مالکیت معنوی اوراق بهادار و رشد سرمایه در فرانچایزینگ (حق امتیاز) خرده فروشی

A retail franchisor needs growth capital so that the brand continues to grow and franchisor–franchisee relations remain strong. However, access to corporate liquidity to fund such franchise growth options is not unlimited. A method of raising finance particularly suited to retail franchisors is intellectual property (IP) securitization that allows companies to account for intangible assets such as intellectual property, royalty and brands and realize their full value. In recent years, a number of large restaurant franchisors have securitized their brands to raise funds, including Dunkin Brands and Domino's Pizza (Domino's). We use property rights approach to show that IP securitization provides mechanisms that explicitly define ownership of intangible assets within the securitization structure and thus enables a company to raise funds against these assets. Using a case study example of a retail franchise IP securitization transaction, we also provide evidence that these mechanisms are not overly restrictive and can be used more widely to help fund retail franchise growth and expansion.

Retail franchise growth is a critical parameter in a franchisor's network stability. A franchisor may support its ambitions for rapid growth by improving its brand's appeal as well as helping develop its franchised units. The low contractibility of the financial assets in the early phases of a franchise’ organizational life cycle points toward this critical role of a franchisor in assisting its franchisees (Windsperger and Dant 2006). Franchises of retail brands also need to provide an assurance that they are a stable business. This is important as many entrepreneurs embark on a franchising business because it offers the greatest potential financial rewards (Bradach, 1998 and Grünhagen and Dorsch, 2003). Anyone looking to start their own business and capitalize on the opportunity offered by a franchise brand will be concerned with the long-term strength and viability of the franchise they are taking on. It is for these reasons that franchisors pay close attention to their own capital structure, in the manner they raise funds, in addition to their relationships with their franchisees. The strength of a franchise business is also tested during a time when credit conditions are fragile. Due to large liquidity requirements, a credit crunch may hit the retail sector hard, resulting in an increased scrutiny for franchise loans, delayed construction and even some store closures due to lost business and difficulty in getting credit to see them through. Lenders may also increase their equity requirements for the new franchisees, severely jeopardizing the franchise growth efforts. Franchisors may then be expected to help their franchisees seeking growth capital. For example, Domino's Pizza (Domino's) offered up its own cash to its franchisees post-2007 credit crunch. It was short-term financial support, mainly in the form of small loans or payment deferrals for large operators who were looking to purchase additional locations. Amid financial turmoil, franchisors can only step in to keep growth on track and ensure the stability of the franchise network, if they can boast of a viable capital structure. They need to have access to sufficient operating funds to be able to extend support to their franchisees and fill any gaps left by the reluctance of traditional lenders to fund franchise growth. Windsperger and Dant (2006) describe this issue in the following terms, “The franchisor may be quite constrained by the information asymmetry between the prospective conventional lenders (e.g., banks, venture capitalists) and himself concerning the profitability of investment project envisioned by the franchise concept. Due to their low salvage and/or liquidation value, the conventional lenders are likely to find it more difficult and risky to finance investment projects if the investments are in intangible assets as compared to tangible assets such as plant and equipment” (p. 264; see also Caves and Murphy, 1976 and Combs and Ketchen, 1999). Many retail franchise companies also lack high investment grade ratings because of their weak credit, and thus cannot raise funds on favorable terms. In recent years, a method of raising finance has gained prominence that enables companies to take loans on their intangible assets and make the necessary investments. The $1.7 billion Dunkin Brands IP transaction and the $1.8 billion KCD (Kenmore Craftsman DieHard, Sears’ special purpose vehicle) bonds, which came to the market in May 2006 showed how companies with weak credit can benefit from such a technology. Subsequently, Domino's issued $1.85 billion in asset-backed securities in 2007, funded by its franchise operations. The deal was the largest IP securitization at that time. Both Dunkin Brands and Domino's deals underscored the notion that a securitized debt structure is almost custom-built for large franchised operations, in particular the restaurant industry. Royalty and intellectual-property-based securitizations allow companies to borrow against their brand strengths and future revenue streams (S and P, 2002 and Schwarcz and Ford, 2003). Retail companies with weak credit can benefit from such an approach (S&P 2002). Asset-backed securitizations have been around for some while now; borrowing against a company's assets, such as real estate holdings, equipment or computer lease receivables, were in vogue since the mid 1980s. IP securitization, on the other hand, makes possible for a company to use intellectual property assets as primary collateral and realize their full value. In contrast to mortgage-backed securities and other types of securitization deals, IP securitization aims to calibrate the risk and make it more transparent for investors. Early franchise transactions in the 1990s were based on a restaurant's future sales, real estate and equipment, the traditional set of assets used in a securitization deal. The later IP-based securitizations, however, used the collateral against a brand's trademark, systemwide royalty revenues and intellectual property to obtain high ratings. Many ‘household names’ in the fashion world packaged their royalty rights and trademarks into an off-balance sheet entity (Erol, 1999 and S and P, 2002). The securities issued against these assets were rated by debt-rating agencies, enabling the fashion design businesses to borrow at much more favorable rates. As intangible assets are the key driver of an IP securitization transaction, it inevitably raises the question of the distribution of ownership rights over these assets in a securitized structure. We draw upon property rights theory to examine these questions. The theory says that when contracts are incomplete, the best way to generate incentives for two parties to invest in non-contractible assets is to allocate residual rights of control to the party that will be most profitably affected by doing so (Demsetz, 1966, Hart, 1995, Hart and Moore, 1990 and Segal and Whinston, 2011). In the absence of such rights, contracting parties are likely to make suboptimal relationship-specific investments. Using a case study of an IP securitization transaction, we investigate how these residual rights of control underpin securitization structures and if these structures provide sufficient incentives for investment in intangible assets. Our investigation shows that the property rights framework explains in good measure the practice of IP securitization, and that it is a valid means of raising finance, especially when companies derive their significant value from intangible assets. The article is divided into four sections. The first section discusses general issues involved in retail franchise growth, in particular the role of a franchisor as a capital provider. It is followed by our introduction to the IP securitization method. We then provide a case study of Domino's securitization, including an early assessment of its performance. The final section concludes with suggestions for future work in this area.

Domino's is a “full-company securitization” secured with the company's intellectual property assets. As Domino's does not compete on physical assets, it could not raise growth capital from traditional sources of finance. Domino's securitization of its brands also offered it more flexibility than bank loan debt. An IP securitization allows a company to use its intellectual capital to diversify its sources of funding. New funds can be used for different purposes including financing growth and expansion. In addition to fulfilling these goals and performing its role as a capital provider to its franchisees, Domino's used the funds to finance a stock repurchase plan and pay out a special dividend to its shareholders. According to property rights theory, the assignment of ownership rights is critical for investment in intangible assets and their management (Hart, 1995 and Segal and Whinston, 2011). Previously, it has not been easy for companies to take loans on their intangible assets precisely because of the difficulty in establishing appropriate rights of control over these assets. As Lev and Zarowin (1999) argue nonrecognition of intangibles causes a significant decline in the relevance and usefulness of company information systems, raising concerns that ‘arcane’ accounting rules devised for a bricks-and-mortar economy may be ill-suited to an economy in which many companies derive their competitive advantage from investments in intangibles. For many retail franchisors, intangible assets are their key source of income but they could not be used in traditional lending markets for reasons of information asymmetry and lack of appropriate accounting rules. In the case of Domino's IP securitization, as our case study shows, these problems were tackled by employing two specific strategies. First, an SPV was established that transferred the ownership of the Domino's assets to bondholders. A key aspect of this transfer was that the securitized assets were de-linked from the business risk of Domino's. As a result, investors were able to price these assets more efficiently. Secondly, a set of operational covenants was introduced in the securitization structure that ensured that the securitized assets were operated to the benefit of the business. Throughout the transaction's early period, the economic and market outlook did not look promising: negative domestic same store sales in the years prior to securitization painted a picture of a company struggling to cope with the aftermath of credit crunch. However, progress in others areas offset some of the negative trends it faced. Notably, Domino's was able to implement its operational covenants in ways that provided stability and necessary investment for growth. For instance, in terms of investment in new product development, 80% of Domino's current menu are new products. There were early improvements in its operational performance, along with net positive international store growth. Financing decisions can have real product market effects as are evidenced in Domino's case where its securitization led to a change in product-market competition. Domino's franchise system is also based on a strong and proven business model with a strong brand that allows it to compete on the basis of product quality and service, usually important components of a retail franchise network. Our results are also in line with recent literature on the role of quasi-internal capital markets in franchise organizations (Combs and Ketchen, 1999, Gertner et al., 1994, Kochar, 1997, Norton, 1995, Stein, 2003 and Triantis, 2004). Using internal capital markets, franchisors can provide vital financial support to their franchisees. Franchising is not a low cost source of capital for franchisors’ development needs, as the capital constraint hypothesis implies (Caves and Murphy, 1976, Oxenfelt and Kelly, 1968–1969 and Ozanne and Hunt, 1971). Rather, franchisors actively raise funds for re-investments in business, as we find in the case of Domino's. It may take the form of extending financial help to new franchisees, providing them with business training opportunities, or reducing the cost of running their operations through measures such as a reduction in advertising contributions or other similar method. There is still a likelihood that Domino's does not generate sufficient cash flows from operations in the remaining years of its securitized debt to make scheduled principal and interest payments. Yet, the company has successfully dealt with similar type issues previously. Domino's is also confident in its ability to extend current securitization facility to 2014, and it plans to keep this facility as long as it makes sense. It is also worth remembering that IP securitization employs a company's trademark and the promise of future royalty streams, which can be a reliable source of income. Other than the risk of default, there are other limitations of this approach. As a securitization transaction requires a legal restructuring of a company so that assets can be guaranteed, only large, well-established companies have thus far benefited from this method of raising finance. Unlike a simple bank deal or bond offering, a great deal of management work is also needed to create bankruptcy-remote structures (e.g., SPVs). However, more familiarity with the securitization approach and recent addition of expertise in the financial institutions hold the promise of small retail firms also raising funds in this particular way. This is an area that can be further explored. A securitization transaction restricts management actions in many different ways. It will also be useful to know how management can add value in ways that go beyond the experience of Domino's while remaining within the restrictive securitization structures. Executive Summary Franchisors contribute to their franchise network stability through means such as more efficient selection of franchised units and anticipating and providing operational support to their franchisees. The evidence suggests that franchisors actively provide financial support to their franchisees as well, which may take the form of initiatives such as giving short-term financial support to operators who are looking to purchase additional retail locations. Such forms of financial support require that franchisors strengthen their capital structure through various methods of financial innovation. A particular financial tool that has been used by many retail franchisors is intellectual property (IP) securitization. The present article investigates the use of IP securitization with a particular focus on how franchisors can develop their brands and expertise and extend necessary support to their network of franchisees. IP securitization allows companies to realize the full value of their operating assets including a brand's trademark, systemwide royalty revenues and intellectual property. In the past, companies were often unable to reflect the value of their intangible assets on their balance sheets. However, by issuing securitization bonds backed by these assets companies can raise funds that can be used for various corporate purposes. Under an IP securitization transaction, special purpose vehicles are created that facilitate the asset sale from the borrower to bondholders in such a way that the business risk of the borrower is de-linked from the risks of the securitized assets, even if there is a significant degree of dependency on the continued business operation of the company. Moreover, bondholders can impose operating conditions that may influence the branding and customer service practices of the company as well as changes in the fundamentals of the business through mergers and acquisitions. One example of these restrictions is how a transaction may specify an amount that the company must allocate for re-investment in business, thus helping preserve cash-generating assets from operational and financial risks. In this study, we examine Domino's Pizza's (Domino's) IP securitization to illustrate key features of this method of raising funds. Domino's IP securitization occurred in April 2007 when it converted its traditional bank bond financing to asset-backed securities funding. Domino's securitization includes both financial covenants and operational covenants. We first conduct an evaluation of Domino's operating performance and find some evidence of improvement. Compared to its major competitors, it also performed well in terms of its sales performance and international growth. An important aspect of IP securitization is the requirement to re-invest in business, which may take the form of specifying maintenance expenditures and capital expenditures over the securitization period. Domino's fulfilled its obligations on both counts, as evidenced in its yearly maintenance expenditures and capital expenditures. These investments were targeted at achieving objectives such as brand development, improvements in operating performance and corporate restructuring. Specific programs were implemented in relation to product development, supply chain management and advertising and promotions. Domino's also used funds to bolster its support for its franchisees. The specific initiatives included: a program under which it assessed all 1200+ franchisees in its system and identified the bottom 12%, and subsequently worked with them to streamline their operations; and a human capital development initiative that supported junior managers to work their way up to become store managers, and then ultimately the owner of their own store. In addition to offering training opportunity, this program gave financial support in terms of operating capital and discounts on fees and royalties. Moreover, to strengthen links between Domino's franchisees and the communities in which they serve, Domino's operated an internal minority franchisee recruitment program that included providing financial support to elite minority team members to build new stores. The financial assistance took the form of paying a franchise fee of just $5K, one of the lowest fees in the industry. Retail franchisors often operate in markets where intangible assets are the key source of income. However, due to information asymmetries associated with such types of assets, it is difficult to use traditional debt markets. IP securitization allows a company to price its intangible assets more efficiently, and thus avail opportunities for funding from the bond market. The key mechanism in facilitating this transaction is the transfer of ownership and control, and as property rights theory argues, this is also the mechanism that ensures optimal investment in the firm's resources. Domino's securitization transaction suggests that with appropriate structuring of intangible assets, franchisors can achieve a more strengthened financial position and provide invaluable support to their franchisees