Under what conditions can Bombs Away require a franchisee to participate in advertising or promotional activities with indeterminate expenses?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
hising has established a Marketing Fund:
- (a) Separate Account. Bombs Away Franchising shall hold the Marketing Fund Contributions from all franchisees in one or more bank accounts separate from Bombs Away Franchising's other accounts.
- (b) Use. Bombs Away Franchising shall use the Marketing Fund only for marketing, advertising, and public relations materials, programs and campaigns (including at local, regional, national, and/or international level), and related overhead. The foregoing includes such activities
and expenses as Bombs Away Franchising reasonably determines, and may include, without limitation: development and placement of advertising and promotions; sponsorships; contests and sweepstakes; development of décor, trade dress, Marks, and/or branding; development and maintenance of brand websites; social media; internet activities; e-commerce programs; search engine optimization; market research; public relations, media or agency costs; trade shows and other events; printing and mailing; and administrative and overhead expenses related to the Marketing Fund (including the compensation of Bombs Away Franchising's employees working on marketing and for accounting, bookkeeping, reporting, legal and other expenses related to the Marketing Fund).
- (c) Discretion. Franchisee agrees that expenditures from the Marketing Fund need not be proportionate to contributions made by Franchisee or provide any direct or indirect benefit to Franchisee. The Marketing Fund will be spent at Bombs Away Franchising's sole discretion, and Bombs Away Franchising has no fiduciary duty with regard to the Marketing Fund.
- (d) Contribution by Other Outlets. Bombs Away Franchising is not obligated to (i) have all other Bombs Away businesses (whether owned by other franchisees or by Bombs Away Franchising or its affiliates) contribute to the Marketing Fund, or (ii) have other Bombs Away businesses that do contribute to the Marketing Fund contribute the same amount or at the same rate as Franchisee.
- (e) Surplus or Deficit. Bombs Away Franchising may accumulate funds in the Marketing Fund and carry the balance over to subsequent years. If the Marketing Fund operates at a deficit or requires additional funds at any time, Bombs Away Franchising may loan such funds to the Marketing Fund on reasonable terms.
- (f) Financial Statement. Bombs Away Franchising will prepare an unaudited annual financial statement of the Marketing Fund within 120 days of the close of Bombs Away Franchising's fiscal year and will provide the financial statement to Franchisee upon request.
Source: Item 22 — CONTRACTS (FDD pages 35–36)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, franchisees may be required to participate in advertising and promotional activities through the Marketing Fund. Bombs Away has sole discretion over how the Marketing Fund is spent, and these expenditures do not need to be proportionate to a franchisee's contributions or provide any direct benefit to the franchisee. Bombs Away does not have a fiduciary duty regarding the Marketing Fund.
The expenses covered by the Marketing Fund can include a wide range of activities, such as advertising and promotions, sponsorships, contests, development of branding, website maintenance, social media, e-commerce, search engine optimization, market research, public relations, trade shows, printing, mailing, and administrative overhead. These expenses are determined by Bombs Away Franchising.
Bombs Away may also establish market advertising and promotional cooperative funds ("Market Cooperative") in any geographical areas. The purpose of each Market Cooperative is to administer regional advertising and marketing programs and develop standardized promotional materials. The majority vote of the Market Cooperative will determine the dues to be paid by members, including franchisees, but not less than 1% and not more than 5% of Gross Sales. Bombs Away has the right to enforce the obligations of franchisees who are members of a Market Cooperative to contribute to the Market Cooperative. Bombs Away also has the right to terminate any Market Cooperative, and any funds left will be transferred to the Marketing Fund.