Xponential Fitness

The FTC alleged that Xponential told franchisees studios typically open within six months when they typically took more than a year, and failed to disclose that its former CEO had repeatedly been sued for fraud. It paid $17 million.

Resolved. Refunded, settled, ceased operating, or the claim did not hold up. Kept for the record.

Six months, or more than a year

Xponential Fitness sells franchises for fitness studio brands including Club Pilates, Pure Barre, YogaSix, StretchLab and BFT. The initial franchise fee averaged $45,000 per studio, against a 10-year franchise agreement.

The company said franchisees typically get a studio open, with buildout complete, within six months of signing. In reality, according to the FTC, franchisees typically took more than a year to open, if they opened at all, and the company knew it. Franchisees paid substantial licence fees and carried unexpected costs through the delay.

What was left out of the disclosure documents

The Franchise Rule requires specific disclosures, and the complaint alleges four failures.

Xponential did not disclose that former chief executive Anthony Geisler was involved in the sale or operation of franchises, or that he had repeatedly been sued for fraud, which the rule required it to disclose. It also omitted the bankruptcy of the former President of Franchise Development.

It omitted the names of franchisees whose studios had closed, been terminated, cancelled or not renewed in the previous year, and where it did give names it sometimes gave outdated contact details. The effect was that prospective buyers could not assess studio turnover or reach prior purchasers, which is precisely what that disclosure exists for.

And it failed to provide Franchise Disclosure Documents at least 14 days before agreements were signed, so buyers had no full opportunity to review the risks before paying.

The order

A $17 million monetary judgment for redress to franchisees, which the FTC describes as the most consumer redress in its history for an alleged Franchise Rule violation. Xponential is barred from misrepresenting to prospective franchisees and must comply with the Franchise Rule, including complete, accurate and timely disclosure documents.

What is not established

A stipulated final order resolves the allegations without any admission or finding of wrongdoing.

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