Wed | Sep 20, 2017

Bogdanovich buys Usain Bolt Tracks & Records franchiser

Published:Friday | May 6, 2016 | 5:00 AMCamilo Thame
Usain Bolt poses in front of the Usain Bolt Tracks & Records sign in this 2013 file photo.

Downsound Records CEO Joe Bogdanovich now owns the majority of the Usain Bolt's Tracks & Records franchiser.

The long-time partner in dancehall calendar event Sting, who recently inked a deal to buy the Sumfest brand, has now purchased a 51 per cent stake in FranJam, the franchising company of the Jamaican-themed restaurant, from KLE Group.

FranJam was spun off and sold to pay off a US$650,000 ($79 million) debt owed by KLE to Bogdanovich for a loan he gave to the company in 2014 after he took on a 23 per cent stake in KLE and joined its board.

The loan initially carried an interest rate of 6.5 per cent for a period of four years and was secured by the assets of Famous Nightclub. It was renegotiated in 2015 for new terms requiring 7.9 per cent interest per annum for three years, while the nightclub located in Portmore, St Catherine, was sold this January.

KLE CEO Gary Matalon, who also heads FranJam, said the debt renegotiation was done to offset any potentially negative impact the debt might have on the company's balance sheet in 2015 while the deal to sell FranJam, which was already well advanced by then, was being finalised.

The sale and repayment of the debt valued KLE's 49 per cent stake in FranJam at $76 million, which was reflected on the company's balance sheet as investment in associate for the first quarter ending March 2016.

It also added $156 million to the company's income statement, reflecting an accounting of the combined effects of repaying the $79-million debt and the unrealised gain on the revaluation of FranJam.

Importantly, the sale of Famous in January and the repayment of the costly debt make KLE Group, which is left with Tracks and Records in Marketplace, profitable.

The restaurant posted a modest operating profit of $4 million for its first quarter, a period Matalon says has historically been the worst three months for the establishment. During the comparative quarter in 2015, the restaurant posted a $5-million operating loss.

Depreciation runs KLE around $3.6 million a quarter, so substantially eliminating finance costs by repaying the debt to Bogdanovich also bodes well for the company's profitability, especially given that better months for revenue are ahead, by Matalon's estimation.

"Last Olympics, we did $22 million in revenue," the KLE CEO told the Financial Gleaner. "Just accounting for price increases, the same amount of traffic this year could generate $29 million in revenue in August."

With a gross profit margin of 64 per cent, as was the case in the first quarter of 2016, and with depreciation, administrative and other expenses running just below $10 million a month, achieving this revenue target would translate into $9 million to the bottom line for this year's Olympics.

Tracks and Records' first franchisee is also expected to open its doors in Ocho Rios, St Ann, within eight weeks, which might be just in time for the Games where six-time Olympic gold medallist Usain Bolt plans to repeat his triple-sprint win for a third time.

However, revenue from that franchise arrangement, as with those to be established in the future, will go to FranJam. KLE then would earn a share of FranJam's profit.

In a way, the sale of the Tracks and Records franchise is similar to the approach being taken by the company for its Bessa project, which seeks to develop a property in Oracabessa, St Mary, in partnership with Sagicor Life Jamaica.

KLE is taking on a small group of investors to invest US$250,000 of the US$350,000 that the entertainment company committed to the project, while it will manage the project for an annual administration fee equal to one per cent of the invested amount by the investor group and a bonus equal to 15 per cent of the profit made by each investor. But that is if the profit exceeds the US LIBOR rate plus four per cent.

Matalon's take on the FranJam sale is that it will accelerate the pace at which the restaurant chain is expanded through franchising locally and overseas.

Franchise development means going up against operators with deep pockets, such as Yum! Brands (owner of KFC, Pizza Hut, and others), and other themed restaurants such as Outback, Chilli's and Finnegan's.

"We negotiated, with the spin-off of FranJam, that financing would become available," said Matalon. "Now we have the money needed to attack the market."

camilo.thame@gleanerjm.com