THERE IS A SUBSTANTIAL RISK OF FAILURE ASSOCIATED WITH MTY FRANCHISES. MTY AVERAGED AN 11% CLOSURE RATE IN FIVE YEARS WHILE CHARGING FRANCHISEES $239 MILLION IN KICKBACKS ON TOP OF REGULAR FEES. THEY CLOSED 2,594 LOCATIONS FROM 2016 THROUGH Q2, 2021. KICKBACKS CAUSE FRANCHISES TO COLLAPSE!
MTY’S BOARD MADE FALSE STATEMENTS TO INVESTORS WHILE ENGAGING IN A COVER-UP TO CONCEAL THAT IT WAS REPORTING FALSE DATA TO HIDE THAT ITS FRANCHISE NETWORK IS COLLAPSING. ITS CHAIRMAN, STANLEY MA, SOLD $43 MILLION OF STOCK WITHOUT CORRECTING THE FALSE STATEMENTS TO INVESTORS—POTENTIALLY COMMITTING INSIDER TRADING. MTY THEN INCREASED KICKBACKS BY $5.3 MILLION ON FRANCHISEES AND AUTHORIZED $3 MILLION IN ANNUAL DIVIDENDS TO STANLEY MA.
MTY Discloses Kickback Scheme
Updated September 18, 2021
Kickbacks are “commercial bribes” that are harmful to franchisees—causing operators to pay “artificially high” prices. Franchisors use them to increase revenues. Kickbacks create a “windfall to the franchisor at the franchisees’ expense”. The U.S. Inspector General’s Office acknowledged the financial devastation suffered by Cold Stone and Quiznos franchisees—two franchise companies that perhaps rank as the most criticized for excessive kickbacks linked to store closures.
For years, MTY Food Group, has been engaged in a kickback scheme. This has led to an exceptionally high overall franchise failure rate of 9.3% through 2019 and a store closure rate of 11.1% through 2020. Thus, a larger dollar amount of kickbacks is forced onto a shrinking number of franchise owners each year.
For example, MTY’s largest two brands are Cold Stone and Papa Murphy’s. MTY disclosed an average increase of $1.4 million each year in kickbacks totaling $87.5 million from 2017–2020 (PDF pgs. 62, 66, 59 and 54) on a declining number of U.S. franchisees. MTY reported kickbacks in other brands as well. For example, MTY more than doubled Papa Murphy’s 2019 kickbacks from $781,545 (PDF pg. 48) to more than $1.6 million in 2020 (PDF pg. 44). The company also increased Taco Time’s 2019 kickbacks from $23 million (PDF pg. 59) to more than $24 million in 2020 (PDF pg. 52).