The GSFOA Complaint: What a Franchisee Association’s Challenge to Goddard’s FDD Means for Your Due Diligence

In December 2024, the Great Schools Franchise Owners Association — known as GSFOA — filed a formal complaint with the North American Securities Administrators Association (NASAA). NASAA is the body that coordinates state-level securities and franchise regulators across the US, Canada, and Mexico. A complaint filed there is not a lawsuit. It is not a regulatory finding. But it is a formal request for regulatory scrutiny, and the substance of the complaint goes directly to the reliability of the data you are using to make a seven-figure investment decision.

GSFOA represents more than 100 Goddard School locations. That is roughly 15% of the system’s approximately 665 US outlets. This is not a single disgruntled franchisee posting on a forum. It is an organised association with enough critical mass to represent a meaningful cross-section of the system.

The complaint alleges what it calls “potentially dishonest or unethical practices” in Goddard’s FDD. Two specific claims anchor the filing: first, that franchisees are incentivised to underreport rent and property tax data submitted to corporate; second, that a 2023 marketing fee increase added material financial burden to franchisees without adequate disclosure of its impact.

The franchisor’s response to the GSFOA complaint is not publicly available as of this writing. What follows is based on the complaint itself and publicly available franchise disclosure data.

The complaint makes two distinct claims. They target different parts of the FDD, but both point at the same structural question: whether the financial data disclosed to prospective buyers accurately represents the economics that existing franchisees experience.

Claim 1: Incentivised Underreporting of Rent and Property Taxes

Per the GSFOA complaint, franchisees are incentivised to underreport their rent and property tax expenses in data submitted to the franchisor. The complaint does not allege that the franchisor fabricates numbers. It alleges that the reporting structure creates conditions under which the numbers franchisees submit may not reflect their actual costs.

This distinction matters. The FTC Franchise Rule requires that financial performance representations in Item 19 have a “reasonable basis” and that the franchisor possesses the data to substantiate them. If the underlying data that franchisees submit understates certain cost categories, the resulting averages disclosed in the FDD would present margins that appear wider than they actually are — without the franchisor technically violating the rule, because the data it received was what it disclosed.

Claim 2: Marketing Fee Increase Without Adequate Disclosure

The second allegation concerns a 2023 increase to the marketing and advertising fee that franchisees pay. Per the complaint, this increase added material ongoing cost to franchisee operations without, in GSFOA’s view, adequate disclosure of its financial impact on unit economics.

Ongoing fees are disclosed in the FDD’s Item 6. But the disclosure requirement is the fee schedule itself — the franchisor is not required to model how fee changes affect unit profitability. A buyer reading Item 6 sees a percentage. What that percentage translates to in actual dollars depends on revenue, and the interaction between a fee increase and the revenue and margin figures disclosed elsewhere in the FDD is left to the buyer to calculate.

This is the claim that should get the most attention from a prospective buyer, because it goes directly to the reliability of the margin data in Goddard’s FDD financial disclosures.

Rent and property taxes are typically the second-largest operating expense for a childcare facility, behind only labour. For a Goddard school, occupancy costs — rent, property taxes, building insurance, and common area maintenance — can represent 12% to 20% or more of gross revenue, depending on the real estate path the franchisee took and the local market.

If rent and property tax data submitted by franchisees understates actual costs, the downstream effects on disclosed averages are predictable:

• EBITDA margins appear wider than they are. The average EBITDA margin disclosed in Goddard’s Item 19 is approximately 22%, per publicly available franchise data aggregators reporting the 2026 FDD. If average occupancy costs are understated by even 2 to 3 percentage points of revenue, the real system-wide EBITDA margin could be 19% to 20% — a difference of $50,000 to $75,000 in annual operating earnings on a $2.5M-revenue school.
• The bottom of the distribution is more compressed than it looks. Schools in the lower quartiles of the revenue distribution already operate on thin margins because fixed costs — including rent — consume a larger share of their revenue. If those rent figures are understated, some schools that appear marginally profitable in the disclosed data may be operating at or below breakeven.
• Pro forma models built on disclosed margins overstate returns. A buyer who takes the 22% EBITDA margin, applies it to a revenue estimate, subtracts debt service and owner compensation, and arrives at a cash-on-cash return is starting from a margin that may be inflated by 2 to 3 points. On a million-dollar-plus investment, that difference changes whether the deal clears an investor’s return threshold.

To be clear: these are the implications if the complaint’s allegation is accurate. The complaint is an allegation, not a finding. The franchisor has not publicly acknowledged or denied the claim. But a buyer doing due diligence does not need the complaint to be proven true to act on it — the buyer needs to verify the numbers independently regardless.

The marketing fee issue is simpler in structure but still material to unit economics.

Goddard’s ongoing fee load — royalties, marketing contributions, technology fees, and curriculum fees — totals approximately 11% or more of gross revenue, per publicly available FDD data. On a school generating $2.5M in revenue, that is roughly $275,000 per year flowing to the franchisor before the owner pays rent, staff, or themselves.

A fee increase that adds even 0.5% of revenue to the ongoing burden adds approximately $12,500 per year at the average revenue level. That number sounds manageable until you recall that it comes out of the same EBITDA that must also cover debt service, owner compensation, and capital reserves. For schools in the bottom quartile generating $1.5M or less, a 0.5% increase is $7,500 — a smaller dollar amount, but one extracted from a thinner margin where every dollar is already allocated.

The GSFOA complaint characterises this as a burden imposed without adequate disclosure. The FDD does disclose fee schedules. What it does not model is the cumulative effect of fee changes on the economics a prospective buyer is evaluating. A buyer reading the current FDD sees today’s fee structure. A buyer who speaks with existing franchisees hears what that fee structure felt like when it changed.

The detailed breakdown of Goddard’s fee stack and its implications for cash flow is covered in our financing analysis.

A buyer encountering this complaint for the first time needs to understand what it represents in the regulatory landscape.

What it is:

• A formal complaint filed with the regulatory coordination body for state franchise and securities administrators
• A request for regulatory review of specific FDD disclosure practices
• A signal that a meaningful segment of the system’s franchisees (100+ locations) has organised around concerns serious enough to escalate formally
• A publicly filed document that is part of the record

What it is not:

• A regulatory finding, enforcement action, or penalty
• A determination that the FDD is inaccurate or that any law has been violated
• A lawsuit or legal proceeding
• An indication that NASAA has investigated and reached conclusions

Franchisee associations filing complaints about FDD practices is not unique to Goddard. Across the franchise industry, disputes between franchisors and franchisee groups over disclosure adequacy, fee changes, and operational mandates are common enough that the International Franchise Association has published frameworks for franchisor-franchisee relations. NASAA itself has a franchise examination program that reviews FDDs across many brands.

The existence of the complaint does not mean Goddard’s FDD is deficient. It means that a substantial group of current operators believes the disclosure does not fully reflect the economics they experience. That is a data point, not a verdict — and it is a data point a buyer should weigh alongside the franchisor’s track record, the FDD data itself, and independent verification.

Whether or not the GSFOA complaint’s allegations are ultimately validated, the claims it raises point to specific verification steps that belong in every prospective Goddard buyer’s due diligence process. These are questions to add to your validation calls with current and former franchisees.

On Occupancy Costs

1. “What is your all-in monthly occupancy cost — rent, property taxes, CAM, and building insurance — as a percentage of your gross revenue?” Compare the answer to the occupancy cost implied by the FDD’s margin data. If multiple franchisees report occupancy at 18% to 22% of revenue and the FDD margin implies 12% to 15%, you have a gap to investigate.
2. “Has the data you submit to corporate about your rent and property taxes ever differed from what you actually pay? If so, why?” This is a direct question about the GSFOA’s core allegation. You may not get a straight answer from every franchisee, but a pattern across multiple calls is informative.
3. “What was your actual EBITDA last year, and how does it compare to the system average disclosed in the FDD?” The FDD’s average EBITDA is approximately $546,000 at a 22% margin. A franchisee who reports 17% to 18% on similar revenue is telling you something about the gap between disclosed and actual margins.

On Marketing Fees

4. “How did the 2023 marketing fee increase affect your bottom line? What did it add in actual dollars?” This grounds the fee change in real unit economics rather than the percentage disclosed in the FDD.
5. “Do you feel the marketing spend produces proportional value for your school’s local enrollment?” Marketing fee disputes in franchise systems are often as much about perceived return on spend as they are about the dollar amount.

On the Broader Disclosure

6. “If you were building your financial model today based on the current FDD, what numbers would you change?” This open-ended question lets the franchisee identify the gaps between disclosure and experience without you leading them to a specific answer.
7. “Are you aware of the GSFOA complaint? What is your view of the issues it raises?” Not every franchisee will be a GSFOA member or sympathetic to its claims. The range of responses — from strong agreement to dismissal — is itself useful information about system sentiment.

For broader context on what current Goddard franchisees report about their operating experience, see our owner experiences analysis.

The GSFOA complaint highlights a structural reality that extends beyond Goddard. Every FDD’s Item 19 is built on data that the franchisor collects, aggregates, and discloses. The FTC Franchise Rule requires a reasonable basis for the representations and prohibits material omissions. State regulators review FDDs for compliance. But the underlying data is self-reported — by the franchisor, and in many cases built from data reported by franchisees to the franchisor.

This is not a Goddard-specific problem. It is a structural feature of franchise disclosure in the United States. The FDD is a regulated document, but it is not an audited financial statement. The distinction matters because it defines what the data can and cannot tell you.

What the FDD gives you:

• A floor of disclosure mandated by federal and state law
• Averages, ranges, and aggregate figures that describe the system as a whole
• Fee schedules, investment ranges, and contractual obligations
• A starting point for analysis

What the FDD cannot give you:

• Verification that the underlying data is complete and accurate at the unit level
• The distribution shape behind the averages
• The interaction between multiple cost categories that determines actual profitability
• The specific economics of the market, real estate path, and competitive environment you will operate in

Independent verification is not optional. It is the core work of due diligence. That means validation calls with franchisees — not the ones the franchisor recommends, but ones you find through your own research. It means building your own pro forma from local market data rather than plugging system averages into a spreadsheet. It means engaging a franchise attorney to review the FDD and a CPA to stress-test your model. Capital advisors who specialise in franchise financing, such as Lendesca, Benetrends, and FranFund, can also provide perspective on how a brand’s disclosed economics compare to what they see across lending portfolios.

For a detailed walkthrough of Goddard’s operational and licensing requirements and their cost implications, those pages provide the context that the FDD’s Item 19 alone does not.

The GSFOA complaint does not prove that Goddard’s FDD is inaccurate. It does prove that a significant group of existing franchisees — operators who live inside the economics that the FDD summarises — believe the disclosure does not fully reflect their reality. That is not a reason to walk away from Goddard. It is a reason to verify every number you plan to build your business on.

The SBA’s franchise lending resources and the FTC’s franchise rule documentation provide the regulatory framework for understanding what disclosure is required and what protections exist. But neither the regulator nor the franchisor will do your verification for you. That work falls to you, your attorney, your CPA, and the franchisees willing to talk honestly about their numbers.

The complaint is a document. Read it. Then do the work it tells you the FDD alone cannot do.