The Franchise Owner's most trusted news source


Log In / Register | Aug 31, 2014

ABCs of FDDs: Item 18, Public Figures

Have you ever bought a product or service because a celebrity endorsed it? I'd like to think that I bought my last pair of Wrangler jeans because they were a better value and fit than anything Levi's had to offer.

  But I'm a life-long Green Bay Packers fan and I can never be sure whether all of those Brett Favre commercials had any effect on my decision. It was a small purchase so I'm not going to lose any sleep over whether my choice was at all influenced by Madison Avenue.

Of course, buying a Buick just because Peyton Manning – one of all-time my favorite athletes – pitches the brand in a very appealing TV ad is a little different and a lot dumber. But it's not Hall of Fame stupid, like investing your life savings in a franchise just because it was endorsed or backed by a celebrity.

And it's our fellow citizens who never in their lives had occasion to say "checkmate" that the Federal Trade Commission (FTC) apparently wants to protect with Item 18 – Public figures – of the franchise disclosure document (FDD).

Item 18 is a relic from a time in franchising's not so glorious past when celebrities were used to pitch franchise concepts that had little to offer beyond an illusory "thumbs-up" from a Hollywood star or professional athlete. Few franchisors today make any attempt to distinguish their franchise opportunity with a "public figure" endorsement, but Item 18 still takes up valuable real estate in the FDD. That's because in the last rewrite of the rules governing franchising in 2007 the FTC concluded, with no obvious gusto, "To a limited degree, these [Item 18] disclosures still serve a useful purpose."

Nevertheless, some franchisors still covet the leg up that an association with celebrity might provide, whether or not that link rises to a disclosure requirement.

What you will learn.

Let's start with a question: who is a "public figure"? We can go through the short definition – and I will below – but common sense is the best guide here. If a person is famous for reasons not involving the robbing of a convenience store, that person is likely a public figure. Specifically, under Item 18 a "public figure" is "a person whose name or physical appearance is generally known to the public in the geographic area where the franchise will be located." So, the threshold for "public figure" status is pretty underwhelming and, I guess, local news anchors and the starting first baseman for the Montgomery Biscuits (yes, there is a Double-A Southern League baseball team apparently named after a breakfast side order) might fall within the definition.

Disclosure is required under Item 18 if the public figure:

  • Was given or promised any compensation or other benefit "arising" from either
    • The use of the public figure in the franchise name or symbol, or
    • The public figure's "endorsement or recommendation of the franchise to prospective franchisees."
  • Manages or controls the franchisor.
  • Invests in the franchisor, including with cash or in-kind services.

What you will not learn.

You will not learn much about how much Papa John's (NASDAQ: PZZA) pays Peyton Manning for the amusing television spots in which he ups the ante on CEO John Schnatter's free pizza giveaways. A simple product endorsement or recommendation will not pull a public figure within the scope of Item 18. Instead, the endorsement or recommendation must be with respect to selling the franchise. The franchise page on Papa John's website, however, does feature prominently a shot of Manning mugging with Schnatter, which is captioned by "PEYTON MANNING SCORES A TOUCHDOWN AS NEWEST PAPA JOHN'S FRANCHISEE." This may give the "Better Ingredients. Better Pizza" legal staff some Item 18 angst.

Although a seemingly closer call, you probably will not learn anything about the deal announced last October under which Manning will own 21 Denver-area Papa John's restaurants. That's because Manning's investment is in a multi-unit franchise and not the franchisor. Nevertheless, if Manning got a break on any initial fees – like the franchise fee – you may learn about that in Item 5 (Initial Fees) of Papa John's next FDD.

The bottom line is that you will not learn much at all from this vestigial disclosure requirement because few, if any, franchisors – including Papa John's – provide any disclosure under Item 18 except for something like "We do not use any pubic figure to promote our franchise."

This is the eleventh in a series of articles for prospective franchisees that discuss the components of a franchise disclosure document. Unlike almost all other articles about what you will learn in a franchise disclosure document, however, this series will focus on what you may not learn. This focus is intended to help you both refine and expand your due diligence efforts.


Mike Sheehan is a franchise consultant and attorney. He is the president of Focus Ventures (www.focusonfranchise.com) and formerly served as a securities attorney and as general counsel for a Fortune 100 financial services company. His Franchise Focus Blog (www.franchisefocus.blogspot.com) focuses on helpful information, tips and current news for prospective franchisees.

This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only and you are urged to consult your own franchise attorney concerning your own situation and any specific legal questions you may have.

© 2013 Mike Sheehan. All rights reserved.

No votes yet