Franchising, a business model allowing entrepreneurs and small business owners to operate under the name of a more established brand, is a primary economic driver worldwide.
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Besides raking in an estimated USD$682.6 billion in 2022, the sector also employs millions of people worldwide, according to the International Franchise Association. For example, IBISWorld values Australia’s franchising sector at USD$172 billion, covering 94,524 businesses, including those in the sports industry.
The franchising sector covers a wide range of services, including retail and restaurant chains and the lesser popular sports franchises, which include a wide range of subsectors and can be profitable.
If you’re interested in sports franchising, include this article in your preliminary research to discover the pros and cons of this business type.
What is sports franchising, and how does it work?
The sports franchising concept works in the same way as other franchises. It’s like purchasing the right to operate an existing business for sale. The franchising agreement lets the franchisee adopt the franchisor’s trade name and proprietary items, including operational procedures.
Franchisees are expected to comply with the franchisor’s terms in running the business in exchange for technical assistance in multiple operational aspects. They’re likewise required to pay for annual royalties and other fees.
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Pros of sports franchising
Sports franchising can be a lucrative business from the get-go. Entrepreneurs who partner with big firms stand to experience the following benefits:
1. You’ll have an established brand
A United Kingdom business survey discovered that 20% of businesses fail in their first year for various reasons, including a lack of market and financing opportunities and a problematic business model.
Conversely, franchisees don’t need to spend years of hard work or countless trials and errors to establish a brand. A franchise brand typically has a solid reputation and a customer base, so, as a franchisee, you don’t have to worry about brand recall and recognition.
2. Robust business support
A lack of market study can lead to lost income, making it one of the primary reasons for start-up closures. Sports franchising can be your best option to ensure the proper identification and fulfillment of a market need.
Franchisors not only provide you with start-up support. You’ll also have access to their unique operational strategies, so you don’t have to start from scratch. They will provide marketing support and connect you with trusted suppliers. Some companies have training programs for employees, managers, and franchise owners to ensure business growth.
3. Easier financing access
Private lending institutions are quite stringent in approving business loans, scrutinizing business profitability and the owner’s financial standing at length. As a novice entrepreneur, franchising can help you work around profitability issues. Carrying a trusted brand with a solid customer base reduces the risk of business failure, increasing your chances of securing a loan. Some franchise brands offer in-house financing to help you with your business needs.
4. Countless franchising opportunities
Besides covering numerous events, like football, basketball, golf, swimming, and fitness activities that appeal to all enthusiasts, sports franchising has multiple subsectors. As such, there are hundreds of franchising opportunities to choose from, including selling and distributing sports retail products, renting out sports equipment and facilities, and providing sports and nutrition services.
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Cons of sports franchising
As lucrative as it sounds, sports franchising could entail specific risks, like any other enterprise. These include the following:
1. Franchise costs can be hefty
In some cases, buying into a famous brand can cost you more than starting a business yourself. Franchise fees and costs vary from one firm to another. In the United States, franchise fees run from USD$ 20,000 to USD$ 50,000, according to the Small Business Administration (SBA).
The amount is exclusive of other costs such as professional fees, start-up costs, royalty fees, and so on. Some franchisors likewise charge a portion of your monthly income for marketing fees.
A franchisee is projected to spend from USD$1.48 million to USD$3.6 million for a 20,000-square-foot facility, with a USD$40,000 franchise cost, based on site information from a world-renowned fitness gym.
2. It can be highly competitive
Some brands maintain strict standards about who gets to operate under their name. Franchisees have to apply and get approved before starting. As such, buying into your chosen brand can be challenging if your profile doesn’t meet its requirements.
3. It can limit your business strategies
By securing a licensing agreement, franchisees are expected to comply with the terms of running their business, including the products and services offered, pricing and marketing strategies, etc. If you want to innovate, get creative, or customize your enterprise, franchising may not be for you.
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4. You lose full control of your business
Any external issue plaguing your franchisor can impact your business. If the brand is accused of questionable practices elsewhere, the public can condemn and boycott your brand, resulting in lost revenues. This problem can be highly damaging, especially without proper troubleshooting and reputation management support from your franchisor.
Sports franchising can attract investors who want stability and don’t mind being operationally restricted by the franchisor’s rules. As a franchisee, you’ll be operating a venture with fewer risks, although proverbial success isn’t guaranteed.
Moreover, sports franchising can entail substantial costs, so it’s crucial to know the pros and cons before taking the plunge. Your decision will depend on whether franchising provides the best revenue opportunities despite the risks.