For a full-time, owner-operated Challenge Island franchisee, a defensible pre-tax owner-operator benefit range is approximately $8,100 to $36,600 per year, with a base scenario near $17,800. The 2026 Franchise Disclosure Document reports 2025 Gross Revenue, not profit or owner compensation, so these earnings figures are analytical estimates rather than franchisor-reported results.
Per reporting franchisee in calendar 2025; a franchisee could operate more than one Territory.
Full-Time median revenue multiplied by the 29.4% IRS proxy margin.
About 64.5% of the 2025 franchisee system met the reporting criteria used in Item 19.
7% Royalty Fee plus 2% Marketing Contribution, each subject to monthly minimums.
IRS 2023 net income less deficit divided by business receipts for nonfarm sole proprietors.
BLS May 2024 10th-percentile cutoff for General and Operations Managers; benefits are excluded.
What does Challenge Island Item 19 actually report?
Item 19 officially reports Gross Revenue per franchisee and per Territory for calendar 2025; it does not report owner earnings. The most decision-relevant central result is the $60,411 median Gross Revenue for 50 Full-Time reporting franchisees operating 74 Territories. The corresponding average was $80,569, but only 17 of 50 franchisees, or 34%, were above that average, which is why the median is the more useful center.
| Full-Time Item 19 cohort | Franchisees | Territories | Median Gross Revenue per franchisee |
|---|---|---|---|
| Bottom 50% | 25 | 30 | $30,772 |
| All Full-Time reporting franchisees | 50 | 74 | $60,411 |
| Top 50% | 25 | 44 | $112,930 |
| Top 25% | 12 | 25 | $193,233 |
Source: 2026 Challenge Island FDD, Item 19, Tables 1 and 3, pp. 35-36. “Gross Revenue” in the table uses the FDD's Gross Sales definition. The Top 25% result is shown for context but is not used as the main upside case because it is a selected high-performing cohort.
How representative is the reporting population?
The official sales data cover a majority, but not all, of the system. Item 19 includes 60 of 93 franchisees and 105 of 170 Territories. It excludes 33 franchisees covering 65 Territories: 23 franchisees did not provide required data, seven had operated for fewer than 12 months, and three ceased operations because health matters prevented day-to-day management. Affiliate-owned Territories are also excluded.
Item 20 reports that the system ended 2025 with 170 franchised Territories and seven affiliate-owned Territories. Because the omitted population is material, the reported medians should not be assumed to describe every franchisee. Source: 2026 Challenge Island FDD, Item 19, Notes C-E, pp. 38-39; Item 20, pp. 39-44.
How is the annual owner-earnings range calculated?
The estimate applies a broad official educational-services margin proxy to three FDD-reported Full-Time revenue medians. Conservative uses the Bottom 50% median, Base uses the all-Full-Time median, and Upside uses the Top 50% median. These categories are observed FDD cohorts, not probabilities or forecasts.
- Revenue anchors: $30,772, $60,411, and $112,930 from 2025 Full-Time Item 19 medians.
- Base margin: 29.4%, calculated from IRS Tax Year 2023 “Educational services” net income less deficit of $4.943 billion divided by $16.808 billion of business receipts.
- Margin sensitivity: 26.4%, 29.4%, and 32.4%, using the IRS ratio minus three percentage points, unchanged, and plus three percentage points. The spread is an editorial assumption, not FDD data.
- Included in the proxy: the aggregate Schedule C deductions underlying IRS net income, including reported interest and depreciation. FDD fees are not subtracted again because the IRS ratio is an all-in net-income measure. The IRS population does not isolate franchises or prove that comparable royalty and marketing costs were incurred, so the margin may be optimistic for this system.
- Excluded or separate: financing principal, capital expenditures, personal income taxes, and a hired manager's pay. Owner wages are not separately deducted in sole-proprietor net income, so the output includes the economic value of the owner's work.
Pre-tax analytical estimate for a Full-Time reporting-franchisee revenue profile; rounded to the nearest $100.
Interpretation: Sales level drives most of the range. The Upside case is tied to the Top 50% median, not the maximum reported revenue and not a prediction that a buyer will reach it.
Sources and method: 2026 Challenge Island FDD, Item 19, Table 1, p. 35; IRS nonfarm sole-proprietorship statistics and the IRS Tax Year 2023 Table 1 workbook. Calculations use full precision and display rounded values.
How does owner involvement change the result?
Owner involvement is economically decisive because the FDD requires full-time day-to-day management by the owner, an Operating Owner, approved Management Personnel, or a trained Manager. The owner-operated estimates above include the value of labor performed by the owner. They are not passive business profit.
For a manager-run sensitivity, the model subtracts $47,420, the May 2024 BLS 10th-percentile cutoff for General and Operations Managers. This is intentionally a low-end national wage marker and excludes employer payroll taxes and benefits. The BLS median was $102,950, so using the median would produce an even larger management cost. The occupation is broad and not specific to children's enrichment, which is why this remains a sensitivity rather than a forecast.
Manager-run residual subtracts an illustrative $47,420 manager wage from each owner-operator scenario.
Interpretation: Even the low-end BLS wage marker exceeds the modeled owner-operator benefit in all three scenarios. This does not prove every manager-run Challenge Island business loses money; it shows that the disclosed revenue medians do not support a full-time hired manager under this broad cost proxy without higher sales, lower management cost, shared portfolio overhead, or materially better margins.
Sources and method: 2026 Challenge Island FDD, Item 15, p. 31; BLS General and Operations Managers wage data. BLS reports a $102,950 median and that the lowest 10% earned less than $47,420 in May 2024. Employer payroll taxes and benefits are not included.
How much pressure do required fees place on earnings?
At lower disclosed revenue levels, the FDD's minimum Royalty Fee and Marketing Contribution can make the effective fee rate much higher than the headline 9%. For a later-term franchise using the $500 monthly Royalty minimum, the $150 monthly Marketing minimum, $500 quarterly Local Marketing, and the current $75 monthly Franchise Management Tool subscription, the structural annual amount is $10,700 before instructor labor, supplies, insurance, and other operating expenses.
| Recurring item | FDD requirement | At $60,411 revenue | Model treatment |
|---|---|---|---|
| Royalty Fee | Greater of 7% of Gross Sales or applicable monthly minimum | $6,000 | Later-term $500 monthly minimum exceeds 7% ($4,229) |
| Marketing Contribution | Greater of 2% of Gross Sales or $150 monthly after Initial Period | $1,800 | Minimum exceeds 2% ($1,208) |
| Local Marketing | At least $500 per quarter | $2,000 | Annual minimum |
| Franchise Management Tool | Current vendor subscription of $75 per month | $900 | Current recurring vendor cost |
| Illustrative structural total | Before other operating expenses | $10,700 | 17.7% of the Full-Time median Gross Revenue |
Source and calculation: 2026 Challenge Island FDD, Item 6, pp. 5-10 and Item 7, pp. 10-13. The Item 6 royalty schedule states $400 and $500 monthly minimums for different contract periods; this illustration uses the later-term $500 amount. The franchisor Technology Fee is currently $0 and is excluded, although the FDD reserves a right to institute a $250 monthly fee. Annual convention, travel, out-of-territory royalty, and event-driven charges are also excluded. These fees are shown to explain structure and are not deducted a second time from the all-in IRS margin proxy.
What could move actual owner earnings outside the range?
The largest unresolved uncertainty is the absence of same-brand expense and profit data. Item 19 shows revenue distributions but not instructor payroll, owner hours, program-material cost, insurance, or unit-level profit. The IRS benchmark spans the broad “Educational services” sector and sole proprietors with different formats, cost structures, geographies, and maturity levels.
- Sales and territory utilization
- A standard Territory is described as approximately 30 elementary schools, but school count, enrollment, median income, public funding, and the number of eligible institutions vary. Program penetration and repeat contracts can therefore shift revenue materially.
- Labor model
- Owner-delivered programs, owner management, part-time instructors, and a full-time Manager produce very different economics. Item 19 does not segment profit by staffing model.
- Program mix and seasonality
- After-school classes, field trips, camps, workshops, and parties can have different pricing, staffing, materials, and calendar patterns. Item 19 reports aggregate Gross Revenue rather than contribution margin by activity.
- Reporting selection
- Thirty-three of 93 franchisees were excluded from Item 19. Nonreporting, newer, and health-related cessation cases may differ from the included population.
- Financing and taxes
- The model does not subtract loan principal and does not estimate personal income taxes. Interest is embedded only in the broad IRS aggregate, not tailored to a buyer's debt structure.
The BLS May 2025 industry classification tables identify NAICS 611600, Other Schools and Instruction, as a relevant private-industry category, but occupational wage and operating-cost data remain broader than Challenge Island's mobile model. The FTC Franchise Rule Compliance Guide explains the federal disclosure framework; buyers should rely on the current FDD and written substantiation rather than informal earnings statements.
What should a buyer verify before relying on this estimate?
Verify the cost bridge directly with the franchisor's Item 19 substantiation and with current and former franchisees. The goal is to replace broad benchmark assumptions with local, same-format evidence.
- Request the written substantiation for the 2025 Item 19 Gross Revenue tables and confirm how Full-Time and Part-Time status were defined.
- Ask single-Territory and multi-Territory owners for annual revenue, instructor payroll, materials, insurance, software, travel, and Local Marketing by year of operation.
- Separate owner hours spent selling, scheduling, teaching, hiring, and managing from residual business profit.
- Determine whether the business uses a paid Manager, how much that role costs with payroll taxes and benefits, and whether the cost is shared across Territories.
- Confirm which Royalty Fee minimum applies during each contract period and whether any regional fund, convention, out-of-territory, or new Technology Fee applies.
- Compare closed, transferred, newer, and nonreporting franchisee experiences with the reporting cohort rather than interviewing only high performers.
- Rebuild the estimate using the buyer's proposed financing, but keep debt principal and personal income taxes separate from operating earnings.
The strongest defensible annual range is approximately $8,100 to $36,600 in estimated pre-tax owner-operator benefit, with a base case near $17,800. It is scenario-based, not an official Challenge Island profit disclosure. The primary earnings driver is Gross Revenue generated from the Territory portfolio; the owner-role decision is nearly as important because a full-time paid Manager can exceed the modeled benefit at the disclosed revenue medians. The largest uncertainty is same-brand operating cost, especially instructor labor and materials. Before deciding, a buyer should reconcile Item 19 substantiation with written fee terms and franchisee interviews that separate business profit from compensation for the owner's labor.