Special deals sold by a previous owner

[Frank Cox]

I just came across this on another forum:

There's a drive in theater about 45 minutes out in the country from us. We like going once in a while, but have actually gone a lot during the pandemic because it's been nice to get out and see some movies from the "safety" of our car. Sadly, the man who owned it passed away over the Winter, so his family sold out. To the chagrin of the new operators (who bought the equipment and took over the land lease), when they reopened in the Spring they discovered that the previous owner had sold a couple hundred thousand dollars worth of "Groupon" type deals, and oodles of people were expecting to see movies for which he wouldn't receive any revenue! There was some back-and-forth with people online about figuring out a compromise (limit the number per night, or slower days of the week, etc), but people weren't being flexible, so the new operators ultimately just drew a line in the sand and said they wouldn't take any more. They were closed like most businesses at the beginning of the pandemic, and then closed as normal for the winter, so there was a lot of pent up demand. Apparently the "Groupon" deals were sold during the shut down to generate revenue.

The previous guy died, and his family probably wasn't even aware of the presold deals, so I don't think there was any intention of cheating anyone, but the place is a shoestring operation, and it's not viable if the operator can't pay the rent and employee wages.

Anyway, I'm oversimplifying, but there were a lot of upset people! Some folks said that the customers could get their money back from the Groupon-like company, but they didn't want their money--they wanted the too-good-to-be-true deals on tickets and snacks.

[Mike Blakesley]

We've sold a lot of gift cards over the years that have not been redeemed. Sometimes people bring in a stack of them (often when a kid leaves for college) and say, "I have no idea how much is on these."

Our system keeps track of the outstanding funds and I have always assumed that if I sell the place (or my wife sells it after I drop dead), the new owner would get a discount equivalent to the amount of the outstanding funds. Unless of course the new owner is a jerk, in which case I ain't saying nothin'.

[Marcel Birgelen]

You obviously should honor previous commitments, but this is a bit of a difficult situation for all involved. The guy who sold those vouchers is dead, the family probably didn't know or turned a blind eye on the situation and the current owner is left to deal with it, but never received a cent of the original proceeds.

I don't know what kind of vouchers and how many of them have been sold in the past, but I guess the best way out for both the owner and the affected customers would be to come up with some partial rebate plan that can be spread over time. That way, the customers can at least still get some worth out of their vouchers and the new owner doesn't risk selling out entire shows with zero revenue to show for...

[Jack Ondracek]

Tough one, for sure.

In our state (maybe everywhere), gift card purchases, and anything with no printed expiration date lives about forever. Perhaps a lesson in due-diligence prior to the purchase, so you know what you're getting yourself into. Any chance you could place some kind of daily limit per-car?

Come to think of it, this one's going to really cost him, because he (legally) would need to claim the admits on his boxoffice reports and pay percentages on them out of his pocket.

Considering the money involved, this guy might want to chat with a lawyer & see if he has any wiggle room, short of packing up and handing the place back to the landowners.

38 years ago, I had a theatre in Oregon that had run up a large advertising bill with the local radio station before I took it over. In that case, the debt transferred to me as the successor and the station took it out of my hide. The only satisfaction I got out of that one was the station ever saw another dime from me.

2 years after we bought our place (1986), I did one of those "back-of-the grocery-receipt" promotions. The 90-day run was very successful. Unfortunately, I was too inexperienced to put an expiration date on them. Those things continued to show up here for the next 5 years.

[Marcel Birgelen]

In our state (maybe everywhere), gift card purchases, and anything with no printed expiration date lives about forever. Perhaps a lesson in due-diligence prior to the purchase, so you know what you're getting yourself into. Any chance you could place some kind of daily limit per-car?

Come to think of it, this one's going to really cost him, because he (legally) would need to claim the admits on his boxoffice reports and pay percentages on them out of his pocket.

Considering the money involved, this guy might want to chat with a lawyer & see if he has any wiggle room, short of packing up and handing the place back to the landowners.

From the limited information provided, it's hard to judge what the exact legal situation is in this case. If he bought the business itself, he'll probably be liable for those gift cards as a business. If those who sold him the business didn't correctly expose the liabilities involved with the business they sold, the buyer can most likely claim those from those who sold it to him.

But if the new operator only bought the lease and the equipment, but not the operations themselves and started the exploitation as a new legal entity, I don't think he'll be legally obliged to honor any of the previous arrangements, if they want their money back, they'll essentially have to fight it with the estate of the previous owner.

I guess no matter what's the case though, finding some kind of middle ground is probably the best solution for all involved.

[Leo Enticknap]

I'm guessing that these Groupon deals did have an expiration date, but that events moved so quickly that it has not yet been reached.

If a vendor for which you have bought a Groupon goes out of business before it can be redeemed and before the expiration date, Groupon themselves will only refund you in the site's own gift cards, or "Groupon bucks," as it calls them. I found this out the hard way after buying a Groupon for a local restaurant, which had a pretty good reputation and was a favorite of my wife's, with the intention of taking her to dinner there. A few days after I bought it, the county showed up to do a safety inspection, which, as described on local radio, was a replay of this soap opera scene! The only differences were that the animal in question was an opossum rather than a rat, and it was found in a food storage cupboard rather than when it was served to a customer. But unsurprisingly, the place was closed down. The business was deeply in debt and failing, and that closure forced it into bankruptcy and liquidation.

Groupon refused to refund me, apart from in their own "currency." In the aftermath of that experience, I was told by several people that if you see services (not goods) offered on Groupon, that usually indicates that the business is failing and desperately trying to raise cash to survive, meaning that buying the Groupon is an inherently risky proposition. I then requested a chargeback from my credit card issuer, who approved it without any fuss or argument.

Might it be worth this drive-in preparing an information sheet on how to request a chargeback from your credit card issuer, and giving it to anyone who tries to redeem one of these vouchers? It would soften the blow a little bit compared to simply refusing to accept them without offering any sort of help to get the owner a refund.

[Frank Cox]

The quote that I posted above states that refunds were (are?) in fact available from the "Groupon-like" company, but the customers don't want a refund; they want the discounted whatever that the coupons are supposedly good for.

[Martin Brooks]

We've sold a lot of gift cards over the years that have not been redeemed. Sometimes people bring in a stack of them (often when a kid leaves for college) and say, "I have no idea how much is on these."

Our system keeps track of the outstanding funds and I have always assumed that if I sell the place (or my wife sells it after I drop dead), the new owner would get a discount equivalent to the amount of the outstanding funds. Unless of course the new owner is a jerk, in which case I ain't saying nothin'.

I know you're probably joking, but the unredeemed gift cards are a liability on your books. You would have to report that as part of the "black book" you (or your wife) would put together to sell the business. If you didn't report that liability, the buyer could sue you later.

Frequent flyer points have to be kept on the books by the airlines as well - because it's a liability. That's why they put expiration dates on them.

[Leo Enticknap]

The only essential difference is that airlines can, and do, devalue the currency of frequent flyer points by increasing the number of them required to "buy" a given flight, reducing the number of flights eligible to be booked with points at all, etc. etc. The airlines have done this so egregiously over the last decade or so that, IMHO, it no longer makes any sense to belong to a frequent flyer program and restrict your flying to that airline, unless you spend at least $20-25K a year on plane tickets. Otherwise, it makes more sense simply to go with the airline offering the lowest fare, or best reputation for reliability (depending on your priority) for the route and times you want to fly, and buy any perks or upgrades you want (lounge access, extra legroom seats, that sort of thing) as one-time purchases. For that reason I choose whichever is the cheapest of Delta or Southwest for work travel (out of my local airport at least, American and United simply have too poor a track record for delays and cancellations). I am a member of both of their programs, but don't expect ever to get any meaningful perks out of them, apart from a slightly lower risk of being bumped from an overbooked flight.

However, a voucher that says "Good for one movie admission for a party of two, any show you like, expiration date October 31, 2022" (for example) doesn't offer that wriggle room for the vendor.

[Harold Hallikainen]

I agree on the accounting principle that the outstanding cards are a liability. When you sell the card, you debit cash and credit the liability. There is no income on the sale. You could recognize the income when the card is redeemed ( debit liability, credit income), or the card expires. Without an expiration, these things could live forever and perhaps eventually should be turned over to the state as abandoned property. I've found old savings accounts with less than $10 in them on the California abandoned property web site.

Newspaper and magazine subscriptions are accounted for the same way. It's a liability before it's delivered and income after it's delivered.

In general, I'd always put an expiration date on such things!

Harold

[Frank Cox]

In Saskatchewan it's illegal to put an expiration date on something that's been paid for. If you give it away as a free gift/free draw/whatever, then you can have an expiry date on it. But if the customer paid you anything for it, even if he just paid a fraction of it's actual value, it can't expire.

[Harold Hallikainen]

Oh, that's interesting! It seems like the lifetime of the card would be considered in the price. One that expires would possibly sell for less than one that does not expire. Looking at https://www.ftc.gov/news-events/medi...ing/gift-cards , it appears that in the US, they cannot expire less than 5 years from when issued. Limited inactivity fees can be charged.

Harold

[Marcel Birgelen]

In Saskatchewan it's illegal to put an expiration date on something that's been paid for. If you give it away as a free gift/free draw/whatever, then you can have an expiry date on it. But if the customer paid you anything for it, even if he just paid a fraction of it's actual value, it can't expire.

If I interpret that law correctly, that's only true for gift cards with a predetermined value in legal tender e.g. Canadian Dollars. A "promotional gift card" like 50% off of your big popcorn can have an expiry date and as such also a gift card that gives you e.g. "one free admission".

A gift card with a predetermined "face value" is like a pre-paid payment card and I guess it's that why it cannot legally expire, according to the law, which makes some sense.

[Leo Enticknap]

It makes sense, because a gift card or voucher with a face value determined by a cash figure will be eroded by inflation over time, and can be eroded by the vendor doing what the airlines do, i.e. increasing the cost of their services above that of inflation, and/or restricting the validity of the gift card (if the small print allows), e.g. not valid for Friday and Saturday shows starting after 5pm. But a gift card with a value determined by the service it's good for (e.g. one movie admission) is inflation proof, and so an expiration date is needed to insure the vendor against an open-ended liability, the cost of which increases in real time over the years.

The USPS sells "forever" stamps in both national and international versions, for the same cost as the cash value stamp needed to mail the letter at the time of sale. I always buy them, because the cost of international postage in particular seems to change almost monthly. So if I buy 20 $1.15 stamps to mail this year's Christmas cards to the UK, only use 17 of them, and next year the rate is $1.18, I then have to stand in line at the post office to buy three $0.03 stamps. It occurred to me that if someone buys "forever" stamps in serious bulk and uses them gradually over the years, the USPS would likely make a significant loss. I can only assume that so few people do this that it doesn't affect the viability of the offering. I'd be interested to know how big the booked liability is for all those stamps sitting in desk drawers all over the country, though. It must be substantial.

[Harold Hallikainen]

There is a discussion of the USPS liability for outstanding Forever stamps at https://www.linns.com/news/postal-up...-auditors.html . They point out that the income is recognized when the stamp is used. Prior to that, it is a liability.