reflect the franchisor’s reasonable estimated or actual costs in effecting a transfer."
Termination Restrictions (VA)
Medium
Explanation:
- Virginia's Retail Franchising Act requires "reasonable cause" for franchise termination, potentially making it more difficult for the franchisor to terminate agreements even in cases of breach.
Potential Mitigations:
- Consult with legal counsel specializing in Virginia franchise law to ensure compliance with the "reasonable cause" requirement.
- Document all instances of franchisee breaches and performance issues to support potential termination actions.
FDD Citations:
- Virginia Addendum: "Pursuant to Section 13.1-564 of the Virginia Retail Franchising Act, it is unlawful for a licensor to cancel a franchise without reasonable cause."
Termination and Nonrenewal Restrictions (WI)
Medium
Explanation:
- Wisconsin's Fair Dealership Law imposes restrictions on termination, cancellation, non-renewal, and substantial changes in competitive circumstances, requiring "good cause" and providing franchisees with notice and an opportunity to cure.
- This can limit the franchisor's flexibility in managing the franchise system and responding to underperforming franchisees.
Potential Mitigations:
- Consult with legal counsel specializing in Wisconsin franchise law to ensure compliance with the Fair Dealership Law.
- Establish clear performance standards and communicate them effectively to franchisees.
- Provide support and training to help franchisees meet performance expectations.
FDD Citations:
- Wisconsin Addendum: "The Wisconsin Fair Dealership Law applies to most franchise agreements in the state and prohibits termination, cancellation, non-renewal or substantial change in competitive circumstances of a dealership agreement without good cause."
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 a lack of readily available transparency for franchisees in other states.
- Without clear access to how marketing funds are spent, franchisees outside Maryland cannot effectively assess the value they receive for their contributions and may be concerned about potential misuse or inefficiency.
Potential Mitigations:
- Request detailed information from the franchisor about marketing fund management and expenditure reports, even if not explicitly stated in the FDD.
- Inquire about the possibility of establishing a franchisee advisory council to oversee marketing fund spending and ensure transparency.
- Negotiate with the franchisor to include a clause in the franchise agreement that guarantees access to marketing fund expenditure reports.
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 specific provision for Maryland while implying a lack of similar provisions for other states.
Potential Financial Misrepresentation Risk
Medium
Explanation:
- The FDD mentions financial statements being appended to the Annual Report on Form 10-K and referenced in Item 15. While this is standard practice, there's always a risk of financial misrepresentation or inaccurate reporting, which could mislead potential franchisees.
- Relying solely on the franchisor's presented financials without independent verification can lead to an inaccurate understanding of the brand's financial health and potential profitability of the franchise.
Potential Mitigations:
- Engage a qualified financial advisor to independently review the franchisor's financial statements and assess their accuracy and completeness.
- Compare the franchisor's financial performance with industry benchmarks and competitor data to identify any red flags or inconsistencies.
- Request access to detailed financial information beyond what is presented in the FDD, such as historical performance data for existing franchisees.
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
2
1
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 indicates no guarantee of return on investment (ROI) is offered.
- The franchisor explicitly disclaims any responsibility for the franchisee's financial performance.
- This poses a significant risk as the franchisee invests substantial capital without any assurance of profitability.
Potential Mitigations:
- Carefully review Item 19 for any financial performance representations. Understand the limitations and disclaimers associated with any presented data.
- Conduct independent market research and financial projections based on realistic assumptions. Consult with experienced hospitality industry professionals and financial advisors.
- Develop a robust business plan with contingency plans for various market scenarios, including lower-than-expected occupancy rates and revenue.
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 Revenue
High
Explanation:
- While Item 17.8 outlines Force Majeure events protecting both parties from liability for non-performance, it also highlights the risk of revenue loss due to unforeseen circumstances like natural disasters, pandemics, or other disruptive events.
- These events can significantly impact hotel occupancy and operations, leading to substantial financial losses.
Potential Mitigations:
- Secure comprehensive business interruption insurance to cover potential losses during Force Majeure events.
- Develop a detailed contingency plan outlining procedures for managing operations and mitigating financial impact during such events. This should include strategies for cost reduction, alternative revenue streams, and guest communication.
- Consider the specific location and its vulnerability to various Force Majeure events when evaluating the investment.
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..."
No Offset Against Recurring 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 limits the franchisee's recourse in case of disputes or perceived breaches of contract by the franchisor.
Potential Mitigations:
- Carefully review the entire agreement, particularly sections related to dispute resolution and termination. Seek legal counsel to fully understand the implications of this clause.
- Establish clear communication channels with the franchisor to address any concerns or potential disputes proactively.
- Maintain detailed records of all financial transactions and communications with the franchisor.
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: 8/26/2025
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