Franchise Advertising Fund Spending, Audits and Franchise-Sales Use: Item 11 in 259 FDDs (2025 to 2026)

What a franchise advertising fund is and what Item 11 must say

A franchise advertising fund (also called a brand fund, marketing fund or national advertising fund) is a pool that franchisees pay into, usually as a percentage of sales, and that the franchisor or an entity it controls spends on system-wide marketing. In the same 259 FDDs, the median percentage fund was 2% of sales (10th to 90th percentile 1% to 3%, n=187), as published in our franchise royalty rates report; we reuse that figure here and do not recompute it.

The federal Franchise Rule makes Item 11 of the FDD the place where the fund is described. Under 16 CFR 436.5(k)(4) the franchisor must state who contributes, whether franchisor-owned outlets contribute on the same basis, who administers the fund, whether and when it is audited, whether financial statements are available, how the money was used in the last fiscal year (including the percentages spent on production, media placement and administrative expenses), what happens to unspent money, and the percentage used principally to solicit new franchise sales. This report measures how those items read in practice.

Key terms: active fund = franchisees must contribute now; reserved = no contribution now but the franchisor may start one; unique fund = one system fund counted once when several brands of the same franchisor print an identical breakdown.

Where franchise advertising fund money goes: the spending breakdown

Summary. Across 166 unique funds that printed a breakdown, media placement, digital and production lines took 56.8% of spending on average, or 66.3% counting combined lines such as “production and media placement” that cannot be split; administration took 15.0%. 103 funds (62.0%) put more than half into media, digital and production.

Media placement averaged 24.7% of spending, production and creative 17.4%, digital and online 14.6%, administration 15.0%, combined or unspecified marketing lines 9.6% and other uses 8.3% (FDDs issued 2025 to 2026; breakdowns for FY2024 in 38 FDDs and FY2025 in 132). Technology and software (2.8%), agency fees (2.5%), public relations and events (4.3%) and research (0.6%) were small on average but large in a few funds.

What the numbers mean. The averages describe what franchisors say they spent, mapped by us into common groups. Combined lines such as “marketing and advertising” cannot be split, so the media-and-production share is a lower bound: counting those lines, 123 funds (74.1%) spent more than half on marketing delivery. Several hotel FDDs combine marketing with reservations and sales support in one fee, which raises their “other” share.

How much of the fund goes to administration

Summary. The administration share had a median of 10.0% and a mean of 15.0%; one fund in four printed more than 20.0% and one in ten more than 40.2%.

45 of 166 funds (27.1%) printed no administration line at all, although 16 CFR 436.5(k)(4)(v)(G) names administrative expenses as one of the percentages to disclose. At the other end, 28 funds (16.9%) reported more than 30% for administration. 170 of 207 active funds (82.1%) say the fund may pay the franchisor’s administrative costs, overhead or salaries.

Context. The FTC’s Franchise Rule Compliance Guide lets franchisors count internal production costs as production, and lets fund-paid salaries of advertising staff be shown as production or administration if Item 11 explains the allocation. A low administration share therefore does not prove low overhead; it can mean the overhead sits inside “production”.

Are franchise ad funds audited, and do franchisees see the books?

Summary. 17 of 207 active funds (8.2%) are audited in any form; 175 (84.5%) give franchisees statements or an accounting, but almost always only on written request.

6 funds (2.9%) are audited as a stand-alone fund and 11 only as part of the franchisor’s or parent’s own audit, which is not the same as an audit of the fund itself. 129 FDDs state the fund is not audited, 34 say the franchisor may audit it if it chooses, and 27 do not address audit at all. On reporting, 163 funds provide statements or an accounting on request, 12 (5.8%) send or post them to all franchisees, and 13 (6.3%) state that statements are not available.

Context. The rule asks whether the fund is audited, not that it be audited, so a “no” is compliant disclosure. In the FTC’s own sample Item 11 the fund is audited annually and the audited statement is available on request; in this sample that combination is the exception.

Can the franchisor use the ad fund to sell franchises?

Summary. In 47 of 207 active funds (22.7%) the franchisor keeps the right to spend fund money on franchise sales or on franchise-sales pages of a fund-paid website; in another 44 (21.3%) fund-paid materials may carry a franchises-available notice.

45 FDDs (21.7%) state the fund will not be used to sell franchises and 71 (34.3%) make no forward-looking statement. Looking back, 82 funds (39.6%) state that 0% was or is used principally for franchise solicitation, and 4 reported a positive share in the last fiscal year: 15%, 7%, less than 1% and 0.1%. Two printed breakdowns include a franchise development or solicitation line.

Context. Item 11 asks only for the share used “principally” to solicit franchise sales, so a website that sells to customers and recruits franchisees on the same pages can be paid from the fund and still be reported as 0%. The FTC’s consumer guide to buying a franchise warns that some advertising fees may go to attracting new franchise owners rather than promoting your outlet.

Do company-owned outlets pay into the fund?

Summary. Company-owned or affiliate-owned outlets contribute on the same basis as franchisees in 96 of 207 active funds (46.4%).

In 60 funds (29.0%) company outlets are not required to contribute (often worded “may, but are not obligated to”), in 17 (8.2%) they pay a different or discretionary rate (for example the lowest rate any franchisee pays), and 34 FDDs (16.4%) do not say, although 16 CFR 436.5(k)(4)(v)(C) asks for this item. In a system with no company outlets the clause has no immediate effect; Item 20 shows how many company outlets exist.

How common are franchisee advertising councils?

Summary. 71 of 207 active funds (34.3%) have a franchisee council that advises on advertising; 65 of those 71 councils (91.5%) are advisory only and 5 approve spending or govern the fund.

Another 65 FDDs reserve the right to form a council, 53 say there is none and 18 are silent. Councils are more common in larger systems (see the size table below). Where a council has decision power (5 funds), it is a board that includes franchisee members or a separate fund entity; everywhere else the franchisor keeps final control over the money.

What happens to unspent money and deficits

Summary. 170 of 207 active funds (82.1%) keep unspent money in the fund for later years; 3 let the franchisor use it at its discretion, and 34 do not say.

93 funds (44.9%) let the franchisor lend or advance money to the fund (or let the fund borrow) and 36 of them allow interest on those advances, so later contributions can repay the franchisor. Several FDDs printed shares that include money carried into the next year, a repaid prior-year deficit or a reserve; we removed those amounts before computing spending shares.

Disclosure quality and system size

Summary. Larger systems disclose more about their franchise advertising fund, an association, not a cause: the rank correlation between franchised outlets and our 0-to-6 disclosure index is 0.32 across 207 active funds.

Funds of systems with fewer than 25 franchised outlets scored 3.53 on average, against 4.27 for 100 to 499 outlets and 4.24 for 500 or more. In the smallest group 22.9% of funds had no spending yet and 62.9% printed a breakdown, 7.1% had a council and none was audited; in systems with 500 or more outlets 29.4% of funds were audited and 76.5% had a council. The share that may use fund money for franchise sales ranged from 17.6% to 28.6% with no clear size pattern.

The index adds one point each for a printed breakdown (or a statement that nothing was spent), an audit, statements available to franchisees, an existing council, a stated company-outlet basis and a statement on franchise solicitation.

What the law requires: 16 CFR 436.5(k)(4) and state rules

Summary. Federal law requires disclosure, not any particular spending mix, audit or council.

• 16 CFR 436.5(k)(4)(iii): whether an advertising council exists, how members are chosen, and whether it is advisory or has decision-making power.
• 16 CFR 436.5(k)(4)(v): who contributes and at what rate, whether franchisor-owned outlets contribute on the same basis, who administers the fund, whether and when it is audited, whether financial statements are available, and the last fiscal year’s use with percentages for production, media placement and administrative expenses.
• 16 CFR 436.5(k)(4)(vi) and (vii): how unspent money is used, whether franchisees get a periodic accounting, and the percentage used principally to solicit new franchise sales.

The FTC’s Compliance Guide adds that a multi-brand franchisor may aggregate fund disclosures across brands if it says so. When the FTC adopted the current Item 11 in 2007, it wrote that these disclosures answer a common franchisee complaint that franchisees do not get the quality or quantity of advertising they pay for (72 FR 15444). FTC staff’s 2024 guidance on undisclosed fees says fees not disclosed in the FDD may not be imposed later.

State registration states use the same Item 11 wording: NASAA’s 2008 guidelines restate items (v) to (vii), and its 2009 commentary says local advertising councils and cooperatives belong in Item 11. NASAA’s franchise resources page (checked 2026-10-09) lists no commentary specific to advertising funds. Among state statutes we opened, Washington’s RCW 19.100.180(2)(c) bars discrimination between franchisees in charges for advertising services unless the franchisor shows it is justified; Iowa counts cooperative advertising as an indicator of a franchise (Iowa Code 537A.10); Maryland’s 2026 Franchise Reform Act (Chapter 414) contains no advertising fund provision. This is not legal advice.

A buyer's checklist for the franchise advertising fund

Read Item 11 next to Item 6 (the fee) and ask the franchisor, in writing:

• Does the breakdown show production, media placement and administration separately, and which line holds marketing salaries? Only 47.0% of funds in our sample print all three.
• Is the fund audited, and can you see the last statement now rather than after signing? 8.2% of active funds are audited in any form.
• May fund money pay for franchise sales or franchise pages of the website? 22.7% of funds keep that right.
• Do company-owned outlets pay the same rate, and how many company outlets are there (Item 20)?
• Is there a council, who elects it, and can it veto anything?
• What happened to last year’s unspent balance, and does the fund owe the franchisor money?
• Ask existing franchisees (listed in Item 20) whether they received the annual statement.

For the full fee picture see franchise costs explained and our report on how franchisors make money; supplier payments that sometimes flow into ad funds are covered in franchise supplier rebates. If you are earlier in the process, start with buying a franchise.

Methods, mapping table and limits

We used the 259-brand sample of our royalty rates report (one Clean FDD per brand from Minnesota CARDS, quotas by sector) so the datasets join. The advertising part of Item 11 was cut from each FDD’s text and every brand was coded under a written codebook (data/item11_codebook.md). Spending categories are printed under many different names, so each printed label was mapped to one of eleven groups; the table below summarises the mapping and the full label-by-label table is published as data/category_mapping.csv.