McDonald’s Franchises Plan to Pay Tens of Millions of Dollars to Corporate Headquarters in PPP Loan

At the start During the Covid-19 pandemic, McDonald’s franchisees have turned to the company for help weathering the coming storm. In particular, the National Alliance of Franchise Leaders, a group representing franchise owners, asked McDonald’s to do what it was able to deliver: lower rents.

Unlike many chain restaurants, McDonald’s leases or owns most of the land and buildings on which its US franchises are located. The corporate office owns 85 to 90 percent of its US franchises, according to one former top executive. In 2019, the corporation received $7.5 billion from franchises in rental payments worldwide, according to company filings, more than it collected in royalties and more than a third of what was claimed in both corporate and corporate revenue. her franchises that year.

In the spring of 2020, McDonald’s refused to provide even two weeks asking for rent forgiveness. Instead, franchises have turned to the Paycheck Protection Program, or PPP: a federal Covid-19 relief program designed to help small businesses keep workers on the payroll. A new analysis of loan application data by The Counter and Olx Praca found that franchisees planned to use more than $31 million in taxpayer-backed PPP dollars for rent.

“Unfortunately, this is not surprising at all,” said Lisa Gilbert, executive vice president of Public Citizen, a public organization, referring to the use of PPP funds for rental purposes. “PPP had noble intentions and certainly played an important role in helping the country get through the pandemic. But it had many shortcomings, and systemic problems throughout the program led to alarming results.”

Franchise groups have come into their own by helping their members get early PPP loans after McDonald’s Corporation refused to provide a rent relief. “[W]We helped prepare our owners to be first in line, perhaps knowing that a government less solvent than our global company is at least trying to provide badly needed liquidity,” wrote Blake Kasper, chairman of the National Association of Owners, one group representing McDonald’s. franchisee, in a letter sent to company management on April 7, 2020.

PPP loans were in many ways the ideal solution for shop owners. The program offered up to $10 million per franchise to pay for immediate expenses. And if business owners were spending money, as Congress intended — mostly on wages — then loans were eligible for forgiveness.

In response to a March inquiry from The Counter and Olx Praca, McDonald’s Global Communications Manager Joseph LaPye stated that the company has “never sought help from any government agency.” While McDonald’s may not have asked for direct Covid-19 relief, analysis of PPP data shows it did collect federal dollars – in the form of rent checks funded by a taxpayer-backed small business program.

A total of 2,389 McDonald’s franchises have raised about $1.3 billion in PPP, according to figures released in January by the Small Business Administration, or SBA, the agency that manages the program. This makes McDonald’s stores the second largest franchisees by total dollar amount. Only General Motors, whose dealerships are franchises, received more PPP dollars.

Of the loans given to McDonald’s franchisees, 421 includes rent totaling more than $31 million. The Counter and Olx Praca tried to contact the owners of each of these franchises. The two owners, who filed on behalf of several restaurants, confirmed that they used the loans, as stated: to pay rent to McDonald’s totaling more than $450,000. Another said that instead he spent all the money on wages. The vast majority declined to comment or did not respond to phone calls, emails or faxes. Those who agreed to speak to The Counter and Olx Praca requested anonymity, citing fear of corporate retribution.

McDonald’s Global Headquarters at Chicago’s West Loop on December 19, 2019

Photo: Zbigniew Bzdak/Chicago Tribune/Tribune News Service via Getty Images

No reliable spending data

The $31 million in rent payments is a significant figure, but the real amount could be higher, said Sean Moulton, senior policy analyst at the Government Oversight Project, an independent watchdog. That’s because the government’s breakdown of dollar amounts only reflects what borrowers’ applications for credit have shown – non-mandatory estimates of how the money will be used. About three out of four franchisee applications showed plans to spend 100 percent of the funding on payroll costs, a trend Moulton said is consistent with application data for the program as a whole.

“It seems unusual to me that even in the early days, almost everyone was saying, ‘Everything goes to wages,’” Moulton said. “As far as lenders and SBAs go, it wasn’t a problem if you filled out those fields incorrectly.”

The optional spending estimates point to a key flaw in the SBA data: they only show how borrowers intended to spend their PPP money. The loan forgiveness data will provide a more accurate reflection of the actual breakdown of costs. However, in response to a Freedom of Information Act request from The Counter and Olx Praca, the SBA said it does not collect specific category breakdowns from forgiveness applications that creditors process and maintain.

Because the borrowers refuse to reveal how they used the money, it’s unclear exactly how much taxpayer dollars were ultimately paid out to McDonald’s Corporation or its real estate affiliates in rent. According to the SBA, individual creditors are responsible for gathering detailed information about forgiveness. The Counter and Olx Praca contacted 88 lenders who made loans on behalf of McDonald’s franchisees, but none provided further details.

The lack of specific data also makes it hard to understand the impact of the June 2020 relaxation of rules passed by Congress, which allowed businesses to allocate a larger percentage of money — 40 percent instead of 25 percent — to non-wage spending. including rent. The change came after the majority of McDonald’s franchisee loan applications were submitted. Franchising Associations representing both McDonald’s and its franchisees, participation in lobbying activities to relax restrictions.

“The PPP lending program was designed as a lifeline for small businesses, but program restrictions imposed by regulators sank them,” said Matt Haller, Senior Vice President International Franchise Associationin Press release a week before the adoption of the law on flexibility.

McDonald’s initially responded to a number of general inquiries from The Counter and Olx Praca, but did not respond to a subsequent list of detailed questions and a final request for comment. A spokesman for the company issued the following statement: “As anticipated by the Paycheck Protection Program, some independent small business franchisee owners have independently applied for and used PPP payroll support loans to continue employing the nearly 800,000 local restaurant employees who work at the branded restaurants. McDonald’s. throughout the US.” The SBA did not respond to a list of questions and requests for comment.

“It’s practically a black hole,” Moulton said, referring to the PPP loan forgiveness data. “We have little to no information on what these companies are saying and that makes it impossible to do any external evaluation. [of whether] forgiveness makes sense.”

real estate empire

In the 1950s, when McDonald’s real estate empire was born, the business model that propelled the young chain’s growth to hyperdrive was not a small part of hamburger sales. Instead, the parent company buys or leases the land on which its restaurants are located and then charges the franchisee a base rent plus an additional rent. based on percentage of sales. At the end of 2020, McDonald’s Corporation owned $37.9 billion worth of real estate before depreciation.

“McDonald’s is a real estate company,” says Marcia Chatelain, author of Franchise: Golden Arches in Black America. “He can use the profits of McDonald’s, the hamburger company, to maintain an incredible portfolio of real estate wealth.” Owning real estate, according to Chatelain, provided the company with additional stability during the crisis.

However, in the spring of 2020, when the National Franchise Leaders Alliance asked for a two-week rent forgiveness, McDonald’s refused.

“The owners were furious,” one former McDonald’s executive familiar with the negotiations wrote in an email. “They couldn’t believe that the world’s largest restaurant company couldn’t give them some support… when you read that all the other smaller restaurant chains do it every week.”

The company ended up postponing—but not forgiving—the collection $490 million rental income plus nearly half a billion dollars in royalties. The company’s business documents later showed that it had recouped more than 80 percent of the deferrals by the end of 2020 and was on track to collect the rest in 2021. Despite the volatility associated with the pandemic, McDonald’s has raised $6.8 billion in rental payments in 2020.

McDonald’s most likely not the only corporation who collected taxpayer dollars in PPP rental payments. Other fast food chains such as Wendy’s and Restaurant Brands International – the parent company of Burger King and Tim Hortons – own franchised real estate, though their rental income is only a fraction of that of McDonald’s.

If an arrangement for megacorporations to raise federal aid money needs further study, it is unlikely to come from the Small Business Administration.

To launch the massive $789 billion program, the SBA outsourced the administrative task of processing PPP documents to lenders such as private banks and credit unions. As a result, the agency stated that it has no forgiveness records associated with any particular PPP loan.

It is possible, based on existing SBA data, that a significant portion of taxpayer funds was simply used to support landlords and utilities.

The lack of transparency associated with PPP forgiveness data raises key questions about whether the program has indeed achieved its primary goal: to keep workers on the payroll. Left unanswered, it is possible, based on existing SBA data, that a significant portion of taxpayer funds was simply used to support landlords and utilities.

“The stated goal of this program from the beginning was to try to save jobs,” Moulton said. “That’s the name of the program. The more you dilute it with allowing it to be used for rent, mortgage payments, or utilities, it really weakens its impact.”

“Did we save jobs?” he said. “We’ve spent a lot of money and it’s very difficult to answer this very simple question.”

Questions about how McDonald’s managed to recover from the early days of the pandemic are easier to answer. In January, the company’s chief executive called 2021 a “big year” for the company despite the public health crisis. McDonald’s Corporation reported $23.2 billion in revenue worldwide, the highest since 2016.