What is the reduced royalty rate that the 'Western Licensees' pay to Checkersrallys?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
In 1997, in response to certain issues raised by several Rally's franchisees in California and Arizona, and in a mutual effort to avoid a protracted dispute, we agreed to a material modification of the franchise agreements with the affected California and Arizona Rally's franchisees. The Rally's franchisees are referred to as the "Western Licensees," and they have agreed to execute license agreements to replace their franchise agreements. Under the "Western License Agreement," the Western Licensees will pay a reduced royalty (1% of Net Sales), and we have agreed that the services that we are obligated to provide to them will be materially different from, and will be substantially less than, the services that we provide to franchisees under the Franchise Agreement. Under the Western License Agreement, those Rally's franchisees who elect to obtain advertising material from our advertising agency will pay a license fee of 2% of Net Sales. We do not offer new or additional Western License Agreements as part of this Franchise Disclosure Document.
Source: Item 1 — THE FRANCHISOR AND ANY PARENTS, PREDECESSORS AND AFFILIATES (FDD pages 9–14)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, a reduced royalty rate is offered to a specific group of franchisees known as the "Western Licensees". This arrangement originated in 1997 as a resolution to issues raised by Rally's franchisees in California and Arizona, aiming to avoid a prolonged dispute. As part of this resolution, Checkersrallys agreed to modify the franchise agreements with these franchisees.
Under the "Western License Agreement," these Western Licensees pay a reduced royalty of 1% of Net Sales. In exchange for this lower royalty rate, Checkersrallys provides materially different and substantially fewer services compared to what is offered to franchisees under the standard Franchise Agreement. This suggests that Western Licensees may have greater autonomy in their operations but receive less support from the franchisor.
Additionally, the FDD states that if these Western Licensees choose to obtain advertising material from Checkersrallys's advertising agency, they are required to pay a license fee of 2% of Net Sales. It is important to note that Checkersrallys does not currently offer new or additional Western License Agreements as part of the 2025 Franchise Disclosure Document, indicating that this option is not available to new franchisees.