Franchising Has a Structural Problem No One Wants to Say Out Loud
And if it’s not addressed, the consequences won’t be theoretical.
There’s a line from my recent podcast with Kelly Spann of Fortman Spann that stopped me in my tracks.
Not because it was controversial. Because it was honest.
The premise was simple:
If the good franchisors don’t take action to push out the bad actors, the system itself is at risk.
That’s not anti-franchise rhetoric. That’s a structural warning.
And it raises a bigger question:
Have we reached a point where the franchise model, as it’s currently operating, is misaligned with the people it depends on most?
The One Rule That Isn’t Really a Rule
Franchising is often described as “highly regulated.” In practice, most of that regulation centers around one framework: the Federal Trade Commission’s Amended Franchise Rule. On paper, it’s designed to ensure transparency through the Franchise Disclosure Document (FDD). In reality, enforcement is limited.
There is no private right of action under the rule.
That means franchisees cannot sue under it directly.
Enforcement is left to state or federal authorities, which rarely intervene unless there is widespread or egregious conduct.
Translation:
The primary mechanism designed to protect franchisees is not one they can enforce themselves.
The Information Problem No One Talks About
Now layer in arbitration. Most modern franchise agreements include mandatory arbitration clauses.
What does that mean in practice?
Disputes are resolved privately
Outcomes are not publicly accessible
Patterns of conduct are harder to track
Future buyers have limited visibility into past issues
So you have a system where:
Disclosure is required
Enforcement is limited
And dispute outcomes are largely hidden
That’s not transparency it’s controlled visibility.
The Cost Barrier to Accountability
Arbitration is often framed as faster and more efficient. What’s discussed less often is cost.
Arbitration can be:
Expensive to initiate
Expensive to sustain
Structurally burdensome for individual franchisees
For many operators, the math becomes simple:
Even if you have a valid claim, can you afford to pursue it?
That question alone changes behavior. It doesn’t just resolve disputes. It discourages them.
The Quiet Shift in Power
Individually, each of these elements may seem manageable.
Together, they create a pattern:
Limited enforcement of disclosure rules
Restricted visibility into disputes
High barriers to legal recourse
Over time, this shifts leverage. Not in theory, in practice.
And when leverage shifts consistently in one direction, outcomes tend to follow.
Are We Saying the Quiet Part Out Loud Yet?
There’s a pattern in this industry. We preface almost every critique with:
“Franchising can be a great model…”
“This isn’t about bashing franchising…”
“There are good brands out there…”
All of which can be true. But they can also function as a way to avoid saying what comes next.
Because the harder question is this:
Is the system, as currently structured, designed to produce aligned outcomes between franchisors and franchisees?
Or has it evolved into something else?
The Incentive Gap
Franchisees invest capital, time, and personal guarantees.
Franchisors generate revenue for themselves through:
Initial fees
Ongoing royalties
Required supply chains
System-wide growth
In a well-aligned system, both parties benefit from unit-level success. But when growth, fees, or expansion are prioritized over unit performance, that alignment begins to weaken. And when enforcement and accountability mechanisms are limited, that misalignment can persist longer than it should.
What Happens If Nothing Changes
This is where the conversation usually stops. But it shouldn’t. Because the risk is not just individual franchise failure. It’s erosion of trust in the model itself.
And once trust erodes:
Buyer behavior changes
Due diligence increases
Skepticism rises
Growth slows
Not because franchising stops working. But because fewer people are willing to take the risk without stronger safeguards.
What Would Actually Change the Equation
The conversation in the podcast pointed to two structural levers:
Greater accountability for disclosure violations
Increased transparency around disputes
Whether that comes through regulatory change, industry standards, or internal pressure from strong franchisors remains to be seen.
But the broader point is this:
The system does not fix itself automatically.
It responds to incentives and pressure.
Bottom Line
This isn’t about declaring franchising “broken.”
It’s about acknowledging that:
Information is not as transparent as it appears
Enforcement is more limited than most assume
And accountability mechanisms are not evenly accessible
The model still works. But not always in the way it’s marketed. And the more we avoid that reality, the harder it becomes to address it.
Reality Check
Franchising doesn’t fail because people talk about its flaws. It fails when those flaws go unaddressed. The question isn’t whether franchising can work, it’s whether the current structure consistently supports the people investing in it.
And if not:
What happens next?
The information provided in this article is for educational purposes and general public-interest reporting. It does not offer legal, financial, or investment advice. Franchise purchasers should consult qualified professionals before making decisions. Franchise Reality Check™ analyzes publicly available documents, including Franchise Disclosure Documents (FDDs), state regulatory filings, and court records. Under Oklahoma Statutes and applicable federal law, analysis of publicly filed franchise documents, commentary on matters of public concern, and reporting on franchise industry practices are protected forms of speech.
