5 ms·

80% of McDonalds are franchise, so it’s often a similar situation. 2/3rds of locations are owned by McDonald’s and leased by the franchisee, who also pays royal

• kgwgk 8y ago
  That's not similar at all. McDonald's (the company) owns properties and leases them to franchisees, which is quite different from a WeWork officer owning properties and leasing them to WeWork (the company).
  • humanrebar 8y ago
    Tell that to the McDonald family.
    • kgwgk 8y ago
      I don't know if you're joking, but they were out of the picture even before the company became public in 1965.
      • humanrebar 8y ago
        And they were leveraged out of the business partly though lease-to-yourself shenanigans on the part of Ray Kroc.
        • kgwgk 8y ago
          How so?
          • humanrebar 8y ago
            https://money.howstuffworks.com/mcdonalds2.htm https://money.howstuffworks.com/mcdonalds2.htm Not spelled out there is that the real estate portion of the business was advantageous to Kroc. When it became the vast majority of the business he could use his resources to leverage out the McDonalds.
            • kgwgk 8y ago
              I don't see the relevance for the WeWork discussion. WeWork shareholders are potentially harmed when the CEO gives money from the company to himself. If I understand the deal, the McDonald's brothers sold back the royalties they got from McDonald's (the company) for $2.7mn. If McDonald's (the company) got access to the money that the McDonald's brothers demanded by being smart with real estate operations, good for them. Everyone got what they wanted. https://www.marketplace.org/2017/02/09/business/ray-kroc-mcdonalds-fast-food https://www.marketplace.org/2017/02/09/business/ray-kroc-mcd... "The brothers did get a percentage of the profits. The original deal was 1.9 percent of a franchisee's profits. It went to the McDonald's Corporation and 0.5 percent of that went to Dick and Mac McDonald. The falsehood in the movie is that Ray screwed the brothers out of that half a percent. Basically what happened was Ray and the brothers were at odds. He went to them and said, look, what is it going to take to make you go away? They said $2.7 million — we want a million dollars each and $700,000 to pay our taxes. That's how practical they were. And they were happy with that. It was 1961 and the problem was that Ray didn't have anywhere close to $2.7 million. It's important to remember that McDonald's was precipitously close to folding at every step of the game once Ray got involved, because he didn't have the right scheme to make McDonald's grow until he met Harry Sonneborn who came along and told him it's not about hamburgers, it's about real estate. So basically Ray couldn't find $2.7 million to pay the brothers off. Harry found the $2.7 million. And if he hadn't, the situation, the agreement would have continued on the way it was in place with the 0.5 percent going and lining the brothers' pockets in a really lovely, passive income. But Harry saved the day. He was able to convince these men, who they later called in McDonald's lore "The 12 apostles," and those guys came up with the cash that allowed him to buy out the McDonald's brothers and make them go away. The movie says that they got screwed, but they didn't."
          • deleted 8y ago
• notahacker 8y ago
  That's a way for McDonalds to make more money for McDonalds shareholders (at the expense of a private franchisee who's well aware who he's leasing from and probably feels more secure leasing the location from someone that isn't going to turf him out for a higher rent offer from KFC). From a MCD investor point of view, them owning the real estate and earning money on that too is a good thing. It's a bit different from a hypothetical scenario in which McDonalds picks locations personally owned by McDonalds' CEO Steve Easterbrook, in a manner which probably tends to benefit him personally far more than McDonalds' shareholders.
  • frankydp 8y ago
    I would suggest that MCD corp regularly turfs out established O/O's, just for the opportunity to re-sign lease agreements for better rent %s. ie renegotiating from 90's rates around 5% to 2010's rates at 10% of gross. IMO, MCD has been administratively leveraging there negotiation position with regards to rental %s as the near sole driver of profit increases for about 18-22 years. They are very very near max sustainable extraction, which is evident by their huge offloads of corporate owned stores in the last 3 years. Addition: They could also be positioning for a REIT transition.