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Welcome to You’re Probably Getting Screwed, a weekly newsletter and video series from J.D. Scholten and Justin Stofferahn about the Second Gilded Age and the ways economic concentration is putting politics and profits over working people.
Fast food workers have been the face of recent labor campaigns from Fight for 15 protests by McDonald’s workers [ [link removed] ] to unionization drives at Starbucks [ [link removed] ]. Caught somewhat in the middle between workers demanding decent pay and fair working conditions and these massive corporate brands, are the small business owners that run the locations we frequent in our neighborhoods. Companies like McDonalds and Starbucks are franchise businesses that license trademarks, methods and other products to “independent” entrepreneurs otherwise known as franchisees. 
Franchising is a major part of our economy. There are over 800,000 franchise establishments across the country that employ nearly nine million people [ [link removed] ]. While some of the most familiar names in the industry are restaurants, franchise businesses are found across the economy including in hospitality, healthcare and recreational activities. Franchising is also critical to communities of color as 30% of franchisees are minorities [ [link removed] ]. Federal policy also helps subsidize the model as franchisees are eligible for Small Business Administration loans. In 2019 nearly one-fifth of the money issued [ [link removed] ] through the 7a and 504 SBA loan programs were provided to franchises.
The opportunity franchising presents to would-be entrepreneurs is threatened by the anticompetitive conduct of these corporate chains or franchisors. This is unlikely to improve as the industry continues to consolidate. Much like the Illusion of Choice problem [ [link removed] ] we’ve written about, franchise companies are increasingly acquiring multiple franchise systems [ [link removed] ]. Private equity is becoming a larger player in the space as well. In just the last several years [ [link removed] ] Jimmy John’s, CKE Restaurants (which owns Hardee’s and Carl’s Jr), Massage Envy, Pet Supplies Plus and Dunkin’s Brands all were acquired or saw major investment by private equity firms. 
“Private equity’s reliance on debt and the mandate for growth can shift franchisor resources toward interest payments, rather than to strengthening the brand or providing franchisees with operational support.” - Federal Trade Commission
Earlier this year the Federal Trade Commission released a report titled “Risks to Small Business Success in Franchising [ [link removed] ]” that summarized feedback the agency had received from franchisees. Not all franchisors are engaged in harmful conduct and plenty provide opportunity and autonomy to franchisees. FASTSIGNS for example gives its franchisees the freedom to set business hours and inventory requirements and the company uses franchisee profitability as a key long-term growth metric. However, what the FTC heard from franchisees is that the scales are tipping and small business owners are increasingly facing deception, rising costs and less autonomy.
The FTC report builds upon a report issued in 2021 by Nevada Senator Catherine Cortez Masto (D) (Strategies to Improve the Franchise Business Model [ [link removed] ]) that examined unfair and deceptive franchise practices. Masto’s report identified four factors that lead to franchise failure. These are unfair contracts and agreements, inaccurate financials, overpriced or missing services and requirements to buy from preferred vendors and resulting kickbacks to franchisors. 
Subway’s $5 foot-long deal might have been good for consumers and the corporate bottom line, but squeezed franchisees who had to pay the same royalty fee to Subway while shouldering the burden for expenses like food costs and labor costs. The convenience store chain 7-Eleven forced many franchisees to sign new agreements in 2018 with $50,000 renewal fees and a requirement that franchisees share as much as 60% of their profits. Complete Nutrition has used data it collects from franchisee customers to steer them to the company’s online business. In her book Franchise: The Golden Arches in Black America [ [link removed] ], Marcia Chatelain writes, “the relationship between franchisor and franchisee is like a distorted parent and child bond, in which the parent sets the rules and the child pays all the household bills.” 
The FTC report was released alongside policy clarifications the FTC made under its Franchise Rule [ [link removed] ], which regulates presale disclosure of franchises and is the key federal protection franchisees have. Legislation has also been introduced in Congress over the years that would give state attorneys general authority to enforce the rule along with allow franchisees to bring private cases to enforce it. However, franchising is already an area where states can already have a major impact. In fact, Masto’s report found that in the last 14 years only states have taken enforcement action in franchise matters. 
Some states require registration or filing of a Federal Disclosure Document (FDD). Registration states generally require a FDD be submitted for examination by the state and filing states simply require the FDD be filed with the state. States have also taken it upon themselves to create other measures to protect franchisees. 
Indiana prohibits franchisors [ [link removed] ] from receiving kickbacks or rebates from vendors or establishing exclusive supply arrangements. Minnesota makes it difficult for franchisors [ [link removed] ] to unfairly terminate or fail to renew a franchise. Virginia allows franchisees to void a franchise agreement [ [link removed] ] within 30 days if they have not been given the opportunity to negotiate with a franchisor on the provisions of the agreement. Unlike the FTC’s ban on noncompetes, California’s applies to franchisees [ [link removed] ] and Washington’s work to prohibit no-poach agreements [ [link removed] ] benefits workers as well as franchisees seeking to recruit the best workers. States also have general laws prohibiting unfair and deceptive trade practices that could be used to reign in abuses by franchisors.
Strengthening these protections could also be a tool for addressing the abuses of even more powerful firms like Amazon whose delivery drivers have sued the company [ [link removed] ] for violating state franchise laws.
Personally I’m not sure franchising is the ideal model for creating a more distributed economy, but as it continues to grow, consolidate and attract the attention of financiers, it is critical that franchisor abuses are reigned in.  
YOU’RE PROBABLY (ALSO) GETTING SCREWED BY:
Centi-Millionaires
As of June of 2023, there are 10,660 people [ [link removed] ] in the U.S. that have $100 million or more. Worldwide, that number goes up to 28,420. If you’re not one of the 10,660 people, then the proposed Capital Gains Tax and the Unrealized Gain Tax by the Harris campaign doesn’t apply to you.
But that’s not stopping Republicans and certain media outlets from freaking out (I won’t be linking anything because I don’t care to lift up their crap). We have seen this trying to divide the working class before [ [link removed] ]… many times.
Wealth Inequality
Homeowner Insurance
Speaking of good videos [ [link removed] ] (and similar to what we’ve talked about before) climate change is impacting homeowner insurance that experts think will create a bigger housing crisis.
Members of Congress
The Farm Bill was due almost a year ago (September of 2023)… They passed a year extension, so we are waiting [ [link removed] ]…
Live Nation
Live Nation destroyed concerts.
We found ticket stubs from the biggest acts between 1970-1989 — and they all cost around $45. Then Ticketmaster took over.
Now you’re paying exorbitant service fees and indie venues are getting squeezed. And Ticketmaster/Live Nation is making bank.
Urban Growth
With Urban Growth dominating the US Economy, what does that mean for rural communities? This is an interesting guest column [ [link removed] ].
Mental Health Crisis
According to data released by the Centers for Disease Control and Prevention, the national suicide rate soared 33% over the past two decades. Agriculture is consistently in the top five most deadly industries. Sometimes that’s mixed with addiction [ [link removed] ].
SOME GOOD NEWS
Cool Book Alert
Sandeep Vaheesan, from the Open Markets Institute [ [link removed] ], has a book coming out in November called “Democracy in Power: A History of Electrification in the United States.” It looks pretty cool. You can pre-order here [ [link removed] ].
BEFORE YOU GO
Before you go, I need two things from you: 1) if you like something, please share it on social media or the next time you have coffee with a friend. 2) Ideas, if you have any ideas for future newsletter content please comment below. Thank you.
Break ‘Em Up, 
Justin Stofferahn

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