In a move real estate franchisor RE/MAX says is part of its succession plan, the franchisor has acquired from former RE/MAX CEO Dave Liniger two dozen companies that hold advertising funds collected from RE/MAX affiliates, according to a Securities and Exchange Commission (SEC) filing Monday.
The companies gather fees from RE/MAX agents and franchisees in company-owned regions to promote the RE/MAX brand.
On Jan. 1, RE/MAX LLC, an indirect subsidiary of RE/MAX Holdings, acquired 22 advertising funds and related entities from Liniger, who is RE/MAX Holdings’ co-founder and chairman, and merged them into a new RE/MAX subsidiary, RE/MAX Marketing Fund LLC.
On the same date, RE/MAX subsidiary RE/MAX of Western Canada acquired another company from Liniger called the Western Canada Ad Fund, and RE/MAX subsidiary Motto Franchising LLC acquired another company from Liniger called the Motto Advertising Fund, according to the SEC filing. The acquisition price for all the companies was a nominal $40.
“Dave Liniger has owned the ad funds in the company’s owned-regions since the founding of RE/MAX,” RE/MAX spokesperson Kerry McGovern told Inman via email.
“The funds operated under separate Colorado companies he owned, under an agreement that required that all monies be used to promote the RE/MAX brand. The purchase of the advertising funds does not change how the advertising funds operate.”
Before the deals, Liniger owned 100 percent of the equity interests in all of the acquired advertising funds.
“The advertising funds do not generate profits,” McGovern said. “All money collected has to be spent on advertising and marketing as outlined in the franchise disclosure documents and franchise agreements with our franchisees. Therefore, the funds have nominal re-sale value.”
Liniger resigned as co-CEO of RE/MAX Holdings in February 2018 while he and Adam Contos, now RE/MAX’s sole CEO, were under internal investigation for possible ethical and business violations. The probe later found that both men had violated the company’s code of ethics by failing to disclose to the RE/MAX board of directors a $2.4 million loan Liniger gave to Contos for the purchase of a residence.
“Approaching one-year from Dave’s retirement as CEO and transition into the RE/MAX Holdings Chairman of the Board role made this a natural time for the change,” McGovern said.
“Furthermore, franchisors commonly own their ad funds, so the acquisition is consistent with industry practices. It’s a clean, more streamlined structure for both RE/MAX LLC and Dave Liniger.”
RE/MAX is under contractual obligation to use the ad funds for purposes such as “preparation and placement of advertising materials, promotions, programs and public relations activities, technology-related services, and related maintenance and administrative costs,” the company said in Monday’s public filing. Because of these obligations, RE/MAX does not expect the acquisitions to “have a material impact” on its earnings per share in 2019.
RE/MAX also does not expect the purchases to lead to “material changes to the nature of advertising, marketing and technology expenditures or the markets in which advertising is conducted,” the company added.
The amount of money the ad funds collect per agent and per office annually varies by region, according to McGovern. Asked how much money is currently in the acquired ad funds, McGovern said, “That number is currently only disclosed in franchise disclosure documents, but will be disclosed in future SEC filings.”
In RE/MAX’s S-1 registration statement before it went public in September 2013, the company said the stockholder of the funds (Liniger) did not receive any compensation from the funds because all of the funds were required to be spent on advertising. At the time, the company said its real estate brokerage operations paid its ad funds $1.386 million in 2010, $1.19 million in 2011 and $1.153 million in 2012.
“This is basically a housekeeping move. This doesn’t change anything operationally in the way the funds are overseen or managed, and has no impact on the RE/MAX network. Though this is a non-story, however, any transaction involving a director and our primary shareholder required disclosure,” McGovern said.