It was all innocent at first. Freddy borrowing money ($1,000) from Dr. Peter to start a sub shop. Try as he did, Freddy couldn’t make it work. Maybe two would work instead of one? So Freddy labored all day and all night to become the quintessential entrepreneur. But just as one didn’t work, two didn’t work. Just like throwing your last wad of cash onto a single number at the roullette wheel, Freddy opened a third store. Voila! It worked. Three was a charm! After a number of years, Freddy knew there had to be a better way. The hours were too long, payroll was tough and working to manage the whole mess was a juggling act at best.
So Freddy learned about the most lucrative business model ever conjured up by man – where you could use other people’s money to grow your business! It’s called FRANCHISING! So it was in 1974 that Freddy moved over to the dark side. On the shirt tails of Ray K, Freddy started selling franchises to any and all who would show. He especially loved immigrants who were entering the country with their life savings. Freddy never told them his model wouldn’t work for just one store. But then, Freddy wasn’t running sandwich shops, he was selling franchises. And should they figure it out, he could sell them more. The ones that didn’t, could be sold to new marks.
Interestingly, the Reagan administration relieved the entrepreneurial establishment from common law and allowed arbitration to be the governing entity. This gave Freddy and his band of merry con men the final authority on any and all contract negotiation and interpretation. If things went wrong, the arbitration firm could be paid off. And God forbid anyone sue Freddy. Should that happen, Freddy simply uses their own royalty fees and vendor kickback monies to nail their puny little pitiful sorry asses to the unemployment line. Don’t eff with Freddy or he’ll take you to the poor house in a body bag. Who needs a mafia when one can use the government and one’s own money against him!
And so you have it. The day the richest man in South Florida decided working to make a legitimate business was for the birds. Taking advantage of the unkknowing and trusting immigrant and displaced corporate schmuck is a far easier way to become a billionaire and playboy. And just remember Mr. Schaden, Freddy’s war chest makes yours look like a kindergartner’s piggy bank stash.
Bloody
Bloody Franchise 
Yes! When really “big business franchisors” have their way with the Congress and the Executive and the Arbitrators and the Courts (all three branches of the government, that is) are in their corner, they rule the day and their franchisees are just meat to eat —as necessary, under public policy goals that protect the franchisors and their brutal and carefully designed self-serving contracts.
Yes! Franchising is the most lucrative (and exploitive) business model ever developed (for franchisors) and franchisors are protected by the ABA who has written franchise law, as well as by the lobbying and rhetoric of the wealthy International Franchise Association.
Franchising depends upon taking advantage of human nature and hiding the real risks of unit performance from the new buyer of the franchise, who thinks there is little risk and great opportunity for profit.
Unfortunately, in the franchising model, it is generally only the franchisees who take the hard hit and who lose everything — and who don’t “reorganize or restructure” when they become insolvent.
The banks and lenders profit from SBA 90% guarantees by bundling and selling the guaranteed portion of the loans in the secondary market. The Landlords and the REITS benefit from franchising. The government benefits in terms of jobs and tax revenue. The ABA benefits because of the legal activity involved in franchising.
Securitization of IP, in which franchisors can borrow more cheaply, to expand nationally and internationally, has become a new “product” since 2000 that perpetuates franchising in our economy while putting franchisees at even greater risk.
Additionally, shouldn’t the investors in the franchisors’ systems and the rating agencies and valuators of systems be looking at the actual “unit” performance statistics of the systems to uncover churning and encroachment within systems and the thinning of profit margins on a unit basis?
This exploitive business model, franchising, has replaced the conventional “corporate chain” operation because it does permit the franchisor to use and exploit the capital and labor of the franchisees. instead of his own capital, to rapidly grow the brand chain in the world while greatly reducing the risk of the franchisor who doesn’t share in the failure or unprofitability of those franchisees who have built the physical units and who fail to thrive. Those franchisees who fail to thrive are premeditated sacrifices to the system.
Franchisors are subsidized by ineffective federal and state regulation that permits them to hide the unprofitability of their units and the failure of first owner-builders of their units from new buyers.
And so you have it! Franchising is here to stay! If the McDonald’s CEO makes $6,000 an hour, I’m sure the Subway CEO does very well as does Dr. Fred. The franchisors are very happy with the state of the law surrounding the sale of franchises.
From my viewpoint, the only solution that would make it better for franchisees is for the government to mandate that MATERIAL UNIT performance statistics be disclosed by the SELLER of the franchise to the BUYER of the franchise before the contract is signed. This is the ELEPHANT IN THE ROOM!
Ouch!
What a hit to a private citizen billionaire who offers everyone franchise opportunities to “make it” in USA. It’s the immigrants who are driving the purchase of franchises as it is an easy model to follow and duplicate; hence the abundance of multi-unit owners who WILLINGLY buy more franchises from his Subway system. Nobody puts a gun to their head to do so, so you should back off in your tone about Freddy…..(no I do not work for him)
I work with Subway buyers and sellers and they know what they are getting into or getting out of.
Do your due diligence-but if you want to buy a Subway because your Uncle said it was a good franchise then vent your disatisfaction(if any) to your uncle.
Fayaz Karim, Subway specialist
We see how those who surround franchising are very sensitive to any deserved criticism of the franchise model, and those franchisors who use the business model and the law surrounding franchising like a loaded gun.
Yes, we know that immigrants, with money, have always been the targets of franchisors and that immigrants get faster access to immigration when they invest their money in an American business.
But NOW, since mid 2007, because of the Patriot Express Loan Initiative of the SBA, veterans and their families are the targets of franchisors who do not disclose the material risks of the investments to new buyers.
It is impossible to do effective and efficient “due diligence” on a franchise purchase because, under the law, our Uncle Sam appears to say that the seller doesn’t have to disclose to the buyer.
LET THE BUYER BEWARE!
Ouch again !
I beg to differ on the due diligence matter-there are many ways to “find” information and get others to find it so you can make an “informed” decision. If I can find it why can’t you or others?
Hire a consultant to be your hound dog and uncover all the facts.
mrfranchiseman
I am a Subway Franchisee. Have been for 25 years. I was elected by my peers to sit on the North American Association of Subway Franchisees. I was elected as an officer of that organization. I abstained from voting for the NAASF lawsuit against DAI regarding changes to the franchise agreement that allowed DAI (Fred Deluca) to control of the $700 million ad fund. I abstained, because I realized that the average franchisee did not understand that Fred Deluca was going to takeaway $700 million of there money and as such we as an organization could not garner the monies needed to legally find an equitable solution to the problem.
For my troubles of agreeing to volunteer on the NAASF Board: I have been black mailed by my Development Agent; I have been harrassed; I, after being awarded Franchisee of the Year in 1995 for Southern California and “Outstanding Achievement to the Subway System in 2007” I find myself, because I sat on the Board of Directors of NAASF being drummed out of the Subway system using “complaince standards” as the reason for terminating my contract. All the while, the DA that purchased the territory “phones in” his inspections on his stores…ie Manager are told what date, and hour they are going to be inspected…that infractions that put my business out of business are overlooked, ignored, or instructions are being given to bypass Subway food quality standards. Not suprisingly the only approved buyers are relatives of the group that purchased our territory. Does corporate know….oh, yes. I have been informing them for two years. What does corporate do about the unethical standards set by their agents? Corporate awards the development agents as DA’s of the year.
Another victim of the system. I hear you and understand your plight-we might even know each other. There is no doubt that horror stories exist in the Subway system as you decribe; in fact if you study the back of the FDD, you can keep yourself busy for several hours reading the legal issues that normal, sane people have brought up with Subway.
AS I said in my previous replies, I do not work for him or Subway and cannot defend his actions in every case particularly outright abuses described above
Now try this: at a convention recently held on the East Coast, I believe he set a goal of 50,000 stores by about 2020. There is no doubt he will achieve this as the world is his stage. But if I were to translate that into 1 store per 5000 people in the US, maybe it would make more sense and put it into perspective. So if you are entering the system anew you are forewarned; if you are feeling overcrowded already at 1 per 10,000, get out or deal with what is coming, but do not complain as it only lands on deaf ears. And if you stick around and become a participant at 1 per 5000, go see a shrink. Every time you buy a franchise from him he wins. Every time you put your $200,000 plus into his system you take on all the risks a it dos not affect him. And , yes, many have become millionaires this way, so you cannot knock the system and the gaming odds offered. Maybe it is lady luck or lack of due diligence….
Anyone for an intelligent conversation on this? Carol? 949-253-4610
mrfranchiseman.com
Thanks for the truth on the odds —-It demonstrates that, perhaps, it is much safer, if you must buy a Subway Franchise, to buy a used Subway, where you can get a look at the P&L Statements and the Business Tax Return of the seller, and have a CPA confirm the gross sales and overhead will produce profits for the buyer.
But, even those who buy used Subways must be careful! The owner-seller may not report to the new buyer that he/she/they work 40 or more hours a week in the business for nothing.
You are right! The government considers that these big franchisors are too big to fail and subsidizes them with ineffective regulation so that there is always a full pool of marks for the sharks to eat in order to stimulate the economy and saturate the marketplace in their quest to compete and grow their market share.
Franchisees just don’t understand that, under the law, they are merely resources for franchisors to perpetuate their visibility and compete in the marketplace, and that the franchisors don’t want the word to get out that failed franchisees who can be churned are just calculated sacrifices to growing the franchisors visibility in the economy while obscuring the failure rate of “founding” franchisees.
Franchisors also don’t want the word to get out as to what percentage of the units of the system actually realize no profits after overhead is satisfied. There may be a hard job with long hours but no ROI and this is considered success for franchisors who can indenture the franchisee for ten years or more at “breakeven” if the franchisee can’t sell-transfer the unit to another franchisee, approved by the franchisor, who will try to make money in the business. .
New laws have been made to accommodate securitization of IP since 2000 and franchisors can borrow more cheaply against the collateral of their franchise agreements and receivables to expand internationally.
This new “slavery” of the franchise model will be spread throughout the world and will be dominated by American franchises who inspire the faith of those who believe that our streets are paved in gold —-and that anything “American” has to be good.
It’s a pity that the durability of franchising, that grows in recessions when good jobs are non-existent, depends upon the calculated sacrifice of good faith franchisees who take the great risk that always provides profits for the franchisor, who avoids the risk, but who, under law, has no duty to disclose the risk and the rewards of the investment to the new buyer.