How does Jersey Mikes recognize revenue from up-front franchise fees?
Jersey_Mikes Franchise · 2025 FDDAnswer from 2025 FDD Document
ea development and service agreements. These agreements entitle the subcontractor to an agreed-upon fees in return for developing and servicing the franchisees in the assigned area.
The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The Company has determined that up-front franchise fees and area development and service agreements do contain distinct performance obligations and those fees are recognized as revenue over the term of each franchise and or area development agreement. The portions of the up-front franchise fees that have not been recognized as revenue are considered contract liabilities and are recorded as unearned franchise fees.
Franchised and Corporate Locations—The number of restaurants opened as of December 31, 2024 was 2,997, with 964 additional units under contract.
Source: Item 22 — CONTRACTS (FDD page 77)
What This Means (2025 FDD)
According to Jersey Mikes's 2025 Franchise Disclosure Document, the company recognizes revenue from up-front franchise fees over the term of the franchise agreement. The core principle of ASC 606 (Accounting Standards Codification) is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Jersey Mike's has determined that up-front franchise fees and area development and service agreements contain distinct performance obligations. Therefore, these fees are not recognized immediately as revenue but are instead recognized over the life of each franchise or area development agreement.
For a prospective Jersey Mike's franchisee, this means that the initial franchise fee you pay will not be immediately recognized as revenue by Jersey Mike's. Instead, it will be accounted for as a contract liability, also known as unearned franchise fees, on their balance sheet. This liability will then be gradually recognized as revenue over the term of your franchise agreement. This accounting practice reflects the fact that Jersey Mike's provides ongoing services and support to franchisees throughout the duration of the agreement, and the initial fee compensates them for these future services.
This approach is fairly standard in the franchise industry, as it aligns revenue recognition with the delivery of services over time. It's important for franchisees to understand this accounting treatment because it affects how Jersey Mike's financial performance is reported. The FDD also mentions that as of December 31, 2024, Jersey Mike's had 2,997 restaurants opened, with 964 additional units under contract, and as of December 31, 2023, there were 2,686 restaurants opened with 1,275 additional units under contract. These figures give a sense of the brand's growth and pipeline.