What funds does Carls collect, administer, and spend for advertising and promotion purposes?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
During the operation of your Franchised Restaurant, we will:
- 1. Collect, administer and spend for advertising and promotion purposes monies paid by franchisees and company-operated restaurants into the Production Fund and Media Fund. (Franchise Agreement, §§8.B., C., and E.)
CJR will administer the Production Fund and the Media Fund (at times referred to as the "Funds"). The Production Fund and Media Fund are not trust or escrow accounts, and CJR has no fiduciary obligation to franchisees with respect to them. CJR or its designee has the right to terminate (and subsequently restart) the Production Fund or the Media Fund or establish different advertising funds. CJR may incorporate any advertising fund and may have a separate entity manage any advertising fund.
In the fiscal year ended January 29, 2024, of the total monies spent by the Funds, 4% was spent for production; 83% was spent for media placement; 1% was spent on research/marketing consulting fees; and 12% was spent for miscellaneous expenses, including administrative expenses. No money was spent by the Funds to solicit new franchisees.
Our predecessor has established, and we will maintain and administer, a fund for the creation and development of advertising, marketing and public relations, research and related programs, gift card and loyalty programs, activities and materials that we, in our sole discretion, deem appropriate ("Production Fund"). Vendors and suppliers also may contribute to the Production Fund. We or our designee direct all advertising, marketing, and public relations programs and activities financed by the Production Fund with sole discretion over the creative concepts, materials and endorsements used in those programs and activities, and the geographic, market and media placement and allocation of advertising and marketing materials. We usually work with an advertising agency in developing advertising for print, radio, Internet and television and leverage internal and contract creative services.
Our predecessor also has established, and we will maintain and administer, a fund for all working media costs ("Media Fund"). We or our designee direct all advertising, marketing, and public relations programs and activities financed by the Media Fund with sole discretion over the creative concepts, materials and endorsements used in those programs and activities, and the geographic, market and media placement and allocation of advertising and marketing materials.
Generally, CJR believes that it will spend all advertising payments during the taxable year in which the contribution and earnings are received. If we do not spend the advertising payments in one year, we will spend them in the following year.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING (FDD pages 41–54)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, Carls collects monies from both franchisees and company-operated restaurants for advertising and promotion purposes. These funds are paid into two main accounts: the Production Fund and the Media Fund. Carls administers these funds, but explicitly states that these are not trust or escrow accounts, and Carls has no fiduciary duty to franchisees regarding these funds.
Carls has full discretion over the advertising, marketing, and public relations programs financed by both the Production and Media Funds. This includes control over creative concepts, materials, endorsements, and the geographic placement of advertising. Carls typically works with an advertising agency for print, radio, internet, and television advertising, while also utilizing internal and contract creative services.
The FDD specifies how the advertising funds were spent in the fiscal year ending January 29, 2024. 4% of the total monies spent by the Funds was allocated to production, 83% to media placement, 1% to research/marketing consulting fees, and 12% to miscellaneous expenses, including administrative costs. No money was spent to solicit new franchisees. Carls also states that they generally aim to spend all advertising payments within the taxable year they are received, or in the following year.