The%20Role%20of%20Government

1
The Role of Government

• in Promoting the Growth of the Franchising
  Industry

2
History of U.S. Government Regulation of
Franchising

• 1970 CA 1st Disclosure-Registration Law
• 1973 11 U.S. states had franchise regulations
• 1975 MSAA UFOC format
• 1979 FTC Franchise Rule
• 1981 NASAA UFOC
• 1986 NASAA Modifications to UFOC
• 1993 NASAA Modifications to UFOC
• 2007 FTC Franchise Rule revised

3
Thrust of Governmental Regulation

• Franchise Disclosure Document (FOC)
• 23 Chapters of Material Information
• Audited Financial Statements
• All Contracts Used
• State Registration Process in 14 States
• 10 Day Rule
• 5 Day Rule

4
Drawbacks of Governmental Regulation

• No Minimum Standards/Requirements
• - eBay iSold It! franchise (below)
• No Disclosure of Earnings
• Lack of Detailed Financial Investment Data
• Unfair Contractual Provisions Allowed
• No Effective Consumer Protection Remedies
• - Mail Boxes, Etc. franchise (below)

5
The MBE - UPS Saga

• UPS a 30B Fortune 500 Company - acquired MBE
• - 180M for a network of 4,000 MBE stores
  (45,000 ea.)
• - how to get owners to switch from MBE to
  UPS?
• Gold Shield Program - required amendment to
  contract
• - the MBE business model was broken
• - rebrand or else AND follow UPS-mandated
  pricing
• Shift from many carriers to one . UPS
• - one MBE owner did more than 500,000/year in
  Fed-X

6

• 90 of MBE network rebranded to UPS
• - make as little as 0.50 on many transactions
• CAFIL illegal to solicit an amendment
• - unless a lot of detailed paperwork is filed
• - disclose what the financial impact will be
• - and allow owners to freely decide
• 10 of MBE network who didnt rebrand?
• - at renewal only given new UPS contract to
  sign
• - not what the original MBE contract said

7

• November, 2003 eBay drop-off store started
• December, 2003 franchise program started
• CA Dept. of Corporations collected its filing fee
• 2006 nearly 200 drop-off stores operating
• Entrepreneur Magazine 1 Top New Franchises
• - December 2005 loss of 1.1 million
• - September 2006 loss of more than 4 million
• April 5, 2007 CEO Letter gt 60 closed more
  struggling
• many people have lost sizeable investments,
  including
• homes and retirement savings

8
Role of Government In The New Millennium

• Disclosure Of Pertinent Information
• capital required to breakeven
• earnings by company-owned franchised
• Registration - Review Process
• Minimum Requirements To Franchise
• length of time, profitable operations, etc.
• Enforcement Teeth Rights to Rescind
• Enforcement Teeth Private Cause of Action

9
Role of Franchise Associations

• Mission Statement protect, enhance,
  promote
• Membership
• Code of Conduct apply by 3d parties?
• Continuing Education Programs
• Monitoring Trends
• Legislative Lobbying
• International Franchise Expos
• U.S. IFA (1960)
• World Franchise Council (1994)