Franchise Arrangements

12 Months Ended

Dec. 31, 2022


Franchise Arrangements

Conventional franchise arrangements generally include a lease and a license and provide for payment of initial fees, as well as continuing rent and royalties to the Company based upon a percent of sales with minimum rent payments. Minimum rent payments are based on the Company's underlying investment in owned sites and parallel the Company’s underlying leases and escalations on properties that are leased. Under the franchise arrangement, franchisees are granted the right to operate a restaurant using the McDonald’s System and, in most cases, the use of a restaurant facility, generally for a period of 20 years. At the end of the 20-year franchise arrangement, the Company maintains control of the underlying real estate and building and can either enter into a new 20-year franchise arrangement with the existing franchisee or a different franchisee, or close the restaurant. Franchisees generally pay related occupancy costs including property taxes, insurance and site maintenance.

Developmental licensees and affiliates operating under license agreements pay a royalty to the Company based upon a percent of sales, and generally pay initial fees.

McDonald’s has elected to allocate consideration in the franchise contract among lease and non-lease components in the same manner that it has historically: rental income (lease), royalty income (non-lease) and initial fee income (non-lease). This disaggregation and presentation of revenue is based on the nature, amount, timing and certainty of the revenue and cash flows. The allocation has been determined based on a mix of both observable and estimated standalone selling prices (the price at which an entity would sell a promised good or service separately to a customer).

Revenues from franchised restaurants consisted of:


In millions	2022		2021		2020
Rents	$	9,045.7	$	8,381.1	$	6,844.7
Royalties	5,005.6		4,645.1		3,831.5
Initial fees	54.5		59.2		49.9
Revenues from franchised restaurants	$	14,105.8	$	13,085.4	$	10,726.1

As rent and royalties are based upon a percent of sales, government restrictions as a result of COVID-19 had a more significant negative impact on revenues in 2020. The Company granted the deferrals of cash collection for certain rent and royalties earned from franchisees in substantially all markets primarily in the first half of 2020. In total, the Company deferred collection of approximately $1 billion and has collected all of these deferrals as of December 31, 2022.

Future gross minimum rent payments due to the Company under existing conventional franchise arrangements are:


In millions	Owned sites			Leased sites		Total
2023		$	1,512.5	$	1,458.0	$	2,970.5
2024		1,471.5		1,394.8		2,866.3
2025		1,425.9		1,332.1		2,758.0
2026		1,375.0		1,275.5		2,650.5
2027		1,328.2		1,218.9		2,547.1
Thereafter		9,533.6		8,454.3		17,987.9
Total minimum payments		$	16,646.7	$	15,133.6	$	31,780.3

At December 31, 2022, net property and equipment under franchise arrangements totaled $20.2 billion (including land of $5.9 billion) after deducting accumulated depreciation and amortization of $14.3 billion.