Political Donation Sparks Gold's Gym Franchisee Mutiny

Franchisees often argue with their corporate partners. In one of the more contentious of these disagreements, Burger King franchisees are suing the company over everything from the mandated $1 price on double cheeseburgers to hours of operation.

Such spats are almost always about money. But recently in the San Francisco Bay Area, two brothers announced that they would be leaving their franchise home of 22 years because they don’t like their owner’s political views.

Sebastyen and Zsolt Jackovics, who operate four Bay Area Gold’s Gym locations -- two in San Francisco, one in Marin, and one in Oakland -- decided quite publicly to quit the world’s largest fitness franchise because they object to a political donation made by Robert Rowling, chief executive officer of TRT Holdings, which owns Gold’s Gym International.

Their stance has been hailed as courageous by many in the Bay Area. It has been derided as “disingenuous and opportunistic” by Gold’s Gym International. Whatever the motivation, the decision by the Jackovics brothers raises serious questions for franchisees who find themselves in a relationship with a partner whose behavior upsets them. Such as: What do you tell your customers? Is it OK to just walk away? How can you avoid the trouble in the first place?

Gym Members Worked Up

The donation at issue is a $2 million gift by Rowling to American Crossroads, a conservative group founded by former George W. Bush advisor Karl Rove that works to elect Republican candidates. Many of these candidates are outspoken opponents of gay rights. Many of the members at gyms owned by the Jackovics brothers are gay. And when they heard about the Rowling contribution, the sweat hit the fan. Members approached staffers to express outrage at their gym’s affiliation with anti-gay politicians, however remote, and after several days the Jackovics brothers decided a divorce from Rowling was their only solution.

“We are a local, family-run business,” they said in a statement. “A large percentage of our employees and members are from the LGBT [lesbian, gay, bisexual, and transgender] community. ... Gold’s Gym San Francisco has long been a pillar in the gay community. We will continue to be. It is very unfortunate that the CEO of TRT Holdings has chosen this course of action. We do not support it in any way.”

The statement went on to explain that the Jackovics brothers have been Gold’s Gym franchisees for 22 years -- since long before TRT Holdings took over -- and that they would not be renewing their contract with Gold’s Gym when it expires in September 2012. What’s more, they said, they would vigorously pursue ways to terminate the contract immediately.

Gold’s Gym quickly countered, calling the blowup over Rowling’s donation a smokescreen. “The franchisee in San Francisco, quite frankly, is being opportunistic,” says Gold’s Gym Vice President for Communications Dave Reiseman. “Discussions surrounding the termination of the franchise agreement began many months ago due to completely unrelated matters. To say they left because of the American Crossroads donation would be disingenuous.”

Bar Raised for Other Gold’s Gym Franchisees?

Gold’s Gym franchisees around the country have been following the story in San Francisco and many agree with Reiseman. They’re sympathetic to gay rights, and the rights of all their members, but they think that the Jackovics brothers are inflating the issue to ease their departure. “The franchisees in San Francisco have been good operators and supportive of gay causes,” says Blair McHaney, who owns two Gold’s Gym locations in Wenatchee Valley, Wash. “But they’ve been vocal about leaving the brand for a long time. This situation just presented the opportunity. That’s common knowledge.”

McHaney and other owners are irked that the Jackovics brothers “threw us under the bus.” He says word of the San Francisco situation has reached Gold’s members around the country and that many of them are approaching staff at their gyms to ask why they don’t break with Gold’s. “There are franchisees in areas like L.A. and New York who are incredibly supportive of gay causes, and what they get is people coming to them saying, ‘Hey, why aren’t you also exiting the brand?’ These are hardworking franchisees who run great businesses and support great causes and are grinding away in a tough economy, and they get slapped in the face with the label that they’re hatemongers. That’s tough.”

What can franchisees do about it? Barry Field, owner of three Gold’s Gyms in Rhode Island, says members have approached him to ask about the Rowling donation and that some may have quit because of it. But when members express concerns, he speaks with them personally, and most have stayed.

Emergency Exit Only

Field and other Gold’s Gym franchisees are mildly annoyed that some of the dust kicked up by the Rowling donation has settled on their franchises. But most figure it will blow over soon. McHaney says Rowling’s contribution “doesn’t make life any easier for us” but grants that individuals have a right to give to causes they choose and accepts Rowling’s explanation that his donation was not anti-gay but “all about fiscal sanity,” as he told Fox News.

Still, if you are considering a franchise and you’re concerned over the political activities of your corporate parent, you might want to investigate before you sign on, especially if you’re operating in a community where the views of your customer base tilt heavily toward one end of the spectrum. Because once you enter a franchise contract, it’s almost impossible to exit.

“In a franchise relationship, you basically sign a contract that says you’ll do this long list of things, while the franchisor has a relatively short list of things, and that’s it,” says Kevin Murphy, an attorney at Franchise Foundations law corporation in San Francisco. “There’s no provision in any franchise contract I’ve seen that says if the franchisor engages in political activities the franchisee doesn’t like that it’s grounds to terminate the contract.”

Joel Libava, president of Franchise Selection Specialists, a Cleveland franchise advisory firm, agrees with Murphy. It’s hard enough to walk away from a franchisor when your contract is over, let alone get out early, as the Jackovics brothers hinted they would. “There’s no such thing as getting out of a franchise contract,” he says. Although after some thought, he allows that the Gold’s corporation may let the brothers go just to be done with them.

“The lesson here is it doesn’t hurt to do your due diligence in this area,” he says. “It makes sense to know your core customers and make sure the franchise system has nothing against that audience.”

In other words, if you go in to a franchise relationship, go in with your eyes open, because the franchisor is not likely to change at your suggestion, Libava says. “I don’t really think this billionaire CEO cares who he pisses off.”