Misuse Of Advertising/Marketing Funds In Franchises

Last updated on February 27, 2025

Franchise advertising funds, often called advertising or marketing fees, are contributions made by franchisees to a collective fund used to promote the franchise brand at a national or regional level. Unfortunately, franchisors may not always have your franchise’s best interests at heart, perhaps misusing or not using your money.

Zarco Einhorn Salkowski, P.A., is a renowned commercial litigation firm nationally awarded in franchise law and recognized for safeguarding the business and legal interests of franchisees, dealers, licensees and distributors. Our experienced franchise lawyers come from diverse backgrounds, including economics, accounting and finance. Their stellar reputations are for their pivotal roles in landmark cases that have set key legal precedents in franchise law at both federal and state levels.  Over the last 35 years, our firm has represented franchisees and franchisee associations from over 500 franchise systems nationally and internationally.

If you believe there are fraudulent or illegal business dealings, even after lawyers from other law firms say you don’t have good case, we are ready to provide you the hope and creative arguments you deserve with our top-notch experienced legal team.

 Resolving Disputes Over Franchise Advertising And Marketing Funds

Franchisors often require franchisees to contribute to a collective advertising fund intended to benefit the entire network. However, conflicts can occur over how these funds are managed and allocated. Common disputes include:

• Lack of transparency: Disputes occur when franchisors fail to provide clear, detailed reports on how the advertising funds will be spent. This can lead to suspicion and mistrust among franchisees, who may feel their contributions are not being used effectively or fairly. We advocate for clear communication and detailed reporting to prevent such disputes.
• Misrepresentation of fund usage: Sometimes, franchisee contributions are not used as promised—for example, funds designated for local advertising campaigns might be diverted to other purposes. This can diminish the effectiveness of the advertising efforts and can lead to legal disputes over breach of contract or fraudulent misrepresentation.
• Disagreements over local versus national advertising strategies: Some franchisees may believe that the franchisor’s advertising strategies favor certain locations or regions over others, or that more attention is given to national ad campaigns rather than local market penetration. In diverse markets where local advertising reaches potential customers more effectively, this can lead to conflict between the franchisee and franchisor.

At Zarco Einhorn Salkowski, P.A., we are uniquely positioned nationwide to bring the weight of our brand and experience to obtain a great deal of leverage when negotiating with the franchisor.  We work with our clients to address these issues head-on. We help our clients understand their legal rights and the obligations of the franchisor under the franchise agreement. Our approach involves a thorough review of the franchise disclosure documents and the contractual obligations related to advertising fund contributions and usage.

Using Mediation To Avoid Court Costs

Before conflict escalate into litigation, we begin the process of restoring trust and promoting fair practices by negotiating with franchisors. Our attorneys have decades of experience in arbitration and mediation and consistently find ways to resolve disputes without going to court. However, if litigation becomes necessary, our team is prepared to vigorously defend our clients’ interests in court. We work hard to ensure that franchisors’ contributions to advertising funds are commercially viable, used as intended and that the rights of our clients are protected.

Services We Provide To Clients

Understanding franchise advertising funds is crucial when considering a franchise investment, as it impacts both the financial obligations and the marketing support you will receive as a franchisee. Asking the franchisor how it spends advertising and marketing funds is essential. We can evaluate the advertising or marketing agreement by reviewing such factors as:

• Purpose: The primary goal of franchise advertising funds is to increase brand awareness and drive customer traffic to all franchise locations, including yours. These funds are for marketing campaigns, advertising materials and other promotional activities that benefit the franchise system.
• Contribution structure: Typically, franchisees contribute a certain percentage of their gross sales to the advertising fund. The franchise agreement outlines the spending, which is usually consistent across all franchisees within the system.
• Centralized management: The franchisor usually plans and executes marketing strategies. Moreover, it must ensure it uses the funds effectively to benefit the brand.
• Types of advertising: The funds can go to various types of advertising, including national television commercials, digital marketing campaigns, social media promotions and print advertisements. The franchisor can allocate some funds for regional advertising efforts.
• Accountability and transparency: Franchisors often provide franchisees with reports or summaries that show how they spend the advertising funds. This transparency helps franchisees understand the impact of their contributions.
• Local advertising: Besides the national or regional advertising fund, franchisees may be encouraged or required to spend additional funds on local advertising efforts tailored to their specific market.

Ideally, marketing and advertising drive up sales, but some franchisees may see lapses, inconsistencies and a lack of support from their franchisor. Those who believe this can contact us to schedule a free initial consultation.

The Franchisor May Threaten Retaliatory Termination and Legal Action Against You

If you are a franchise owner facing a lawsuit or termination from your franchisor for complaining about alleged misuse of advertising funds, it’s essential to take the situation seriously and act promptly. Here are key steps you should consider taking:

• Consult with an attorney: Seek legal advice from an attorney experienced in franchise law as soon as possible. They can help you understand the specifics of the lawsuit, and your rights and obligations under the franchise agreement.
• Review the franchise agreement: Have an experienced franchise attorney carefully review your franchise agreement, particularly sections related to advertising funds and their use, to understand the requirements and restrictions imposed on these funds.
• Gather documentation: Keep and collect all relevant documentation and records related to the advertising funds. This includes receipts, communications with the franchisor, and any reports or audits you conducted. This information can be crucial for your defense.
• Assess compliance: Work with your experienced franchise attorney to assess whether your and the franchisor’s use of the advertising funds was compliant with the franchise agreement and any additional guidelines provided by the franchisor.
• Negotiate with the franchisor: Through your attorney, especially one that brings the leverage our firm commands, consider negotiating with the franchisor to resolve the dispute outside of court. It could involve a demand letter, mediation or settlement discussions.
• Prepare a defense: If the case proceeds to court, work closely with your attorney to prepare a strong communication and defense. It may involve demonstrating that you spent the funds appropriately,  that there were unclear guidelines, or that the requirements are commercially unviable and punitive.
• Consider dispute resolution alternatives: Some franchise agreements include clauses requiring mediation or arbitration before proceeding to litigation. Allow your franchise attorney to check if this applies to your situation and if it can provide a more efficient resolution.
• Stay informed: Keep informed about the legal process and remain actively involved in your defense strategy. Regular communication with your attorney is essential.
• Dealing with a dispute or lawsuit can be stressful, but taking these steps can help you address the situation effectively and protect your business interests before the situation escalates

Contact Our Firm Today

For comprehensive franchise law support, Zarco Einhorn Salkowski, P.A., offers uniquely experienced assistance in business investment evaluation, legal documentation and swift resolution of franchise disputes. Our team empowers franchisees by balancing the playing field in negotiations with franchisors, ensuring fair treatment and access to necessary legal resources. We aim to establish a robust operational foundation and safeguard your financial future. Contact us for a free consultation through our online contact form or call 888-580-7844 or 305-703-5058.