How does Checkers account for advertising co-ops that it does not control?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company and its franchisees each pay a percentage of sales to the Checkers/Rally's National Production Fund, Inc. (the "Fund" or "NPF"), established for the purpose of creating and producing advertising for the benefit of both Company-operated and franchised restaurants. During the fiscal year ended December 30, 2024 (Successor) and the periods ended January 1, 2024 (Successor) and June 16, 2023 (Predecessor), only one member, representing 25% of the Board of Directors of the Fund, is an employee of the Company. The Fund is not included in the accompanying consolidated financial statements, although the Company's contributions to the Fund are included in advertising expense in the accompanying consolidated statements of operations. Additionally, certain Company-operated restaurants and franchisees participate in advertising co-ops. The Company consolidates advertising co-ops for which it is determined to control on the basis of voting interests, and does not consolidate advertising co-ops it does not control. Co-ops not controlled by the Company are accounted for similarly to the fund. The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
contributions to the Fund represent 0.5% of net restaurant sales, while contributions to the advertising co-ops range from 0.5% to 4.25% of net restaurant sales.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, Checkers and its franchisees participate in advertising co-ops. Checkers consolidates advertising co-ops for which it has control based on voting interests. However, Checkers does not consolidate advertising co-ops it does not control.
For accounting purposes, Checkers treats advertising co-ops it does not control similarly to how it accounts for the Checkers/Rally's National Production Fund (NPF). The contributions to the NPF represent 0.5% of net restaurant sales, while contributions to the advertising co-ops range from 0.5% to 4.25% of net restaurant sales.
This means that if a Checkers franchisee participates in a co-op where Checkers doesn't have controlling voting interest, the financial activity of that co-op is not included in Checkers' consolidated financial statements. Instead, Checkers' contributions to these non-controlled co-ops are accounted for in a similar manner to the National Production Fund. This could affect how a franchisee views the overall advertising strategy and financial reporting related to advertising efforts.