Premier Martial Arts franchisor and sales firm to pay $1.85 million in FTC settlement
The FTC says the companies misled more than 200 buyers about earnings and the time needed to run a martial arts franchise, and the proposed settlement would give some franchisees the option to cancel their agreements without penalty.
What we know
- Premier Franchising Group LLC and its former franchise sales organization, Franchise Fastlane LLC, will pay $1.85 million to settle FTC allegations of misleading claims about the Premier Martial Arts franchise and violations of the Franchise Rule. [1] [2]
- Under the proposed order, Premier Franchising Group must offer certain franchisees the right to cancel their franchise agreements without penalty. [2]
- The FTC filed the complaint and proposed orders in the U.S. District Court for the Eastern District of Tennessee, and the Commission vote to file them was 2-0. [2]
- Not yet confirmed: The settlements are proposed. The FTC said stipulated final orders carry the force of law only after the District Court judge approves and signs them. The sources do not say how many franchisees will qualify to cancel.
Premier Franchising Group LLC (PFG), the franchisor of Premier Martial Arts, and its former franchise sales organization, Franchise Fastlane LLC (FFL), will pay $1.85 million to settle Federal Trade Commission charges, the agency announced Oct. 5. [1][2]
The FTC alleges the companies made misleading and unsubstantiated claims when promoting the franchise, and that they violated the Franchise Rule. The agency said one claim was that people with no martial arts background could profitably run one or several studios on a semi-absentee basis, working under 15 hours a week. [2]
According to the FTC, those claims drew more than 200 buyers who each paid an initial franchise fee of $49,500 or more. The agency said these buyers, who included veterans, spent hundreds of thousands of dollars more to build and run their studios, and many took on significant debt. [2]
The FTC's complaint also alleges that PFG's 2020-2022 Franchise Disclosure Documents reported significant income for existing studios without a reasonable basis to say those results were representative of what new studios could earn. The agency said existing franchisees often ran larger studios, at 2,000 to 7,000 square feet, than the 1,200 to 1,600 square feet PFG recommended for new franchisees. It also said existing franchisees had significant martial arts experience, while most new franchisees did not. [2]
The complaint further alleges that PFG did not disclose those differences or that FFL personnel held management roles in marketing and selling the franchise. It also alleges that both companies made financial performance claims that were not included in the disclosure documents. [2]
The proposed order against PFG sets a $3,875,424 monetary judgment, partially suspended once PFG pays $650,000. The proposed order against FFL requires a $1.2 million payment. The FTC said the money will go to compensate franchisees. Both orders would bar the misrepresentations at issue and require compliance with the Franchise Rule. [2]
"Franchisors are legally required to be upfront and honest about earnings potential and the associated risks before franchisees pour their hard-earned money into a franchise opportunity," said Christopher Mufarrige, Director of the FTC's Bureau of Consumer Protection. [2]