Before there was a golden arch on every motorway on earth, there were two brothers in San Bernardino who had already done the hard part. Richard and Maurice McDonald didn't franchise a system someone handed them; they invented it — the Speedee Service System, the assembly-line kitchen, the limited menu, the whole idea that a hamburger could be a factory product. Ray Kroc, a fifty-two-year-old milkshake-machine salesman, walked into their restaurant in 1954, watched the line move, and recognised the thing he'd been looking for his whole life. He did not invent it. He sold it to the world, which — the Bureau concedes — is a different and enormously profitable talent.
By 1961 the brothers were tired of the fight and Kroc was tired of sharing. He bought them out for US$2.7 million — roughly a million dollars each before the tax man took his cut. For 1961 it was a fortune. Measured against what the thing became, it is one of the great underpriced sales in commercial history, and the brothers seem to have known it even then.
Here is the part that keeps the case open. The McDonald family has long maintained that the US$2.7 million was not the whole deal — that Kroc also agreed, by handshake, to a perpetual royalty of half a percent on the company's future sales. In the retellings that half-percent is often rounded up to a full one percent; either way, the number that actually matters is the one that never appeared on the page. Kroc's financiers, the family says, warned that writing a perpetual royalty into the contract would make the loans for the buyout impossible to secure. So it stayed a handshake. And a handshake, it turns out, is enforceable in exactly the way you'd fear.
The Bureau notes for the record that Kroc disputed this account, and that no document exists to settle it — which is, of course, the entire point. What is not disputed is what happened to the brothers' original restaurant. The buyout did not include the name. Kroc took “McDonald's,” and the brothers were left running their own first location under a sign that now read, absurdly, “The Big M.” Kroc then opened a McDonald's a short drive away and competed with them until the Big M closed. The men who built the restaurant could not keep their own restaurant.
What would the unwritten half-percent be worth? McDonald's now turns over more than a hundred billion dollars in system-wide sales a year. Run even half a percent against a number like that, across sixty years, and you arrive at a figure with so many zeroes it stops meaning anything — which is the cleanest possible illustration of the gap between a contract and a promise. The brothers got a million dollars each. The handshake got nothing.
The Bureau's finding: the most expensive thing the McDonald brothers ever signed was the document that didn't mention the royalty. They sold a fortune for a fortune, and a second, larger fortune for a feeling of goodwill that did not survive the handshake breaking apart. Filed under: get it in writing. Status — signed away.