Operator group calls out discounts, memberships, even socks in lawsuit
Illustration by Jonathan Hankin
The cost of socks, which every customer of an Urban Air Adventure Park must buy, isn’t the biggest-ticket item that a group of franchisees is criticizing in a lawsuit against the franchisor. But it may be the most irritating, like a pebble in a shoe.
Corporate pays 8 cents a pair; franchisees pay $1.12 with shipping. That means corporate can reap $40,000 to $50,000 in profits per year from a single location on socks alone, according to the lawsuit.
“Corporate seems to be very interested in making money for themselves and not necessarily in making the franchisees more profitable,” said Andrew Bleiman, the Marks & Klein attorney who is pressing the lawsuit on behalf of APFA or Adventure Park Franchisee Association, which he claims represents more than 50 of the brand’s 130 operating locations.
“We believe they’re getting rebates on all the purchases the franchisees are making, or certainly most, that runs counter to what they’re saying” in the franchise disclosure document, Bleiman said.
A new membership program is another irritant, the lawsuit claims, because it’s a positive for corporate but cuts profits for franchisees. If a customer walks in and pays $36, like at some parks, a member would pay $18 and get free food and drinks. Also, memberships are canceled at a high rate or put on credit cards the customer subsequently closes.
The membership program plus related fees cost franchisees 3.5 percent of sales. The royalty is 7 percent. The marketing fee is 5 percent.
The most souped-up version of an Urban Air Adventure Park, called the 2.5, costs up to $3.6 million to open, including in one example $1 million worth of electric go-karts plus trampolines, indoor sky-diving, ropes courses, bowling and cafes.
Park insurance costs up to $120,000 a year. A recent move by corporate to form its own insurance company “is actually a carefully designed wealth transfer scheme to further profit from Urban Air franchisees to the tune of millions and millions of dollars,” the lawsuit said.
A final indignity, according to an association member: When parks were allowed to reopen after COVID-19 lockdowns lifted, they were told they had to give a 50 percent discount for a week, and then discount 30 percent for the following seven weeks, which would “destroy” revenue.
None of the association’s members agreed to be interviewed on the record for this article, and none of them is named as a plaintiff in the lawsuit. They believe staying anonymous even while going public with their dispute in court will shield them from retaliation.
“Their effort here is to try and divide the group and scare them into not wanting to move forward,” Bleiman said about the franchisor and CEO Michael Browning. “These are smart, sophisticated people who are very in tune with the numbers and the unit economics, and these are very real issues that can be fixed. But it can’t be his way or the highway.”
‘I feel like I have a voice’
Michael Browning would not give an interview for this article, and sent a statement that said in part: “While we cannot comment on the specifics of the pending case, we take this matter very seriously and believe this lawsuit is representative of a small minority and wholly without merit. At Urban Air, we take great pride in our strong franchise system and have always worked closely with our franchisees to support their business and grow our concept.”
On March 23, all 130 Urban Air parks were closed. Michele Hoskins, an operator of two parks in San Antonio, was interviewed June 19, the day before she was set to reopen. “2018 was an absolutely fabulous year for us because we were the only Urban Air park here in San Antonio,” she said.
“The competition will come. There’s always someone else knocking on our door. Our profitability has dropped somewhat but it’s attributed to a lot of factors.”
Hoskins is not part of the association that is suing but is aware of the lawsuit. “I think everybody has an opinion. What I would say, there’s other ways to handle the situation besides the lawsuit, but I understand at the same time that’s the only recourse” the plaintiffs believed they had.
“My experience has been great” with the franchisor, she said, including times when “we agree to disagree. At the same time, it’s a respectful relationship. I feel like I have a voice.”
Browning co-founded Urban Air with his father, Mike Browning, with the first unit opening in Southlake, Texas, in October 2011. They bootstrapped the company until MPK Equity Partners, whose partners include Patrick McGee, Ross Perot Jr. and Douglas Kennealey, bought a 51 percent stake in April 2018.
A bad trend?
Filed in late April, the lawsuit against Urban Air is strikingly similar to two others reported in this column recently: a lawsuit seeking class-action status against Detail Garage, the auto-detailing supplies retailer; and a franchisee association suing Edible Arrangements, which sells fresh-fruit arrangements. All three claim the franchisor is reaping profits at the expense of franchisees.
“I don’t know if it’s a bad trend, or if it’s more a sign of the times,” said Bleiman, whose firm spends lots of time suing franchisors. “There’s more of an expectation that there’s going to be cooperation, collaboration and a real exchange.”
He cited Planet Fitness as a standout example. “They’ve had a willing engagement with the franchisee base, and have used that franchisee base to make change for the good. I think what you’re seeing with some of these lawsuits, is where franchisors are really not engaging in that type of collaboration, and want to do it their own way.”
Given the high costs of operating amid COVID-19, paying attention to costs that operators bear will be crucial.
“Franchisees are very sophisticated now. A lot of these people have had significant success in other businesses in other industries, and have a lot to offer,” Bleiman said, including the Urban Air franchisees he represents. “Instead of rejecting those insights and those ideas from those franchisees, they should accept them and say, we could cooperate.”
Beth Ewen is senior editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to firstname.lastname@example.org.