How does Big Blue Swim School estimate the stand-alone selling price of pre-opening activities?
Big_Blue_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company maintains a market introduction program established to collect and administer funds contributed for use in production and media placement in marketing for the benefit of franchised units. Market introduction program revenues are collected from franchisees based on a maximum fixed fee, as defined in the franchise agreement. The revenue is charged ratably beginning approximately five months before the franchised unit opens and will continue for approximately three months after operations begin, as the Company incurs the marketing expenses. The Company has determined that it acts as a principal in the collection and administration of the market introduction program and therefore recognizes the revenues and expenses related to the market introduction program on a gross basis. The Company has determined that the right to access its intellectual property and administration of the market production program are highly interrelated and therefore are accounted for as a single performance obligation. Revenues from the market introduction program are received within a 12-month period, which are therefore recognized as the marketing fees are charged and expenses incurred. When market introduction program revenues exceed the related market introduction program expenses in a reporting period, advertising and marketing costs will be accrued up to the amount of market introduction program revenues recognized.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 75)
What This Means (2025 FDD)
According to the 2025 Big Blue Swim School FDD, the company uses a market introduction program to collect and administer funds for marketing activities that benefit franchised units. These revenues are collected from franchisees based on a maximum fixed fee, as defined in the franchise agreement. The revenue collection starts about five months before the franchised unit opens and continues for about three months after operations begin, coinciding with when Big Blue Swim School incurs the marketing expenses.
Big Blue Swim School has determined that it acts as the principal in managing the market introduction program. Therefore, it recognizes both the revenues and expenses related to this program on a gross basis. The FDD states that the company considers the right to access its intellectual property and the administration of the market production program as highly interrelated, which leads them to account for these aspects as a single performance obligation.
Revenues from the market introduction program are received within a 12-month period. As a result, these revenues are recognized as the marketing fees are charged and the related expenses are incurred. In cases where the market introduction program revenues exceed the expenses in a reporting period, Big Blue Swim School will accrue advertising and marketing costs up to the amount of revenues recognized.