Can Fly Fitness operate acquired businesses within the franchisee's territory?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisee agrees that Franchisor has the right, now or in the future, to purchase, merge, acquire or affiliate with an existing competitive or non-competitive franchise network, chain or any other business regardless of the location of that chain's or business' facilities, and to operate, franchise or license those businesses and/or facilities operating under the Marks or any other marks following Franchisor's purchase, merger, acquisition or affiliation, regardless of the location of the facilities (which Franchisee acknowledges may be within the Territory, proximate thereto, or proximate to any of Franchisee's locations).
However, Franchisor represents that it will not convert any such acquired facilities that are operating within the Territory to a Fly Fitness franchise during the Term of this Agreement.
Source: Item 22 — CONTRACTS (FDD pages 44–45)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, Fly Fitness retains the right to purchase, merge, acquire, or affiliate with any existing competitive or non-competitive business, regardless of its location. This includes the right to operate, franchise, or license these acquired businesses under the Fly Fitness brand or other brands, even if the facilities are within or near a franchisee's territory. However, Fly Fitness states that it will not convert any acquired facilities operating within the franchisee's territory into a Fly Fitness franchise during the term of the franchise agreement.
This clause means that while Fly Fitness can acquire businesses that might compete with a franchisee's location, it cannot directly convert those acquired businesses into another Fly Fitness franchise within the franchisee's territory during the agreement's term, which is ten years from the opening date. This provides some territorial protection to the franchisee, preventing direct competition from additional Fly Fitness locations stemming from acquisitions.
However, Fly Fitness reserves significant rights regarding other business activities within the territory. They can offer other products or services not offered under the Fly Fitness brand, operate other fitness concepts under different trademarks, and utilize alternative distribution channels such as schools, retail outlets, and the internet. These activities can occur within the franchisee's territory without any compensation to the franchisee, meaning Fly Fitness can still generate revenue within the territory through other means, potentially impacting the franchisee's business.
Prospective franchisees should be aware of these stipulations, as they highlight the limitations of the territorial protection offered. While direct competition from another Fly Fitness franchise converted from an acquisition is restricted, Fly Fitness retains considerable freedom to operate other businesses and distribution channels within the territory, which could affect the franchisee's market share and revenue. It is important to clarify the potential impact of these reserved rights on the franchisee's business during the term of the agreement.