How does Goldfish Swim School allocate consideration to site selection services provided to franchisees?
Goldfish_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company has obligations to provide franchisees with the franchise rights to operate a school, training, and site selection, as well as technology and advertising for which fees are charged. The Company has concluded that management training and site selection are separate performance obligations due to the nature of these services being non-brand specific and capable of being used by the franchisee in other businesses. The remaining items represent a single performance obligation. Therefore, initial franchise fees for each agreement are allocated to the management training, site selection, and franchise right for each individual franchise. The management training and site selection revenue is recognized at the time the obligations have been satisfied. The franchise right revenue is recognized over the term of the respective franchise agreement beginning on the date the school is opened. Income for royalties, technology fees, and advertising fees is recognized over the term of the respective franchise agreement as the underlying sales occur.
Source: Item 22 — CONTRACTS (FDD pages 76–77)
What This Means (2025 FDD)
According to the 2025 Goldfish Swim School Franchise Disclosure Document, the company allocates initial franchise fees to several obligations, including management training, site selection, and the franchise right. Goldfish Swim School considers management training and site selection as separate performance obligations because these services are not brand-specific and franchisees could potentially use them in other business ventures. The remaining obligations are grouped as a single performance obligation.
Goldfish Swim School recognizes revenue from management training and site selection at the time these obligations are fulfilled. The revenue from the franchise right, however, is recognized over the term of the franchise agreement, starting when the school opens. This means that Goldfish Swim School defers the recognition of the franchise right revenue until the franchisee begins operations.
This allocation method affects how Goldfish Swim School reports its financial performance. By recognizing revenue from training and site selection immediately upon completion, Goldfish Swim School can show immediate revenue from these services. Deferring the franchise right revenue provides a more consistent revenue stream over the life of the franchise agreement. For a prospective franchisee, this means that a portion of their initial franchise fee covers immediate services like training and site selection, while another portion grants them the right to operate under the Goldfish Swim School brand over the long term.