Can Fly Fitness require franchisees to allocate local advertising expenditures to an advertising cooperative?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
ng agencies, the standards and specifications established by Franchisor, as modified from time to time, shall be final and binding upon Franchisee.
13.2. Local Advertising.
- 13.2.1. In addition to the ongoing advertising contributions set forth herein, and following the expenditures set forth in Section 13.2.3 below, Franchisee shall spend monthly, throughout the term of this Agreement, not less Five Hundred Dollars ($500) per month on advertising for the Franchised Business in the Territory ("Local Advertising"). Franchisor reserves the right to increase this minimum expenditure by ten percent (10%) per year in its sole discretion. Franchisor may require Franchisee to allocate to an advertising cooperative, as described in Section 13.4, some or all of Franchisee's required Local Advertising expenditures. Such allocation will be in partial or full satisfaction of Franchisee's obligations pursuant to this Section 13.2.1. Franchisor reserves the right to collect some or all of Franchisee's Local Advertising expenditure and implement Local Advertising on Franchisee's behalf.
- 13.2.2. Within ten (10) business days of Franchisor's request, Franchisee shall provide a quarterly expenditure report accurately reflecting Franchisee's Local Advertising expenditures for the preceding quarterly period. The following costs and expenditures incurred by Franchisee shall not be included in Franchisee's expenditures on Local Advertising for purposes of this Section, unless approved in advance by Franchisor in writing: (i) incentive programs for employees or agents of Franchisee; (ii) research expenditures;
Source: Item 22 — CONTRACTS (FDD pages 44–45)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, Fly Fitness franchisees are required to spend a minimum of $500 per month on local advertising throughout the term of the agreement. Fly Fitness retains the right to increase this minimum expenditure by 10% annually at its discretion. Fly Fitness may require franchisees to allocate some or all of their local advertising expenditures to an advertising cooperative. This allocation, if mandated, would count towards fulfilling the franchisee's local advertising obligations. Fly Fitness also reserves the right to collect some or all of the franchisee's local advertising expenditure and implement local advertising on the franchisee's behalf.
In addition to the monthly local advertising requirement, Fly Fitness franchisees must spend at least $15,000 on local advertising and promotional activities within the period starting 30 days before and ending 90 days after the opening of their franchised business. This is intended to promote the opening of the franchisee's Fly Fitness location. Similar to the ongoing local advertising, Fly Fitness reserves the right to collect these grand opening funds and manage the grand opening campaign activities directly.
If Fly Fitness establishes an advertising cooperative, franchisees are obligated to contribute the amounts Fly Fitness requires, which would be in addition to the Brand Fund contributions. This implies that franchisees could face multiple layers of advertising expenses: a mandatory contribution to the Brand Fund, a required local advertising spend (potentially managed by Fly Fitness or allocated to a cooperative), and contributions to any advertising cooperative Fly Fitness establishes. This structure gives Fly Fitness significant control over advertising and marketing efforts, but also places a potentially heavy financial burden on franchisees.