Subway’s Hidden Billions Revealed: How Its Founders Sliced Up A Fortune | Forbes

foreign [Music] was founded in 1965 by Fred Deluca and Peter Buck Fred DeLuca was then a 17 year old aspiring medical student and he went to his family friend Peter Buck who was a working nuclear physicist and asked him for advice on how to pay for college the two of them opened in 1965 the first location of Subway which was then called Pete's super submarines we've always known that Subway was a cash cow Fred and Peter both debuted on Forbes as billionaires rankings in 2004 with an estimated net worth of 1.5 billion dollars each but there's a lot of questions about their wealth and we think that potentially there's billions of dollars that we didn't know about over the years one clue to that was a 2017 deposition by Fred deluca's personal banker which gave some rare insight into their fortunes she claimed that Fred DeLuca was pocketing about seven million dollars in royalties each week in the early 2000s and that wasn't even at the peak of Subway's sales Subway switched to a franchise model about 10 years after the first Subway sandwiches location opened and from there it really experienced very quick growth by 1988 they had 2 000 locations across the U.S Subway's Revenue peaked in 2012 at 18 billion dollars but has been on the decline since 2015 which was the first year that Subway closed more locations than it opened number one they began to read their point of no return in the United States that they had too many Subways on too many street corners and the number of stores just exceeded the demand number two Subway had spent the prior 15 years not developing new products and just simply discounting their products and every marketing professor and restaurant professional will tell you that if that's all you got you're you're spinning your brand both of the founding families of Subway are very private and for a while after they died Fred died in 2015 from leukemia and then Peter Buck died at the end of 2021 we didn't know what happened to Subway but we recently learned what happened to half of the fortune when the foundation started by Peter Buck announced that in his will he had left instructions to give his half of Subway to the foundation which then spends tens of millions of dollars helping charitable causes like in spanning journalism land conservation efforts and also closes in his local Danbury Connecticut as for the other half owned by Fred DeLuca the family has not confirmed with us what happened to that half of the company although there were a lot of signs pointing to the fact that it was inherited by his widow Elizabeth DeLuca since his death Elizabeth DeLuca has given hundreds of millions of dollars to charity from herself so that signals that the royalties that were previously owned by Fred have been redirected to Elizabeth the DeLuca family through multiple attempts did not respond to a request for comment foreign so the announcement of the gift comes as Subway confirmed that it is considering options for sale The Wall Street Journal reported that the price could be as much as 10 billion dollars for Subway the timing of this gift means that Peter bucks as avoid a pretty hefty tax bill if he didn't donate his half of the company to the foundation then his estate would owe 40 percent estate tax on the fair market value of Subway upon his death in 2018 Peter Buck was engaged in a legal battle with the IRS over his gifting of some of his land that he had accumulated in the North Main Woods to his two sons Peter Buck started buying Timberland in Maine in 2007 and during his lifetime became one of the largest landowners in the state with over 1.3 million Acres of Timberland so he gifted some of that to his sons at a discount from what he paid for it and then got penalized by the IRS and he saved you know millions of dollars on taxes by doing that it seems that the family still owns this land his two sons likely own the land which is valued anywhere from 300 million dollars to a billion dollars and that doesn't appear to have been included in the gift to the foundation from Elia this year [Music] the buck family through their representatives did not respond to a request for comment [Music] thank you Peter Buck was long charitable we calculated that he had given away more than 500 million dollars before his death to his foundation as for Fred DeLuca there was less charitable giving before his death in 2015 but since his death his widow Elizabeth has been giving away money at a very fast rate she's given away more than 400 million dollars according to an analysis of public documents and that doesn't include gifts made in 2021 or 2022 as the filings haven't been made available yet she's given more than 400 million dollars to the Fred DeLuca Foundation since his death in just a few years she also Incorporated her own Foundation the Elizabeth DeLuca foundation in 2020. I spoke with one woman who runs a non-profit that received a donation from the DeLuca foundation in 2021 and she described them as very purposeful in their giving you actually can't apply for a grant from them like you can from many other foundations and instead they come to you is what this person said and they're known to have a big impact targeting the people who need help the most in some local communities in Florida as for the bucks Peter Buck has a lasting Legacy in Danbury Connecticut where he spent the later years of his life according to somebody I spoke with he helped transform the city which is has a population of about 90 000 people and he was just very generous they're both described to be very generous people people since you know 2015 and 2016 when Subway's Revenue started declining and the location started closing it's been tough to run a Subway franchise according to the franchisees in 2021 a group of over 100 franchisees wrote a letter to Elizabeth DeLuca outlining a whole host of issues with the ownership of Subway that they alleged was making their jobs a nightmare in their own words [Music] their average store revenues went up and down like a ladder somewhere in the 400 to 500 000 range okay and that's very hard to make any money on the other sales sector competitors Jersey Mike's Firehouse Subs they are all running in the eight hundred thousand dollar to a million dollar range and that that hurts you know because you can make money at eight hundred thousand dollars or a million dollars per shop sales but at 400 to 500 000 it's it's very difficult Mr chizzy has noted in interviews that what they want to do is they want to consolidate out and kind of drive out Force out the smaller franchises the the Mom and Pops if you will this is not a surprise they have been trying for the last couple years to try to find bigger franchisee operators to come in and take over whole states of franchisees the issue is that the the store level profit has to be higher for these bigger franchisee groups to be interested in coming over and taking over blocks of subway and so the charitable donations have some Subway franchisees kind of annoyed I spoke with one who said that you know the owners get to look good on the backs of the subway franchisees who have been struggling who have lost their businesses in recent years and that really those profits should be more in their pockets than in the owner's pockets that's something that has been exacerbated as the sale nears Subway responded to questions from Forbes and said that it is improving its relationship with its franchisees that has made multiple steps to do so over the past few years and that it needs a good relationship with its franchisees to thrive and is doing everything it can to do that

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Id: HjCEp9KUYa8

Length: 9min 47sec (587 seconds)

Published: Mon Apr 17 2023