Explanation

This risk was not identified in the FDD Package. Rapid growth can sometimes strain a franchisor's ability to provide adequate support to all franchisees. It is a positive sign when a system's growth appears to be managed at a sustainable pace, allowing support infrastructure to keep up with the expanding number of units. This helps ensure that both new and existing franchisees receive the level of assistance they expect.

Potential Mitigations

• A business advisor can help you evaluate if the franchisor's support staff and infrastructure seem adequate for the current system size.
• When speaking with existing franchisees, asking about the quality and timeliness of franchisor support is a key due diligence step.
• Your accountant can review the franchisor's financials to assess whether they are reinvesting in support systems to match their growth.

Explanation

This risk was not identified in the FDD Package. The franchisor, i9 Sports, began franchising in 2003 and has a significant number of outlets, indicating an established system rather than an unproven one. Investing in a new or unproven franchise system can carry higher risks, as the business model may not be fully tested and brand recognition might be low. An established system often provides a clearer picture of potential performance and has more developed support structures.

Potential Mitigations

• For any franchise, a business advisor can help you assess the maturity and stability of the business model in the current market.
• Speaking with franchisees who have been in the system for varying lengths of time can provide insight into its evolution and stability.
• Your attorney should review the franchisor's history as disclosed in Item 1 to understand its operational track record.

Explanation

This risk was not identified in the FDD Package. The youth sports industry is a well-established market sector. A fad business is one tied to a fleeting trend, which can be a significant risk for a franchisee locked into a long-term agreement. Investing in a business with sustained, long-term consumer demand is generally less risky than investing in a concept that might quickly fall out of fashion, leaving you with a potentially obsolete business.

Potential Mitigations

• It is always wise to have a business advisor help you research the long-term market trends for any industry you consider entering.
• Analyzing the franchisor's plans for innovation and adaptation, as disclosed in Item 11, can offer insights into their long-term vision.
• Your accountant can help you assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the franchisor's key personnel have significant experience in franchising and the youth sports industry. When investing in a franchise, inexperienced management can be a concern, as they may lack the specific knowledge needed to run a successful franchise system, provide effective support, or make sound strategic decisions. Experienced leadership can be a key asset for a franchise network.

Potential Mitigations

• When evaluating any franchise, it is prudent to have a business advisor help you review the backgrounds of the key leadership team in Item 2.
• Asking current franchisees about their direct experiences with the management team can provide valuable, real-world insights.
• Your attorney can help you understand the roles and responsibilities of the individuals listed in Item 2.

Explanation

This risk was not identified in the FDD Package. The FDD discloses parent companies, their relationship to the franchisor, and includes financial information for the franchisor entity. In some cases, a franchisor might be a thinly capitalized subsidiary, making the parent's financial health critical. Failing to disclose a parent or its financials when required can obscure the true financial stability and backing of the franchise system you are investing in.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to ensure all relevant parent and affiliate entities are disclosed.
• If a parent company provides a guarantee, your accountant must review the parent's financial statements to assess its ability to back that guarantee.
• A business advisor can help you understand the relationships between the franchisor, parent, and affiliate companies.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor has had no predecessors in the last ten years. When a franchisor has acquired a system from a predecessor, it's important to understand that predecessor's history, including any past litigation, bankruptcy, or franchisee turnover. A challenging history could indicate underlying issues with the brand or operating model that may persist under the new ownership.

Potential Mitigations

• For any franchise, your attorney should carefully review Item 1 for any mention of predecessors and their history.
• If a predecessor exists, your business advisor can assist in researching its historical performance and reputation.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable context.

Explanation

This risk was not identified in the FDD Package. Item 3 does not disclose a pattern of litigation against the franchisor alleging fraud, misrepresentation, or other serious claims. A history of such litigation can be a significant red flag, potentially indicating systemic problems with the franchisor's sales practices, disclosure integrity, or relationship with its franchisees. A clean litigation history is a positive indicator for a prospective franchisee.

Potential Mitigations

• A franchise attorney's review of Item 3 is crucial to understand the nature and potential impact of any disclosed litigation.
• Your business advisor can help research the context of any legal actions to determine if they indicate a pattern of problematic behavior.
• It is wise to ask current franchisees if they are aware of any widespread disputes, even those not rising to the level of disclosed litigation.