How does Goldfish Swim School recognize revenue from the initial franchise fees?
Goldfish_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
the right to operate a school within a defined territory using the franchise name. The initial term of franchise agreements is typically 15 years, with an option to renew or transfer the franchise agreement to a new or existing franchisee.
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 nonbrand 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 Goldfish Swim School's 2025 Franchise Disclosure Document, the company recognizes revenue from initial franchise fees by allocating the fees to several performance obligations. These obligations include management training, site selection, and the franchise right itself. Goldfish Swim School considers management training and site selection as separate performance obligations because these services are not brand-specific and could be used by the franchisee in other business ventures.
The revenue from management training and site selection is recognized at the time when these obligations are satisfied. This means that once Goldfish Swim School has completed the training and site selection services for a franchisee, they recognize the corresponding portion of the initial franchise fee as revenue. The remaining portion of the initial franchise fee, which is allocated to the franchise right, is recognized over the term of the franchise agreement.
Specifically, Goldfish Swim School recognizes the franchise right revenue beginning on the date the swim school opens. This approach aligns the revenue recognition with the franchisee's ability to operate and generate income under the Goldfish Swim School brand. The initial franchise fees are typically due and paid when the franchise agreement is executed and are nonrefundable. These fees are collected before the company satisfies its performance obligations, which results in the company recognizing deferred revenue contract liabilities. This deferred revenue is recognized as the obligations are fulfilled over time.