The Franchisor Went Bankrupt. What Happened to the Franchisees’ Advertising Money?
Relevant FDD Topics: Item 3, Item 4, Item 6, Item 8, Item 11, Item 17, Item 21, Franchise Agreement
This report is for educational purposes only and is based on publicly available court filings, bankruptcy records, corporate filings, Franchise Disclosure Document concepts, and other public sources available at the time of publication. The statements and opinions expressed herein are those of the author.
Many of the matters discussed in this report involve allegations made by franchisees and the Round Table Owners Association in pending bankruptcy proceedings. Those allegations have been disputed and have not been finally adjudicated. This report does not make an independent finding that FAT Brands, Round Table Franchise Corporation, FBG Bid Co., or any other party misappropriated advertising funds or otherwise violated the law or their contractual obligations. Nothing herein should be construed as legal, financial, or investment advice.
When a franchisee signs a franchise agreement, the royalty is usually only one of several recurring payments that begin flowing out of the business.
For many restaurant franchises, one of the largest is the advertising or marketing contribution. It is typically calculated as a percentage of gross sales and paid regardless of whether the franchisee believes the advertising is effective, whether the franchisee directly benefits from a particular campaign, or whether the restaurant itself is profitable. Round Table Pizza franchisees have been required under applicable agreements cited in recent court filings to contribute as much as 4% of net sales to an advertising fund administered by the franchisor.
Now, as the former owner of Round Table Pizza moves through bankruptcy and liquidation, those mandatory advertising contributions have become the center of an unusually consequential franchise dispute.
The Round Table Owners Association, an independent franchisee association representing approximately 135 franchisees operating about 385 restaurants, alleges that money intended for the Round Table advertising fund was improperly diverted, that supplier revenues and rebates were not properly accounted for, and that millions of dollars must be returned to the fund before the franchise agreements can be transferred to the brand's new owner.
The former franchisor and the purchaser dispute significant portions of those claims.
The amount remains unresolved.
But the bankruptcy has exposed a question that franchise buyers rarely ask before investing:
What happens to mandatory advertising money if the company controlling it becomes financially distressed?
Round Table Became Part of FAT Brands in a Debt-Fueled Acquisition
Round Table Pizza was founded in 1959 and has been franchised for decades. Today, the brand reports more than 400 franchised restaurants, concentrated primarily in the western United States.
FAT Brands acquired Round Table in July 2021 as part of its purchase of Global Franchise Group, which also included Great American Cookies, Marble Slab Creamery, Pretzelmaker and Hot Dog on a Stick.
The transaction was valued at approximately $442.5 million and was funded largely with cash raised through newly issued debt, along with preferred and common stock. FAT Brands later disclosed that approximately $338.9 million in net proceeds from securitization notes were used substantially to finance the acquisition.
FAT Brands promoted an asset-light franchising strategy that it said provided attractive margins and cash flow while reducing the restaurant-level risks associated with leases and capital expenditures.
The company continued acquiring brands.
By January 2026, however, FAT Brands and numerous affiliates filed Chapter 11 bankruptcy proceedings in the Southern District of Texas carrying approximately $1.4 billion in debt. The bankruptcy included several entities connected specifically to Round Table Pizza, including Round Table Franchise Corporation and entities associated with the Round Table advertising fund.
What followed was not merely a restructuring of the corporate balance sheet.
It created a fight over what obligations had to be satisfied before franchise agreements could follow the brands into new ownership.
The Franchisees Had Already Been Asking Questions About the Advertising Fund
The Round Table Owners Association's concerns did not begin with the bankruptcy.
According to an April 2026 objection filed in bankruptcy court, the association had requested a supplemental audit of the Round Table Advertising Fund for fiscal 2022 after what it described as declining system sales and weakening marketing.
It requested another audit for fiscal 2023 in January 2024.
The association alleges that the response it eventually received regarding 2022 consisted of a two-page letter from accounting firm BDO describing procedures involving a sample of only 20 invoices. According to the association's filing, BDO stated that it had not performed an examination or review engagement and did not represent that its procedures were sufficient for any particular purpose.
The RTOA says it requested another supplemental audit for fiscal 2024 and also sought verification of revenues received from suppliers for 2023 and 2024.
It alleges those requests were not fulfilled.
In November 2025, before FAT Brands entered bankruptcy, the RTOA filed suit in California seeking relief related to the audit and supplier-revenue provisions of the franchise agreements. That case was subsequently stayed by the bankruptcy filing.
Those allegations remain unresolved.
But the franchise agreement provisions described in the court filings are important.
According to the RTOA, the Round Table advertising fund was required to be maintained in a separate account and existed primarily to promote the franchise system through advertising and promotional programs. The agreements also provided for quarterly reporting, annual audits and a supplemental audit mechanism under which an independent accountant could determine whether expenditures materially complied with the fund's stated purpose.
The agreements apparently went further.
The RTOA says provisions governing supplier revenues capped certain revenues received by the franchisor from proprietary-product suppliers and required amounts above the contractual limit to be allocated to the advertising fund. The association also argues that revenues from suppliers of certain non-proprietary products could not simply be retained by the franchisor.
That is where the dispute widened beyond advertising contributions alone.
The $8.6 Million Statement
One passage in the bankruptcy record immediately attracted the franchisees' attention.
In the declaration filed at the beginning of FAT Brands' bankruptcy, Chief Restructuring Officer John DiDonato described the company's search for liquidity as its financial condition deteriorated.
Among the sources identified were debt, equity raises, securitization notes and “underspent advertising costs.”
A footnote states that the debtors used approximately $8.6 million in underspent advertising costs as an additional source of liquidity.
The Round Table Owners Association points to that statement as evidence supporting its advertising-fund allegations. In its bankruptcy objection, the association argued that advertising money contractually dedicated to supporting the system had instead been used to fill corporate liquidity needs.
There is an important distinction here.
The restructuring declaration refers broadly to the debtors and to $8.6 million in underspent advertising costs. The cited passage itself does not state that the entire $8.6 million came specifically from the Round Table Advertising Fund.
The RTOA nevertheless contends that the bankruptcy records, combined with its contractual claims and the accounting information it has sought, demonstrate that Round Table advertising funds were improperly diverted.
That issue has not yet been finally resolved by the court.
This is precisely why the underlying accounting records have become so important.
The Advertising Accounts Had $160 in Them
The RTOA's April objection includes another striking allegation.
It identifies two Axos Bank accounts associated with the Round Table Advertising Fund and says that, on the bankruptcy petition date, one contained $90 and the other $70.
That is a combined balance of $160.
The association contrasted those balances with the ongoing requirement for participating franchisees to contribute a percentage of their restaurant sales to the advertising fund.
A low bank balance by itself does not establish misuse. Advertising funds routinely collect and spend money throughout the year, and the appropriate balance depends on obligations, timing, accruals and the accounting structure of the fund.
But in the context of an ongoing audit dispute and a bankruptcy declaration acknowledging the use of underspent advertising costs as corporate liquidity, the balances added to the franchisees' questions about where the money had gone and what remained owed.
Those questions followed the brand directly into its sale.
The Brand Was Sold. The Dispute Stayed Behind.
In May, the bankruptcy court approved a sale of a group of FAT Brands assets to FBG Bid Co.
The transaction covered Round Table Pizza along with brands including Fatburger, Johnny Rockets, Fazoli's, Great American Cookies, Marble Slab Creamery, Pretzelmaker and others. The purchase price took the form of an approximately $595 million credit bid, meaning debt claims were used as consideration for the assets.
The sale closed in June.
But a franchise brand cannot simply be separated from hundreds of contracts with operators running restaurants under that name.
The purchaser also sought the benefit of the existing franchise agreements.
That presented a problem.
Under bankruptcy law, when a debtor wants to assume and assign an existing executory contract, certain defaults generally must be cured or adequate assurance of prompt cure must be provided.
Round Table franchisees argued that the alleged advertising-fund and supplier-revenue breaches were exactly those kinds of defaults.
The result was a dispute not merely about whether franchisees were owed money, but whether their franchise agreements could legally be transferred to a new franchisor before those obligations were addressed.
One Franchise Group Put a Number on the Dispute: $10.6 Million
Four related Round Table operators took the argument a step further.
Circle Pizza LLC, Sisco Enterprises Inc., Valley Pizza Inc. and Wyvern Restaurants Inc. are parties to franchise agreements covering 66 restaurant locations.
When FAT Brands proposed cure amounts in connection with transferring those agreements, the Circle entities objected and asserted that the appropriate cure amount was at least $10,638,904.
Their calculation effectively sought reimbursement of their alleged advertising-fund contributions over approximately four years.
After the sale closed, they returned to bankruptcy court arguing that the agreements had been listed as assigned even though the disputed cure amount had neither been paid nor placed into escrow.
They asked the court to compel payment or escrow of the $10.6 million, or alternatively to treat their franchise agreements as rejected.
The purchaser strongly disputes that position.
In its response, FBG Bid Co. argued that the franchisees had not presented evidence demonstrating $10.6 million in actual losses. It characterized the claim as an attempt to recover every advertising dollar contributed during the period despite franchise agreement language granting the franchisor broad discretion over advertising expenditures.
The purchaser further argued that an advertising contribution does not have to produce a dollar-for-dollar or proportional benefit for the franchisee making it, and that any valid cure amount should be limited to actual losses supported by evidence rather than reimbursement of all contributions.
It also alleges that principals associated with the Circle entities breached noncompetition provisions by becoming involved with another pizza concept, an allegation the purchaser argues should affect any amount that might ultimately be due.
Again, these are competing positions in ongoing litigation.
The court has not ruled that the Circle entities are entitled to $10.6 million.
The Franchise Association Is Making a Different Argument
The Round Table Owners Association has been careful to distinguish its broader claim from the Circle entities' demand for direct payment.
In its July 31 filing, the RTOA said it did not join any argument that money associated with alleged advertising-fund misuse should be paid directly to individual franchisees.
Instead, the association argues that the contractual remedy is repayment into the Round Table Advertising Fund for the collective benefit of the system.
By late July, the association said partial document production had reinforced its position that “many millions of dollars” needed to be returned to the advertising fund, although the exact amount remained unresolved.
That is the association's position, not a judicial finding.
The sale order required production of records relating to the Round Table Advertising Fund for 2021 through 2025, including profit-and-loss statements, general ledgers and annual financial statements. As of July 31, the RTOA said some, but not all, of those records had been produced.
The dispute remains ongoing. A scheduling order entered August 11 set an evidentiary hearing on the Circle entities' cure dispute for October 21, 2026.
This Is Bigger Than Round Table Pizza
The significance of this case extends well beyond one pizza franchise. Advertising funds occupy an unusual place in franchise economics. The franchisee is contractually required to contribute. The franchisor typically controls the money. The franchisee may have little or no say over individual campaigns. The return on those contributions may be difficult to measure. And in many systems, the franchisor has significant contractual discretion over how advertising money is allocated.
For a prospective franchisee, that can make the marketing contribution feel like simply another line item in Item 6.
It is not.
A 4% advertising contribution on $1.5 million in annual sales is $60,000 a year. Over ten years, before accounting for sales growth, that is $600,000 flowing out of one restaurant. Multiply that across hundreds of franchisees and the advertising fund becomes a major pool of money. The due diligence question should therefore extend beyond:
How much am I required to contribute?
A buyer should also want to understand how the money is held, what the franchise agreement permits the franchisor to spend it on, whether the fund is audited, what financial reporting franchisees receive, whether supplier rebates flow into or outside the fund, and what contractual remedy exists if the money is not handled in accordance with the agreement.
Round Table's bankruptcy provides an unusually public example of why those details matter.
Item 11 Deserves More Attention
Franchise buyers tend to concentrate on Item 7 because it tells them how much money they may need to open. They examine Item 19 because they want to know how much revenue they might generate. They may study Item 20 for closures and turnover.
Advertising disclosures often receive far less scrutiny.
Yet Item 11 describes the franchisor's advertising programs and the structure surrounding mandatory advertising funds. Item 6 identifies the fees themselves. Item 8 can disclose important supplier relationships and revenues. Item 21 provides financial statements that may help a buyer evaluate the financial condition of the franchisor controlling those programs. And the franchise agreement ultimately determines the parties' contractual rights.
The Round Table dispute demonstrates why those provisions should be read together.
A buyer evaluating an advertising fee should not merely calculate the percentage.
The buyer should understand the controls surrounding the money.
A Franchisee Can Be Healthy While the Franchisor Is Not
There is another due diligence lesson buried in this bankruptcy. Most prospective franchisees approach risk almost entirely from the perspective of their own future business.
Will my restaurant make money?
Can I cover the debt?
Is the location good?
Are labor costs manageable?
Those are essential questions.
But the franchise relationship creates another category of risk: counterparty risk.
The franchisor itself can become financially distressed.
Its parent company can over-leverage.
The brand can be sold.
The company administering an advertising program can enter bankruptcy.
The franchise agreement may then become an asset someone else wants to acquire.
Round Table franchisees did not stop operating simply because FAT Brands filed Chapter 11. Their employees still came to work. Their customers still ordered pizza. Franchisees still had leases, payroll, vendors and businesses to operate.
But the corporate structure above those businesses changed dramatically. FAT Brands' liquidation plan was approved in July after much of its restaurant portfolio had already been transferred to creditors or other purchasers. The franchisees remained.
That separation between the health of the franchisee's business and the health of the franchisor's business is something prospective buyers should consider before investing.
The Assignment Question Matters Too
There is one more issue here that receives very little attention during franchise sales. Franchise agreements typically place significant restrictions on a franchisee's ability to transfer the business. A franchisee may need approval of the buyer, payment of a transfer fee, completion of required remodeling, execution of a release and satisfaction of numerous other conditions.
The franchisor's ability to transfer its side of the relationship may look very different.
Bankruptcy adds another layer.
In the Round Table case, franchise agreements themselves became part of the assets the buyer sought to acquire. The franchisees' argument is essentially that the new owner should not receive the benefit of those contracts while alleged defaults by the prior franchisor remain uncured. The buyer says the claimed cure obligations have not been proven. That dispute is now headed toward further court proceedings.
For prospective franchisees, however, the lesson exists regardless of which side ultimately prevails:
The franchise agreement is not simply an agreement governing your restaurant. It is also an asset that can become valuable to someone else if ownership of the franchise system changes.
That is worth understanding before signing it.
The Reality Check
Round Table franchisees were contractually required to contribute significant amounts of their restaurant sales to an advertising fund controlled by the franchisor. Years before bankruptcy, their independent franchisee association began asking for additional accounting and audits.
Then FAT Brands filed Chapter 11.
Its restructuring officer disclosed that the debtors had used approximately $8.6 million in underspent advertising costs as a source of liquidity, although the cited disclosure does not itself establish that the entire amount came from Round Table's advertising fund.
The Round Table Owners Association alleges that advertising contributions and supplier-related revenues were improperly handled and now says many millions must be returned to the fund.
A group operating 66 Round Table restaurants separately claims more than $10.6 million in cure obligations. The new purchaser disputes those claims and says the franchisees have not demonstrated losses sufficient to support that amount.
The court has not yet decided the central dispute. That uncertainty is part of the story.
Franchise buyers are frequently taught to analyze whether their franchise business could fail. Far fewer are taught to investigate what happens when the franchisor controlling the money and the contracts fails.
Advertising fees are not merely percentages printed in Item 6. They can represent hundreds of thousands of dollars contributed by a single franchisee over the life of an agreement and millions across a system. Prospective franchisees should know where that money goes, who controls it, how it is accounted for, what protections exist around it, and what happens if the franchisor itself experiences financial distress.
Because when a franchise system changes hands, the buyer may acquire the trademarks.
It may acquire the operating platform.
It may seek to acquire the franchise agreements.
But as the Round Table Pizza dispute is now demonstrating, the obligations attached to those agreements may not disappear simply because the old franchisor does.
