What happens to unredeemed Jersey Mikes gift card balances if they are not expected to be redeemed?
Jersey_Mikes Franchise · 2025 FDDAnswer from 2025 FDD Document
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restaurants. Product revenue represents products sold through Jersey Shore Construction, LLC. Revenue is recognized at the time the products are sold in accordance with ASC 606.
Gift Cards—The Company sells gift cards through a variety of channels in both physical and virtual forms, including at our company owned locations, the majority of franchised locations, online, our mobile application, and through various third-party retailers although they cannot be reloaded at these third-party retailers. These gift cards do not have an expiration date, and no service fees are charged on them. The initial sale of a gift card is recorded as a liability and recognized as revenue upon redemption at the store level for both corporate and franchised locations. In the event a gift card is not expected to be redeemed, breakage income is recognized based on historical redemption patterns, including the timing and channel in which the card was purchased or reloaded, and in accordance with government agencies under unclaimed property laws, if applicable. Bre
Source: Item 22 — CONTRACTS (FDD page 77)
What This Means (2025 FDD)
According to Jersey Mike's 2025 Franchise Disclosure Document, the company recognizes "breakage income" when a gift card is not expected to be redeemed. This determination is based on historical redemption patterns, considering factors such as the timing and channel in which the gift card was purchased or reloaded.
The FDD states that Jersey Mike's adheres to government agencies' regulations under unclaimed property laws, if applicable, when dealing with unredeemed gift card balances. This means that Jersey Mike's follows the legal requirements set by states regarding the handling of unclaimed property, which may include reporting and remitting the unredeemed balances to the state after a certain period.
For the years ending December 31, 2024, 2023, and 2022, Jersey Mike's recognized $1,279,647, $0, and $0, respectively, in breakage income. This income is recorded under continual service fees and other income in the company's consolidated statements of operations. This indicates that in 2024, a significant amount of gift card balances were not expected to be redeemed, leading to the recognition of this income.
For a prospective franchisee, this means that while the initial sale of a gift card is recorded as a liability, Jersey Mike's eventually recognizes revenue from unredeemed cards. However, franchisees should be aware of and comply with all applicable unclaimed property laws, which may require them to report and remit these unredeemed balances to the relevant state authorities. Understanding these regulations is crucial for proper financial management and compliance.