How are royalties earned for a Big Blue Swim School franchise?
Big_Blue_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
ine basis over the life of the respective franchise agreement.
Royalties
Royalties are earned as a percentage of franchisee gross revenues over the term of the franchise agreement, as defined in each respective franchise agreement. Franchise royalties represent sales-based royalties that are related entirely to the use of the Company's intellectual property and are recognized as 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 75)
What This Means (2025 FDD)
According to the 2025 FDD, Big Blue Swim School earns royalties based on a percentage of the franchisee's gross revenues. These royalties are collected over the term of the franchise agreement. The franchise agreement defines how gross revenues are calculated for royalty purposes. These royalties are tied directly to the use of Big Blue Swim School's intellectual property. Royalties are recognized as revenue when franchisee sales occur and are deemed collectible.
In addition to royalties, Big Blue Swim School also collects fees for a brand fund, which are also based on a percentage of the franchisee's gross revenues and are payable monthly. Currently, Big Blue Swim School charges franchisees a brand fee of 2% of gross revenues, although the standard franchise agreement allows them to charge up to 3%. These brand fund fees are used for advertising, marketing, research and development, public relations, social media management, and customer relationship management programs to benefit the franchise units.
Big Blue Swim School considers the right to access its intellectual property and the administration of the brand fund as highly interrelated, accounting for them as a single performance obligation. As a result, revenues from the brand fund are treated as sales-based royalties related to the right to use Big Blue Swim School's intellectual property and are recognized as franchisee sales occur. This means that the brand fund fees are also tied to the franchisee's sales performance.
Prospective franchisees should carefully review the franchise agreement to understand the specific definition of gross revenues, the exact percentage used for royalty calculations, and the terms of payment. Understanding these details is crucial for accurately forecasting expenses and profitability. Franchisees should also inquire about how the brand fund is managed and how it benefits their specific location.