Explanation

While the system experienced rapid growth in prior years, this has slowed dramatically, with a net decrease of four franchised units in 2024. The previous fast-paced expansion could have strained the franchisor's support systems, potentially contributing to the current financial losses and franchisee turnover disclosed in Items 21 and 20. The risk now is less about future growth outpacing support and more about the consequences of past growth.

Potential Mitigations

• In discussions with current franchisees, ask about the quality and responsiveness of franchisor support, particularly for those who joined during the peak growth years.
• A business advisor can help you question the franchisor about how they scaled support infrastructure and whether it is now rightsized.
• Your accountant should review financial statements to assess if the company has sufficient resources to sustain its current support obligations.

Explanation

This risk was not identified in the FDD Package. Walk-On's began franchising in 2014 and has grown to over 70 locations, indicating it is an established system. However, investing in any franchise carries risk, and for newer systems, this can include an unproven business model, undeveloped support, or minimal brand recognition. Careful due diligence on the system's history and performance is always crucial for a prospective franchisee.

Potential Mitigations

• A business advisor can help you research the franchisor’s history and the experience of its management team in both the industry and in franchising.
• Contacting the earliest-joining franchisees listed in the FDD can provide insight into the system's evolution and the franchisor's performance over time.
• Your accountant should analyze the franchisor's financial stability and capitalization to ensure it can support its franchisees long-term.

Explanation

This risk was not identified in the FDD Package. The Walk-On's concept is a Louisiana-themed sports grill, which is a well-established and recognized segment of the restaurant industry. While consumer tastes can change, the fundamental business model is not based on a short-term fad. This provides a more stable foundation compared to concepts built on novel or fleeting trends, which can face collapse when consumer interest wanes.

Potential Mitigations

• A business advisor can help you assess the long-term market demand for the specific restaurant concept in your target area.
• Review the franchisor's history of menu innovation and concept adaptation with your business advisor to gauge its ability to stay relevant.
• Analyzing market trends for the casual dining and sports bar sector with a financial advisor will help inform your own business plan.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the management team has executive experience from major restaurant and franchise companies, including Papa John's and Bloomin' Brands. This level of experience can be beneficial, as it suggests the leadership understands the complexities of operating a large franchise system. However, it's still important to verify the quality of support with existing franchisees.

Potential Mitigations

• Even with an experienced team, a discussion with your business advisor about how their specific skills align with the brand's needs is worthwhile.
• It is always prudent to ask current franchisees about their direct experiences with the management team's support and strategic direction.
• Your attorney can help you research the past performance of the executives at their prior companies.

Explanation

This risk was not identified in the FDD Package. Item 1 details the parent companies and owners, which include the founder and public figure Drew Brees, but there is no mention of a private equity firm. When a franchisor is owned by a private equity firm, there can be a risk that decisions are focused on short-term investor returns rather than the long-term health of franchisees, which does not appear to be the case here.

Potential Mitigations

• Your attorney should always confirm the ownership structure disclosed in Item 1 through independent corporate records searches.
• A business advisor can help you understand the potential implications of different ownership structures on a franchise system's strategy.
• Asking current franchisees about their perception of the franchisor's long-term commitment to the brand is a valuable due diligence step.

Explanation

This risk was not identified in the FDD Package. Item 1 explicitly states, "We have no predecessors." This means the company has not acquired the system from a prior entity, so there are no hidden historical issues from a predecessor to consider. You are dealing with the original and sole operator of the franchise system, which simplifies due diligence in this specific area.

Potential Mitigations

• Your attorney should still verify the franchisor's corporate history to confirm the accuracy of the "no predecessors" statement.
• A business advisor can help you research the brand's history through public records and news archives to build a complete picture.
• Asking long-term franchisees about the company's history can provide valuable context and confirm the information in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation must be disclosed, meaning there are no current or recent lawsuits against the franchisor that meet the legal threshold for disclosure. This can be a positive indicator, as a pattern of franchisee-initiated lawsuits for fraud or franchisor-initiated suits for royalty collection can signal systemic problems. However, this does not guarantee the absence of all disputes.

Potential Mitigations

• Your attorney can conduct independent searches for litigation involving the franchisor that may not have met the criteria for disclosure in Item 3.
• It is always a crucial step to ask current and former franchisees about their relationship with the franchisor and any disputes they may have had.
• A business advisor can help you research online forums and news articles for any reports of franchisee dissatisfaction or conflict.