Do your due diligence before you sign. Every franchise buyer hears that advice. It sounds right. It is not, when the company selling the franchise has already built the data set you use to check.
Xponential Fitness, the parent company behind Club Pilates, Pure Barre, YogaSix, and StretchLab, removed the names of franchisees whose studios had closed, been cancelled, or been terminated from its franchise disclosure documents. Federal law requires those names to stay on the list. Xponential took them off. A buyer who called down the contact list spoke only to survivors. The people who lost money were not on the page. His due diligence confirmed the pitch because the pitch had already shaped his due diligence.
The Phenomenon Has a Name
The research on this is worth reading. In 1996, Edwin Elton, Martin Gruber, and Christopher Blake studied mutual fund performance data and found a consistent pattern: when failed funds drop out of the record, the remaining funds appear to perform better than they actually did. Strip the dead from the sample, and the survivors always outperform the true group. They called it survivorship bias.
The math works the same way whether you are looking at fund returns or franchise contacts. Remove the failures, and every reference call confirms a story that is not true. Xponential did not apply this by accident. The FTC's complaint describes a pattern of omission built into the disclosure process itself.
The company pitched buyers a six-month timeline to open a studio. Franchisees commonly waited more than a year. Some studios never opened at all. The company failed to deliver the required disclosure document at least 14 days before signing, which compressed the buyer's review window. It did not tell buyers that former CEO Anthony Geisler had been sued for fraud more than once, a fact the law requires in the filing.
As of late 2025, roughly 30 percent of contracted studios sat inactive and more than a year behind schedule. The pipeline shrank from about 3,000 sold-but-not-open studios to roughly 1,590 over two years. In 2025 alone, 140 units closed against 341 gross openings. Mark Nuzzo, the incoming CEO, said on an earnings call that legal problems, bad brand buys, and organizational gaps had held the company back. The admission came after the damage was done.
The Cost of Manufactured Confidence
The FTC's settlement, secured in early 2026, returned $17 million to franchisees. It is the largest amount ever returned to buyers in a federal franchise case. A separate civil settlement with more than 500 current and former franchisees added $22.75 million. Combined: $39.75 million.
The average buyer had paid a $45,000 fee up front and signed a 10-year agreement. By the time the FTC filed, those buyers had already paid, signed, and tried to open their studios. The enforcement came after the money was spent. You cannot rely on regulators to catch the problem before you sign.
The Flaw Is Not the Franchise. It Is the Evidence Base
The platitude does not fail people. It fails the system they are trying to run. The problem is not that franchise models fail. Some do. Some work well for years. The problem is that the sales process can engineer the data set you use to make your decision. When the contact list only holds survivors, your own due diligence confirms the pitch. You think you did the work. The work was shaped for you.
Build Your Own Evidence Base
The better principle is short: do not evaluate a franchise with the evidence they hand you. Build your own. Once that is clear, three moves follow from it.
Move 1: Count the Exits Yourself
The franchise disclosure document contains a section called Item 20. It lists every unit that opened, closed, transferred, or was terminated in the past three years. Pull Item 20 from the current filing and the two prior years. Line them up. Count the closures year over year. If the trend line climbs, you are looking at a system that loses operators faster than it adds them.
This is the step most buyers skip. It takes about two hours. It will tell you more than every reference call combined.
Move 2: Find the People Who Left
Item 20 also lists the names of franchisees who exited the system. Call them. They are not on the current contact list for a reason. Ask what the real costs were, what the timeline looked like, and whether the numbers in the pitch matched what they saw once they were running. The people who left know what the survivors do not.
Move 3: Time Test the Pitch Against the Filing
If the sales team says studios open in six months, check the disclosure document's own data on time to open. If those numbers do not match, the sales team is telling you a story. The filing is the legal record. The pitch is not.
What the Audit Shows
Running these three steps before you sign does something the pitch never did. It shows the gap between what was sold and what survived. It shows the closure rate the sales team left out of the deck. It shows whether the timeline in the meeting matches the timeline in the filing. It puts a number on the friction the polished version was built to hide.
Three Questions After the Numbers Are In
At the end of this process, ask three things.
→ What is the real closure rate over the past three years, not the one implied by the contact list?
→ What did the people who left say about the gap between the pitch and the operation?
→ Did the sales timeline match the filing, or did it match a story built to move you toward a signature?
That is the difference between advice that sounds right and a system that proves itself.
Where You Stand
Anthony Geisler left Xponential after $39.75 million in settlements and launched a new franchise portfolio called Sequel Brands. The person who built the system that manufactured its own evidence walked away and started the next one. The system is not broken. It was built this way.
