Thursday, May 14, 2009

Franchise Territory Protection...It Happens Every Day

I've spent most of my career in franchise management. I've worked for several large companies that franchise individual stores under a franchise banner throughout the United States and other countries. One part of franchise law that is constantly under discussion is the rights of individual franchisees to control their own territory.

The government views franchises of the same chain as competitors. That means that the McDonald's on Estrella Pwy. is a considered a competitor of the McDonald's on Indian School Road.

Each company that franchises has contractual agreements with their franchisees that clearly spell out the territorial protection that a franchisee may get. While individual stores in the same chain are competitors, the government has acknowledged that franchisors can offer geographic protection to individual units through a defined area in their contract. Restaurant chains are probably the best example of this practice. There are some chains that offer no geographic protections (they in effect only franchise the address) while others will put in their contracts that they will not authorize or build a competing business within 1 to 5 miles.

In simple terms, McDonald's, Pizza Hut and the many like companies protect their business partners by contract. That's really no different than what the National Hockey League does by protecting the territories of their existing teams. There's a set geographic protection of 50 miles in the NHL charter. That's why the New York Islanders and New Jersey Devils paid huge fees to get the New York Rangers to waive their territorial rights and allow those teams to enter their market. Likewise the Almighty Ducks when they entered the Los Angeles market.

Try to build a Burger King down the street from an existing franchisee and there will be hell to pay. Same with any other chain that franchises. The NHL is no different than many other companies that place a high priority on the protection of their franchisees. You see, franchisees send money to the home office. They pay the bills. They create jobs of the people who are hired to watch over them. Even though the league acts as a cooperative, it still must comply with stringent franchise laws. The downside is that if you don't take care of your franchisees, you will spend a lot of time in court.

This isn't whether Southern Ontario would or would not be a good hockey market. The novelty of a new team will sell a lot of tickets, From there, it comes down to winning and losing and the type of organization that manages the team. The New York Islanders were wildly popular when they won 4 Stanley Cups in the 1980s, but for the last 10 years they have been atrocious on the ice and have lost as much or more money than the Coyotes. The New Jersey Devils have won three Stanley Cups but can only guarantee a sellout when they play the Rangers. Both teams get the short shift in the New York media. Want more evidence, just take a look at the NBA Los Angeles Clippers.

The best part of a Southern Ontario team for the NHL is that someone, either Jim Balsillie or otherwise will pay dearly for the privilege. That's money that the league wants to benefit the league and its' other franchisees, not Jerry Moyes. Sooner or later the league will deal with this situation. Expansion was and still is the most likely method that a new team will be placed into the area.

You can't pick up a franchised business and drop it wherever you please. The NHL has volumes of law that supports position as well as plenty of court precident. That as much as anything will determnine where this endangered species will be playing next year.

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