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The Red Collection

The Red Collection, LLC
https://www.redrooffranchising.com
1-614-744-2600
7815 Walton Parkway, New Albany, Ohio 43054

Initial Investment Range

$220,875 to $1,569,250

Franchise Fee

$59,550 to $68,500

The Red Collection hotels offer high quality, affordable lodging that is modern, accessible and affordable in convenient city locations.

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The Red Collection April 14, 2025 FDD Risk Analysis

Free FDD Library AI Analysis Date: July 16, 2025

DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.

1

Franchisor Stability Risks

Start Here
Total: 10
3
3
4

Disclosure of Franchisor's Financial Instability

Medium Risk

Explanation

The financial statements for the guarantor, Red Roof Franchising, LLC (RRF), show consistent profitability. However, they also reveal a multi-year trend of declining cash reserves and member's equity due to significant cash distributions to the parent company, totaling over $44 million in the last two years. While the company is not losing money from operations, this continuous extraction of capital could potentially limit resources available for system growth, support, and investment, which may impact you.

Potential Mitigations

  • Your accountant should analyze the cash flow statements to assess the impact of these large distributions on the company's working capital.
  • It is wise to discuss the company's capitalization and reinvestment strategies with your financial advisor to gauge long-term stability.
  • A franchise attorney can help you understand the strength and enforceability of the parent company's guarantee of this franchise's obligations.
Citations: Item 21, Exhibit A

High Franchisee Turnover

High Risk

Explanation

The franchise system is very small, with only five operating locations at the end of 2024. Item 20 data indicates a high rate of outlets ceasing operations. In 2024, one of five locations ceased operations (a 20% churn rate), and in 2022, one of three locations did (a 33% churn rate). For a system of this size, such a high percentage of turnover is a significant indicator of potential systemic problems, which could affect franchisee success and satisfaction.

Potential Mitigations

  • Contacting former franchisees listed in Exhibit D is crucial to understand why they left the system; a franchise attorney can help you prepare questions.
  • A thorough discussion with your business advisor is needed to evaluate the risks of joining a small system with a high churn rate.
  • You should directly ask the franchisor to explain the circumstances behind each unit that ceased operations.
Citations: Item 20, Exhibit D

Rapid System Growth

Low Risk

Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows that the system is growing very slowly, not rapidly. Rapid growth can strain a franchisor's ability to provide adequate support to all franchisees, potentially diluting the quality of training, site selection assistance, and ongoing operational guidance. It is often a sign that a franchisor is more focused on selling franchises than supporting them, which can be a significant risk for new investors.

Potential Mitigations

  • Your business advisor can help you assess if a franchisor's growth plans are sustainable and supported by a solid infrastructure.
  • An accountant should review the franchisor's financial statements to determine if they have the capital to support their projected growth.
  • It is advisable to ask existing franchisees about their perception of the quality and timeliness of the support they receive from the franchisor.
Citations: Not applicable

New/Unproven Franchise System

High Risk

Explanation

The Red Collection, LLC (TRC) began franchising in late 2017 and, as of the end of 2024, had only five operational franchised hotels. This small system size and limited operating history present a risk, as the business model and support systems are not as time-tested as those of a more mature franchise. The brand has limited market penetration and recognition, which could make it more challenging for you to build your business and compete against established hotel brands.

Potential Mitigations

  • Conducting extensive due diligence on the long-term viability of the brand concept is recommended with the help of a business advisor.
  • A conversation with the earliest franchisees in the system would provide valuable insight into the franchisor's learning curve and support evolution.
  • Your attorney could attempt to negotiate more favorable terms, such as reduced royalty fees in the initial years, to offset the higher risk.
Citations: Items 1, 20

Possible Fad Business

Low Risk

Explanation

This risk was not identified in the FDD Package. The business of operating a hotel is a well-established and long-standing industry, not a temporary fad. Fad-based businesses carry a high risk because their popularity can decline quickly, potentially leaving franchisees with a worthless investment and ongoing liabilities long after consumer interest has disappeared. A sustainable business model should address a lasting consumer need rather than a fleeting trend.

Potential Mitigations

  • Engaging a business advisor to research the long-term demand and competitive landscape for a franchise concept is a wise step.
  • An accountant can help you model the financial viability of a business under various market conditions, beyond its current popularity.
  • Your attorney should review the franchise agreement term to ensure you are not locked into a long-term contract for a short-term trend.
Citations: Not applicable

Inexperienced Management

Medium Risk

Explanation

Several key executives, including the President, Chief Financial Officer, and General Counsel, are new to their roles as of 2024. While the executives have prior industry experience, leadership turnover at the top of the organization can introduce risk. This may lead to shifts in strategic direction, changes in the franchisee support philosophy, or operational instability as the new team settles in, potentially affecting the guidance and support you receive as a franchisee.

Potential Mitigations

  • A business advisor can help you research the professional backgrounds and track records of the new executive team members.
  • You should ask the franchisor about their strategic vision and any planned changes resulting from the new leadership.
  • Speaking with current franchisees about their interactions with the new management team can provide valuable firsthand perspectives.
Citations: Item 2

Private Equity Ownership

Medium Risk

Explanation

The franchisor's ultimate parent company is identified as WRRH LP, a Delaware limited partnership based in Houston, a common structure for private equity or other investment funds. Franchisors owned by such firms may prioritize short-term returns for their investors, which could lead to decisions that benefit the fund's exit strategy over the long-term health of franchisees. This might manifest as increased fees, reduced support, or a quick sale of the franchise system to another entity.

Potential Mitigations

  • Your business advisor can help you research the parent investment firm and its reputation in managing other franchise brands.
  • Understanding the implications of the franchisor's right to sell the system without your consent is a key discussion to have with your attorney.
  • Asking current franchisees about any changes in operations or philosophy since the current ownership took control can provide valuable context.
Citations: Item 1

Non-Disclosure of Parent Company

Low Risk

Explanation

This risk was not identified in the FDD Package. The franchisor, The Red Collection, LLC (TRC), is a subsidiary of Red Roof Franchising, LLC (RRF). The FDD clearly discloses this relationship and provides RRF's audited financial statements and a full performance guarantee for TRC's obligations. This level of transparency is appropriate and allows for a proper assessment of the financial backing of the franchise system. A failure to disclose a parent company could hide significant financial or operational risks from a potential franchisee.

Potential Mitigations

  • Your attorney should always verify the corporate structure disclosed in Item 1 and confirm that any required parent guarantees are included in the FDD.
  • An accountant's review of parent company financials, when provided, is essential to understanding the overall financial health of the enterprise.
  • It is prudent to ask the franchisor to clarify the relationship and flow of support between the parent and the franchising entity.
Citations: Not applicable

Predecessor History Issues

Low Risk

Explanation

This risk was not identified in the FDD Package. Item 1 explicitly states that the franchisor has no predecessors that require disclosure. A predecessor is a company from which the franchisor acquired a major portion of its assets. Reviewing a predecessor's history is important because it can reveal inherited problems, such as past litigation, bankruptcies, or a pattern of franchisee failure, which could continue to affect the health of the current franchise system.

Potential Mitigations

  • Your attorney should always confirm whether a franchisor has predecessors and analyze their litigation and bankruptcy history in Items 3 and 4.
  • In cases with a predecessor, speaking with long-term franchisees who operated under the previous ownership can provide critical insights.
  • A business advisor can help you research the history of a brand, including any news or reports concerning its predecessor.
Citations: Not applicable

Pattern of Litigation

High Risk

Explanation

While Item 3 discloses some routine litigation, Note 9 to the financial statements reveals a much more significant risk. The company and its parent are involved in 205 matters, with 66 active lawsuits, related to alleged sex trafficking incidents at franchised hotels. The company notes that the potential loss could be significant. This level of litigation on such a sensitive issue poses a severe reputational risk to the brand and a potential financial threat to the franchisor's stability.

Potential Mitigations

  • The full scope and potential impact of this extensive litigation must be discussed in detail with your franchise attorney.
  • Your business advisor should help you assess the potential for brand damage and its effect on your hotel's future performance.
  • A conversation with your insurance broker is critical to understand coverage limitations for claims of this nature.
Citations: Item 3, Exhibit A (Note 9)
2

Disclosure & Representation Risks

Total: 15
4
0
11

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

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3

Financial & Fee Risks

Total: 10
3
6
1

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

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4

Legal & Contract Risks

Total: 16
8
1
7

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

5

Territory & Competition Risks

Total: 5
3
2
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

6

Regulatory & Compliance Risks

Total: 10
6
3
1

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

7

Franchisor Support Risks

Total: 4
3
1
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

8

Operational Control Risks

Total: 12
10
0
2

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

9

Term & Exit Risks

Total: 18
13
0
5

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

10

Miscellaneous Risks

Total: 2
2
0
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.