Dozens of franchise owners across the country are suing Bedford-based Unleashed Brands, the youth-oriented holding company that sold a majority stake following a record year of growth.
Between lawsuits and legislative testimony, the franchise owners accuse Unleashed Brands of downplaying the work needed to run youth-oriented businesses, pushing inexperienced entrepreneurs into running multiple concepts and changing company terms.
The legal backlash is putting the homegrown holding company on the defensive, as it fights back against national media attention and a political spotlight in at least one state capitol on legislation to expand franchise owner protections.
Michael Browning Jr., Unleashed’s founder and CEO, declined to be interviewed by The Dallas Morning News. He has not responded to four additional emails since then.
However, he told trade publication Franchise Times that the “vast majority” of Unleashed’s 1,300 franchise owners are experiencing the benefits that a parent company provides. His company also aggressively pushed back on news stories from Franchise Times and The New York Times by posting lengthy “debunkings” on its website.
In one of the lawsuits, 54 franchise owners are seeking $75 million in damages related to claims that they were misled about the required investment they’d have to make.
Unhappy franchise owners
The blowback against Unleashed, now owned primarily by private equity firm Seidler Equity Partners, started in January when The New York Times published a report on a legal battle involving a former Little Gym owner in Maryland.
Franchise owner Tiffany Cianci, 41, said she is being sued by the parent company after she refused to sign new requirements by Unleashed that raised its fees and established new rules of operation, including some that expanded its rights. Unleashed alleged that she “refused to pay the required royalty and advertising fees,” resulting in her franchise’s termination in May 2022.
“I have run out of money at this point,” Cianci told The News. “I am fighting for my life and my family’s future. There is a very good chance I will file bankruptcy at the end of all of this and will lose everything. But they can’t take my voice.”
Little Gym International was the second franchise bought by Browning’s firm in November 2021. The fitness franchise business, which has nearly 400 locations, is geared toward kids ages 4 months to 12 years old. According to Unleashed Brands, the chain’s revenue had soared 55% in the 12 months ended November 2022.
The complaint against Cianci was filed in Arizona, where Little Gym is headquartered. Since then, the fight between Cianci and Unleashed continues in arbitration in Arizona, where its damages are limited and proceedings are sealed.
Cianci testified before the Arizona legislature on Feb. 14 to testify for a bill that would create more protections for the state’s franchisees.
Cianci contends her litigation has not been reported to other potential franchise owners in disclosure documents because she is locked into a sealed arbitration agreement. Franchise disclosure documents serve as the basic source of information for future franchise owners and are provided to every prospective franchise candidate at a certain point in the decision process, according to FRANdata. FRANdata is a franchise-focused research and advisory firm.
“No matter what happens in my arbitration, no matter how egregious their conduct has been, no matter how unethical the behavior has been, no matter how much they’ve tried to destroy my life, no one will ever be allowed to find out or they’ll have grounds to sue me all over again,” Cianci told The News. “That is why nobody finds out.”
Her friends and colleagues have started a GoFundMe page to help her pay her legal fees.
In a release, Unleashed Brands described The New York Times report as a “biased, incomplete and slanted story about The Little Gym International and Unleashed Brands despite being provided documentation to the contrary.”
Charlie Stadtlander, director of external communications for the The New York Times, said the publication stands behind its story.
“The story you’re referring to was deeply reported and thoroughly fact-checked, and we stand behind its publication unreservedly,” Stadtlander said. “Our reporters were in contact with Unleashed Brands extensively for the story, and their comments are reflected in the text.”
Unleashed Brands also was critical of a Franchise Times’ story published in February, claiming it was “a biased, slanted and inaccurate article mischaracterizing the company’s platform on the basis of only talking with a ‘handful’ of our 1,300 franchisee locations.”
The “debunked” releases use a red crayon-like font to pull apart individual quotes or phrases in the stories and list reasons why the firm believes them to be untrue.
Unleashed went on a buying spree of youth-oriented brands after Michael Browning launched Urban Air Adventure Park in 2011 by opening his first trampoline park in Southlake.
In 2014, he began to franchise the Urban Air experience, hoping people would buy into the opportunity to own a business. They did, ultimately resulting in the build-out of a kid-friendly brands empire, starting with Snapology in July 2021. Snapology provides programs and workshops that engage children ages 1 to 14 in hands-on, interactive activities.
In December 2021, Unleashed Brands bought Premier Martial Arts, a martial arts school franchise with programs for kids and adults.
A year later, 54 martial arts franchise owners sued over what they said was the company’s promise of a “semi-absentee” model — one where they could operate a franchise by putting in only 10 hours a week and with a skeletal staff of one full-time and one part-time employee. Those owners included Fort Worth’s Cale Bearden and his wife Aimee.
“For me personally, it’s past the point of being mendable,” Bearden said. “In my opinion, I’m past the point of it being a situation where they can do something. They’ve shown no willingness to provide any help anyway, so it doesn’t matter.”
According to the lawsuit, the Beardens say they’ve lost over $145,000 opening and operating their first martial arts franchise and racked up nearly $300,000 in loans to purchase and develop it. They’ve signed two leases that total over $950,000.
In a court filing in the case, Stephen Polozola, the company’s chief legal officer, was quoted telling another franchise owner: “If you keep pushing this, I’ll make sure your grandchildren are bankrupt.”
In an email to The News, Polozola said the allegation the comments were ever made by him is “100% false,” and he said he made the same denial in a sworn declaration in court.
The lawsuits haven’t slowed Unleashed’s growth. The company said it opened 160 new locations and signed 127 new leases across the country bringing the total number of open and in-development locations to more than 1,300. The company reported a 23% increase in 2022, approaching $1 billion in system-wide revenue.
Franchise protections
House Bill 2404 in Arizona would strengthen laws governing franchise businesses in the state by spelling out the process for terminating a franchise.
To hold a franchisor accountable in Texas, franchise owners must engage in expensive lawsuits, which are rarely successful, said Kat Tidd, a franchise attorney in Dallas.
“Texas does not have a franchise-specific regulation,” Tidd said. “There are laws that apply and can provide some protection to franchisees, but it’s pretty minimal.”
Franchising is regulated on a national level by the Federal Trade Commission, though some states also have requirements, Tidd said.
But the FTC doesn’t maintain a national database of disclosure documents that give potential franchise owners detailed information, such as finances and risks. States can require those documents.
The FTC published a release last week calling out for comment on franchise agreements and franchisor business practices, including how franchisors may exert control over franchisees and their workers.
“Amidst growing concern around unfair and deceptive practices in the franchise industry, the FTC hopes to hear from a broad range of stakeholders about how the franchise relationship is working, and how it is not,” said Samuel Levine, director of the FTC’s bureau of consumer protection. “This cross-agency effort will inform our policy and enforcement efforts as we work to ensure a fair marketplace for franchisees.”
The public will have 60 days to submit comments online at Regulations.gov. Once submitted, comments will be posted to the website.
The FTC does not comment on specific companies or conduct, but a spokesperson said the FTC’s chair, Lina Khan, has “prioritized taking a cross-agency approach to protecting franchisees, workers and consumers from unfair and deceptive practices and unfair methods of competition.”
“A goal of this request for information is to increase the commission’s understanding about the means by which franchisors exert control over franchisees and their workers,” the spokesperson said. “Staff hopes that the information and comments submitted will increase its understanding of the issues franchisees are facing. With that knowledge gained, the FTC will continue to evaluate how and whether it should use its existing authority to address those issues.”
