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Ex-IFA John Gay Changes Mind, Supports Regulating Franchisors

Paul Steinberg's picture
Posted Fri, 2008/03/21 - 22:13 by Paul Steinberg
According to the Mar. 24 Nation's Rest. News, John Gay (formerly of the IFA) is now at the National Restaurant Assn, and is now supporting Rep. Conyers' bill (H.R. 5546) to regulate rapacious franchisors.

Apparently the franchisors give the franchisees take-it-or-leave-it contracts and costs imposed by the franchisors have been rising sharply. Gay notes that the franchisees "expressed concern about the unexplained increases...and inability to negotiate a fairer" deal.

The proposed legislation would permit franchisees to "form a broad coalition and negotiate" with franchisors "from a position of strength... if the negotiating parties cannot reach an agreement after a designated time, a three-judge panel would make a decision that best reflects market conditions."

In response, the franchisors respond that "there is no need for government intervention, and that it would be inappropriate for the U.S. government to set prices and negotiate the terms of contracts for private commercial entities."

Note: substitute "MasterCard & Visa" for "franchisors" and "restaurant owners" for "franchisees" and this story is true.

Congressman Conyers is a bit left-wing for my taste but is true to his principles. On the other hand,Mr. Gay must be having a tough time spouting this line with a straight face. Was Mr. Gay worried about "fairness" or did he base his position on "freedom of contract" when he lobbied for the IFA?

Wonder what the IFA's position on this bill is... after all, most IFA members would benefit from this government intrusion proposed by Rep. Conyers.

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Credit Card Companies VERY Active in Recruiting Franchisees by Guest
Submitted by Guest on Tue, 2008/03/25 - 13:49.
Before we failed out of business, we noticed that we had lots of mail from Credit Card companies offering us various deals on which we could use their services to extend our credit limits, etc... and increase our cash flow. The Credit Card Companies protect their position because they take their interest/fees right off of the gross sales just like the franchisors. Where do they stand in line in bankruptcy court? The House of Cards stands up because of the binding and exploitive franchise agreements and the personal guarantees of franchisees that ensure the redistribution of money from the pockets of franchisees to the pockets of the franchisors, the Landlords, and the credit card companies, and the suppliers, and finally, to the investors. What happens when there are no franchisees left to feed the BEAST?
I like Rep Conyers who knows all about the IFA by Guest
Submitted by Guest on Fri, 2008/03/21 - 23:34.
If he is "left" and he helps franchisees, this is good news and he is "right" from my viewpoint. He has been through all of this before and he knows the strong forces who will oppose him. All of the committees involved in franchise issues know that the current state of government regulation of franchising actually protects franchisors and merely licenses them to sell their concepts at any degree of risk to the public as long as they comply with mandated government disclosure under the FTC Rule or state UFOC's (FDD's) I haven't read this Bill yet but will take a look at it. Why do you think that THIS government intrusion will benefit the IFA members?
Umm..It was irony by Paul Steinberg
Paul Steinberg's picture
Submitted by Paul Steinberg on Sat, 2008/03/22 - 02:10.

The real bill results in the government regulating the rates which MasterCard & Visa charge merchants.

I was trying to point out the irony of someone supporting a vastly intrusive statute (far more intrusive than SBFA would have been) because the free market is "unfair." That Mr. Gay and Rep. Conyers are bedfellows is the icing on the cake.

As to why it would benefit IFA members: simple-- credit card fees are a big part of costs for any retailer. If you can get a panel of judges to reduce your rate from 2% to 1%, well bingo-- that's less money in MasterCard's pocket and more money in yours.

Don't get me wrong, there are significant antitrust issues here and I think that both pieces of legislation (the failed SBFA and this new credit card proposal) have their merits and demerits. And I am not a nutcase laissez-faire type who ignores externalities and other public policy considerations.

But I would like for Mr. Gay to explain why MasterCard can't be allowed to bully the Quizno's franchisee because the free market leads to an "unfair" outcome, but Quizno's can screw the franchisee because the free market doesn't have to be "fair."

It is not a conceptually logical position.

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400


Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Free Markets by michael webster
michael webster's picture
Submitted by michael webster on Sat, 2008/03/22 - 10:45.

Doubly ironic that the poor restaurant owners have no bargaining power post signing their agreement with Visa or Mastercard, eh.

Didn't they get the proper disclosure?

Nobody told them to sign with Visa or put a gun to their heads.  Right?

And so all the other providers had similar provisions.  Tough luck.

(very good catch, Paul.) 

Michael Webster PhD LLB
Franchise News


Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"


Free Markets and Franchising by Guest
Submitted by Guest on Sat, 2008/03/22 - 11:25.
The "free market" concept and the "freedom of contract" concept has been twisted in franchising to the very great benefit of franchisors. There is no competition among franchisors of the same and similar concept to recruit potential new franchisees based on the rewards and benefits to first-owner franchisees for that particular system. No unit performance statistics concerning past or present performance are required to be disclosed. Only 17% of franchisors opt to report in Item 19 and Item 20 is an artifice on which new franchisees are supposed to do their due diligence concerning risk and reward, but it is really a vehicle to protect the franchisor from charges of misrepresentation concerning the risk during the sales process. There is really no way, based on the UFOC's, for ZEES to compare one postal shipping unit with another, except, of course, for the startup costs, that are so often misleading and for which the ZORS are not held responsible for under contract. Franchisors do not compete with each other to recruit franchisees through full disclosure of the material risk of success or failure of first-owners of the franchise. This, of course, is why the quick food service sector is so crowded and becoming unprofitable for so many ZEES and why there is low profitability among ZEES in many of the diferent concept sectors. It must be that the franchisors have agreed that it is somehow in the best interests of all franchisors not to talk about or disclose the risk of the franchise as determined by the failure or success of first-owner franchisees in their networks. I am waiting for the day that franchisors will advertise that their first-owner franchisees are 90% successful but that will never happen until the franchisors are required to disclose past and present performance statistics on a unit basis.