We are continuing on with the Franchise Disclosure Document (FDD), and for those who've been following along with us, we've covered Items 1 to 17 previously (check them out). Now we're going to be going through Item 18 of the FDD, which really has to do with disclosure of the involvement of any public figures in that franchise. And it's a little bit of a tricky item in that there's really not a lot that you can do about this particular item. Meaning that if you have some type of philosophical issues with these individuals (public figures) that are involved in this particular franchise that are disclosed, they're probably not going to leave just because you become a franchisee.
So, it is important that you do understand they are involved and that you do not have any type of philosophical issues with them being involved before you acquire that franchise. We're going to cover some of the key points of Item 18.
The Definition of a Public Figure
A public figure is kind of what it sounds like. It's going to be somebody who has some well-known stature. It may be a professional athlete, an actor, or a musician, think like a celebrity. So for example, when you've probably seen some of these celebrities on TV for the Subway commercials, or in the case of one of the franchises we work with called Clean Juice, they actually have Tim Tebow as their spokesperson. That would be considered a public figure.
But here's a little caveat about it. A public figure only has to be disclosed in Item 18 if that public figure is involved in the sale and the marketing of the franchise, not necessarily in the customer-facing marketing. So in the Subway example I just gave you, let's say, Tom Brady, you see him eating a sub, well, that's customer facing. That doesn't have to be disclosed in Item 18. But if Tom is encouraging you to buy a franchise, then it must be disclosed in Item 18.
A clear definition there is that it's not the public side of the exposure to the public figure that is important. It's the marketing and sale of the franchise itself that becomes part of Item 18 in the FDD. Here are a couple of examples of where public figures that you've seen that were involved in the marketing of the franchises themselves.
Robert Harrington from Shark Tank. He is a really smart businessman and he is involved in many different franchises encouraging you and or the public to become a franchisee in one of the systems that he's directly involved with. That would have to be disclosed as a public figure. Or another one might be Shaq. We all know Shaq, well, he has his own chicken franchise, so he would have to be disclosed as a public figure because he's involved in the sale and marketing of the franchise.
Financial Obligations to the Public Figure from the Franchise
We will go through what this means as far as Item 18. It just means that if there's a public figure noted in Item 18, this subsection will denote if they're being paid, how much they're being paid, are there royalties or fees. It's basically going to delineate any payments that they're receiving for their involvement in being a public figure for that franchise.
Public Figures Involvement in Management
This gets a little bit deeper in the next particular point, and that's what is the public figures involvement in management and control of the franchise. It's just basically denoting if that public figure has any management or control in the day-to-day operations of the franchise, that could be important to know, because if you have a philosophical difference with this public figure, but they have a lot of involvement and/or financial control in that franchise you need to consider that as part of your decision to acquire that franchise.
Franchisors' Control of Public Figures Information
FDD Item 18 is going to delineate what the franchisor can or can't do, especially related to its franchisees. So the franchisor may say because we have Shaq who is a public figure, then you can, and/or maybe you can't use Shaq's name, logos, and trademarks references in your local marketing. So that would be important to pay attention to in this section.
If you have any questions, comments or suggestions about Item 18 or the Franchise Disclosure Document, please feel free to reach out to us anytime.
Finally, the best advice we can give to our viewers and listeners is to work with someone such as us, an expert Franchise Consultant, who can help you evaluate and understand the FDD, understand how it will impact you, and ultimately help you achieve the business of your dreams.
What's Your Next? - Podcast
I’m Stacey Riska aka “Small Business Stacey”, your franchise placement specialist. I help aspiring business owners find the PERFECT franchise so they can get to the next level in life and business.