Special deals sold by a previous owner

[Gordon McLeod]

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.

Canada post has had forever stamps for several years.
A few years ago the federal government did introduce legislation on requireing all gift cards and prepaid card have a life time usage

[Jim Cassedy]

During the Coronapacoplyse lockdown last year, I was paging through a lot of ancient issues of publications like "Moving Picture News" and "Exhibitor's Herald" from the late 1900's & early 20's, in particular looking for stories about San Francisco. There was one story from around 1919 or so about a guy who was going around to local merchants and selling 'discount ticket books', which gave free admission to some of the theaters in town. The idea was that the local merchant could give out the certificates to customers as a bonus gift or as some sort of sales promotion of their own. ("Buy two shirts & get a free pass to the XYZ Theater! , etc) The problem was that the guy distributing the pass books had NO connection to any of the theaters in San Francisco. It was a total fraud! According to the story, a few of the larger theaters accepted the phony passes anyway, as a sign of good will, but a lot of the smaller, independent 'neighborhood theaters' couldn't afford to do that and just sent customers back to whatever merchant they got the "free passes" from. At the time the story was published, they fraudster was still being sought, but the police believed that this was done by an itinerant con-man who moved around from city-to-city and weren't too optimistic about tracking him down.
The theaters themselves lost little or no money, since in worst case they just lost the price of an admission if they allowed entrance to someone presenting a phony pass. The real losers were the merchants, bought the discount books in bulk and paid up front for abuncha tickets that were totally worthless.

[Leo Enticknap]

101 years later, a lady in Florida was caught, effectively doing the same thing!

[Marcel Birgelen]

I obviously knew about stuff like Groupon, but I just recently realized that there is an entire on-line market for stuff like vouchers and coupons... I thought about how easy it would be to defraud people with those things and obviously, people have been jumping into that void...

[Martin Brooks]

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


Harold

Not exactly, in my experience. If you have a monthly magazine for example, it's not that the outstanding issues are an accounting liability (because the subscriber can cancel and request a refund), it's that you book 1/12th of the revenue each time an issue ships, even if you were paid up front. I used to fight with the finance people over this because I wanted to book more of the revenue up front since it was quite rare for anyone to cancel the subscription (in this case a CD-ROM database subscription) we were selling AND we were selling both one year and three-year subscriptions and it was especially vexing to only book 1/36th of the revenue each time an issue shipped when we had the money up front. Of course, in the long run, it didn't matter.

[Harold Hallikainen]

I agree that the income is recognized as the product is delivered, so there is monthly income from the subscription. Accounting can be interesting. If you were not deliver those later issues, the subscribers would be owed a refund. That would be a debit to the liability and a credit to cash. Trying to structure transactions in accounting such that the balance sheet truly represents the assets, liabilities, and net worth at any point in time is fun. There have, for example, been proposals to require advertising expenditures be amortized over a period of time since the benefit of an advertisement probably lasts many months or perhaps years. But, so far, that has not been required, and advertising is expensed at the time it is run.

Harold

[Andrew Thomas]

I know the specifics of this situation as I and my partner purchased the drive in in question.

Without getting waaaayyyy into the weeds, the previous owner died of Covid in January. His company was dissolved under state law at his passing. His children became the heirs to his business assets, so we purchased said assets. We didn't purchase the now dissolved business entity.

Unbeknownst to us, the guy has sold close a million dollars in Groupon deals alone over the last five years, as well as untold "season passes" and other gift certificates. The Groupons in particular were quite problematic as it turns out he was *never* redeeming any of them in the Groupon system, leaving the vast majority marked as unused even back to 2015. Since we still have to pay the studios for admissions that are pre-bought in things like Groupons and whatnot, it became clear that our potential liability on these things were north of $600,000. He sold them back in the day when Groupon paid up front. Now they don't pay until redeemed. Were that the case for all of them we would have accepted all that had been sold as we would have begun to receive the payments as they were redeemed.

Now, the amusing part is the way the original post is worded is like this was some massive fight. We simply said we would honor anything sold from January 1 of 2020 through the date we acquired it, March 26th 2021. And the vast majority of people thought that was perfectly reasonable. 100s of positive reactions, and literally like 3 complainers! So very odd how the person interpreted the situation.

[Mitchell Dvoskin]

Unneeded Post due to Andrew's post above.

I suppose the question is, did you buy the prior owners business or just take over a location lease and buy the contents and trade fixtures of the building? If you bought the business, then you probably have some legal obligation to honor the coupons. In that case you probably have a case against the prior owner of undisclosed known liabilities. If you just bought the contents, trade fixtures, and took over a lease, then most likely all you need to do is is post at the box office that the theatre is under new management as of a date and you cannot honor any promotions issued before that date. For unhappy customers, I would refer to the entity that sold you the location for a refund. Regardless of the law regarding coupons with no expiration date, you can not be held responsible for coupons your business did not issue unless that was a written provision of your purchase agreement.

The only time I personally had to deal with this was when I was working at an independent theatre where the location was acquired from another independent business. The new owners posted a sign at the box office and a small blurb at the bottom of their newspaper ads indicating an promotions issued before their date of purchase would only be valid until a date (that was about 45 days out from the purchase).

Disclaimer: I am not a lawyer so this should not be taken as legal advice.

[Leo Enticknap]

He sold them back in the day when Groupon paid up front. Now they don't pay until redeemed.

Interesting that they changed (with reference to my post above). I'm guessing that Groupons for services acquired a reputation as being something that sinking businesses did as a last ditch effort to stay afloat, and that this was making customers nervous about buying them. By moving to a payment (to the vendor) on delivery model, this ensures that Groupon is only used for genuine promotions by businesses that are stable and able to deliver the services sold reliably, as well as mitigating what was a major risk (e.g. of credit card chargebacks) for Groupon themselves.

[Scott John]

We took over a theatre and the previous owner sold certificates, though not anywhere to the extent described... but it was certainly in the thousands of dollars likely outstanding.

We just bit the bullet and accept them as goodwill and a cost of doing business and hope they buy popcorn. Our worry was that the customer doesn't really know or care about changes in ownership, so figured making them angry for not accepting the old certificates was going to do more harm than good. The box office as a little script when they get one about how they are from the previous business but as we value their patronage we are happy to honour the certificates. Kind of just points out that we are going the extra mile and not making any money on it.

At some point we will probably draw a line in the sand and say "it has been 2 years since we took over and can't honour old certificates" we will try to give lots of notice with signs and such.