Premier Martial Arts Franchisor and its Former Franchise Sales Organization Settle FTC Charges that the Companies Made Deceptive Claims and Violated the Franchise Rule

Franchisor Premier Franchising Group LLC (PFG) and its former franchise sales organization, Franchise Fastlane LLC (FFL), will pay $1.85 million to settle Federal Trade Commission allegations that they made misleading representations about the Premier Martial Arts (PMA) franchise opportunity and violated the Franchise Rule.

Under the proposed settlement with PFG, certain franchisees will be given the option to cancel their franchise agreements without penalty.

"Franchisors are legally required to be upfront and honest about earnings potential and the associated risks before franchisees pour their hard-earned money into a franchise opportunity," said Christopher Mufarrige, Director of the FTC's Bureau of Consumer Protection. "The FTC will continue to take action to protect small businesses and franchisees and hold those that break the law accountable."

According to the FTC's complaint, PFG and FFLmade deceptive and unsubstantiated claims while promoting the PMA opportunity. For instance, the companies deceptively claimed that non-martial artists could profitably operate one or multiple PMA martial arts franchises on a semi-absentee basis working less than 15 hours a week. These deceptive claims, among others, enticed more than 200 consumers to pay PFG an initial franchise fee of $49,500 or more to purchase a PMA franchise opportunity. As a result, these consumers, which included veterans, incurred hundreds of thousands of dollars in additional expenses to build out and operate their studios, with many assuming significant debt.

The complaint further alleges that PFG also deceived prospective franchisees by making deceptive earnings claims in its 2020-2022 Franchise Disclosure Documents (FDDs). The complaint alleges that PFG reported in its FDDs that its existing PMA franchisee studios earned significant income but lacked a reasonable basis to know whether those studio earnings were representative of what new PMA franchisee studios could earn, because, at the time, PMA's existing franchisees operated studios that were materially different than the studios prospective franchisees would operate. For example, many existing franchisees had larger studios than what PFG recommended that new franchisees open (2,000-7,000 square feet versus 1,200-1,600 square feet). Also, most new franchisees had no martial arts experience, and existing franchisees had significant martial arts experience.

In addition, the complaint alleges that PFG failed to disclose those differences and that FFL personnel had management roles in the marketing and selling of the PMA franchise, as legally required under the Franchise Rule. The complaint also notes that PFG and FFL violated the Franchise Rule by making financial performance representations that were not contained in the FDDs.

The proposed order against PFG imposes a $3,875,424 monetary judgment against PFG, which will be partially suspended upon payment of $650,000. Theproposed order against FFLrequires it to pay $1.2 million. The money paid by PFG and FFL will be used to compensate franchisees. In addition, the proposed orders against PFG and FFL:

• Prohibit misrepresentations that are at issue in this case, as well as misrepresenting any other fact material to consumers
• Require compliance with the Franchise Rule

The proposed order with PFG also requires it to send a notice to certain franchisees offering them the right to cancel their existing franchise agreements, with no penalty to the franchisee.

The Commission vote approving the filing of the complaint and the proposed orders was 2-0. The FTC filed the complaint and proposed orders in the U.S. District Court for the Eastern District of Tennessee.

NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.