How does Big Blue Swim School recognize revenues and expenses related to the brand fund?
Big_Blue_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
s franchisee sales occur and the royalty is deemed collectible.
Brand fund
The Company maintains a brand fund established to collect and administer funds contributed for use in advertising, marketing, research and development, public relations, social media management and customer relationship management programs and materials for the benefit of franchise units. Brand fund fees are collected from franchisees based on a percentage of franchisee gross revenues and are payable monthly. The Company has determined that it acts as a principal in the collection and administration of the brand fund and therefore will recognize the revenues and expenses related to the brand fund on a gross basis. The Company has determined that the right to access its intellectual property and administration of the brand fund are highly interrelated and therefore are accounted for as a single performance obligation. As a result, revenues from the brand fund represent sales-based royalties related to the right to access the Company's intellectual property, which are recognized as franchisee sales occur. When brand fund fees collected exceed the related brand fund expenses in a reporting period, advertising costs are accrued up to the amount of brand fund revenues recognized.
Market introduction program revenue
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 75)
What This Means (2025 FDD)
According to Big Blue Swim School's 2025 Franchise Disclosure Document, the company manages a brand fund, collecting fees from franchisees as a percentage of their gross revenues, payable monthly. These funds are earmarked for advertising, marketing, research and development, public relations, social media management, and customer relationship management to benefit the franchise units. Currently, Big Blue Swim School charges franchisees 2% of gross revenues for the brand fee, although the company has the right to charge up to 3%.
Big Blue Swim School recognizes both revenues and expenses related to the brand fund on a gross basis, indicating that the company considers itself the principal in managing these funds. The FDD states that the right to access its intellectual property and the administration of the brand fund are highly interrelated, leading to their accounting as a single performance obligation. Consequently, revenues from the brand fund are treated as sales-based royalties tied to the right to use Big Blue Swim School's intellectual property, recognized as franchisee sales occur.
Furthermore, the document specifies that if the brand fund fees collected exceed the related expenses in a reporting period, Big Blue Swim School will accrue advertising costs up to the amount of brand fund revenues recognized. The brand fund is intended to benefit franchisees, with a portion potentially covering the company's administrative costs. As of December 31, 2024, and 2023, all monies collected were spent for the benefit of the franchisees.
Prospective franchisees should note that Big Blue Swim School is not required to segregate and restrict monies collected on behalf of the brand fund. This means the funds are not necessarily held in a separate, dedicated account. This arrangement carries a degree of risk, as it relies on the company's financial management and commitment to using the funds as intended. Franchisees may want to inquire about the fund's governance and oversight to ensure transparency and accountability.