Legal Term

Hidden Royalty Base in Board Game Café Franchise Disclosure Documents

Legal Definition

A contractual provision within a Franchise Disclosure Document (FDD) and resulting franchise agreement where the definition of 'Gross Revenues' or 'Revenue Base' used to calculate ongoing royalty fees is ambiguously drafted or overly broad, potentially requiring the franchisee to pay royalties on income streams that are not truly net sales (e.g., including sales tax, gratuities, gift card breakage, or third-party platform fees before deductions).

In Plain English

A sneaky way a franchisor can charge you higher royalties by using a bigger, poorly-defined number to calculate the fee, instead of the actual profit from your board game café sales.

Example in a Contract
Item 5 of the FDD states: 'Initial Franchise Fee: $35,000. Ongoing Royalty: 5% of Gross Revenues, calculated and payable weekly. For purposes of this Agreement, 'Gross Revenues' means all income or receipts derived from or relating to the franchised business, including but not limited to, all sales of food, beverage, merchandise, and game play fees, without any deductions for taxes, refunds, or third-party delivery service commissions.'

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