Under what circumstances does Big Blue Swim School collect a development fee?
Big_Blue_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company enters into either development rights agreements (''DRAs''), which grant a multi-unit developer the right to develop two or more franchise units pursuant to a franchise agreement or a single franchise agreement, which grants a franchisee the right to open and operate one franchised unit. The Company collected a development fee for the grant of exclusive development rights in a specific territory. The Company collects an initial franchise fee for sales of single-unit franchises. The development rights fees and initial franchise fees are nonrefundable and earned upon execution of the underlying DRA or franchise agreement, in accordance with the respective franchise agreement or DRA. Renewal and transfer fees are payable when an existing franchisee renews the franchise agreement for an additional term or when a transfer to a third party occurs, respectively.
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 collects a development fee when granting exclusive development rights in a specific territory. This occurs when Big Blue Swim School enters into development rights agreements (DRAs) with multi-unit developers. These agreements allow the developer the right to develop two or more franchise units under a franchise agreement. The development fees are nonrefundable and are considered earned upon the execution of the DRA.
For a prospective franchisee, this means that if they are interested in developing multiple Big Blue Swim School locations within a specific area, they would need to enter into a DRA and pay a development fee to secure those exclusive rights. This fee compensates Big Blue Swim School for granting the developer the exclusive right to expand within that territory, preventing the franchisor from establishing other franchises in the same area.
It's important to note that while the development fee is nonrefundable, the document states that these fees are deferred and apportioned to each franchise agreement signed by the franchisee. The pro-rata amount apportioned to each franchise agreement is then recognized as revenue on a straight-line basis over the life of the respective franchise agreement. This accounting treatment suggests that the development fee is not simply a one-time payment but is tied to the ongoing franchise agreements that result from the DRA.