Franchisee Group Sues Urban Air Over Rising Costs
An Urban Air Adventure Park in Spring, Texas. A franchisee group is suing the family entertainment brand, claiming rising costs.
A group of franchisees is suing Urban Air Adventure Park, claiming changes to the family entertainment brand are adding untenable costs to their operations that were never disclosed in the FDDs when they signed.
Proceeds from those changes—from a new membership program to a direct insurance offering to a vendor for the socks that all customers must wear—are enriching the franchisor at the expense of operators, the lawsuit alleges.
Adventure Park Franchisee Association, the plaintiff, was formed last June and members tried to "engage corporate in a dialogue, and we've essentially been ignored," said Andrew Bleiman with Marks & Klein, the attorney pressing the lawsuit on behalf of the group. APFA represents at least 50 of the franchise's 130 open units, he said.
Michael Browning, CEO of Urban Air, declined through an outside spokesperson to give an interview, sending this statement: “At Urban Air, we take great pride in our strong franchise system and work closely with our franchisees to support their business and grow our concept. 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.”
In an interview in March, right after all 130 parks closed due to COVID-19, Browning told Franchise Times the average Urban Air park costs $2.5 million to open, "but once it's open, the cost of goods is quite low. Unlike the restaurant industry, we operate on very healthy margins. In our 2019 FDD, our item 19 was around 30 percent EBITDA or operating margin," he said. "Last year 82 percent of our organic growth was from franchisees buying another park using cash flow."
The lawsuit claims new costs are harming the unit economics. A new membership program, started in April 2019, charges a 2.5 percent fee and a national advertising fund fee costs 5 percent. Neither fee was disclosed in franchise disclosure document "or agreed to in the Urban Air franchise agreement of any operating location," the lawsuit states.
"This is a franchisee base that is very smart, sophisticated and very passionate about the brand. It's a dedicated group that's invested a lot of money into this brand," said Bleiman.
"The over-arching issue here is, what they were sold on and what they bought into is far different than what it is today. At every step of the way, changes seem to be being made without collaboration or cooperation of the franchisees. At every turn these decisions decrease profitability and increase costs," he said.
"The unit economics is where our problem is, not the brand or the business. At this point it's very challenging for them to make money, and we want to fix that."