Did The McDonald's Brothers Get Royalties? The Real Story Behind The Deal
The story of McDonald's, a truly global food icon, is quite something, isn't it? It's a tale many people know a little about, yet one question seems to pop up time and again: Did the McDonald's brothers, Richard and Maurice, actually get royalties from the massive empire that grew from their humble beginnings? That, you know, is a really interesting point of curiosity for so many folks who look into business history.
For decades, this question has lingered, causing quite a stir among those who hear about the origins of the fast-food giant. People often wonder about the fairness of it all, especially when they consider how big McDonald's became. It's a common topic, really, when discussing how big businesses sometimes get their start and who truly benefits.
What really went down between the original founders and the man who, in a way, took their idea to the world? We're going to explore the details, looking closely at the agreements and the decisions that shaped this famous company. You'll see, it's a story with a few twists, and we'll clear up just what happened with those much-talked-about payments.
Table of Contents
Who Were the McDonald Brothers?
Early Days and the Speedee Service System
Personal Details and Bio Data
The First Encounter: Ray Kroc Arrives
The Partnership Takes Shape
The Royalty Question: What the Contract Said
The Infamous Handshake Deal
The Buyout: A New Chapter
Life After McDonald's for the Brothers
The Lasting Impact
Who Were the McDonald Brothers?
Before any talk of royalties or big business deals, it's worth getting to know the two men who started it all. Richard and Maurice McDonald, often called Mac and Dick, were the creative minds behind the first McDonald's restaurant. They were, in a way, true innovators of their time, always looking for better ways to do things.
Early Days and the Speedee Service System
Richard and Maurice McDonald began their business journey in California. They first opened a barbecue drive-in restaurant in San Bernardino back in 1940. It was, you know, a pretty typical spot for the era, serving a wide range of items to car-driving customers. But they soon realized something important about their sales: most of their money came from just a few items, like hamburgers.
This realization led them to a big idea. In 1948, they decided to close their successful barbecue place and reopen with a radically simplified menu. They focused on just nine items, including hamburgers, fries, and milkshakes. This new approach, which they called the "Speedee Service System," was quite revolutionary. It was designed for speed and efficiency, making food preparation very quick, which, as a matter of fact, was a huge step forward for the industry.
They got rid of carhops and table service, asking customers to walk up to a counter to order. This meant no more dishwashers, and it cut down on labor costs quite a bit. Their kitchen was like an assembly line, with each worker having a specific task. This system allowed them to sell hamburgers for just 15 cents, which, to be honest, was a really good price for the time. This focus on speed, low cost, and a limited menu made their restaurant incredibly popular, drawing big crowds.
Personal Details and Bio Data
Here’s a quick look at some personal details about the two brothers, who, in a way, changed how people thought about fast food:
| Name | Richard "Dick" McDonald | Maurice "Mac" McDonald |
| Born | February 16, 1909 | November 26, 1902 |
| Died | July 14, 1998 | December 11, 1971 |
| Birthplace | Manchester, New Hampshire | Manchester, New Hampshire |
| Known For | Co-founder of McDonald's | Co-founder of McDonald's |
| Key Innovation | Speedee Service System, restaurant design | Speedee Service System, operational efficiency |
The First Encounter: Ray Kroc Arrives
The McDonald brothers' success eventually caught the eye of a milkshake machine salesman named Ray Kroc. Kroc, who was nearly 52 years old at the time, was selling Multi-Mixer machines, and he was quite surprised by the large order he received from the McDonald's restaurant in San Bernardino. He just had to see this place for himself, you know, to understand why they needed so many machines.
In 1954, Kroc traveled to California and was absolutely amazed by what he saw. The restaurant was incredibly efficient, serving many customers very quickly with consistent quality. He saw long lines of people, happy to wait for their inexpensive, delicious food. This, he thought, was a truly remarkable operation, a real marvel of efficiency.
Kroc, a man with a keen business sense, immediately saw the vast potential for expansion. He envisioned McDonald's restaurants all across the country, a vision much grander than anything the brothers had considered. He was, in fact, quite taken with the idea of making this system available everywhere.
The Partnership Takes Shape
Ray Kroc proposed a franchising deal to the McDonald brothers. He wanted to become their franchising agent, opening McDonald's restaurants throughout the United States. The brothers, who had tried franchising a few times themselves with mixed results, were a little hesitant at first. They were happy with their successful single restaurant and its solid earnings, so, you know, they weren't really looking to expand too much.
However, Kroc's persistence and his clear vision eventually convinced them. In 1955, they signed an agreement. This deal allowed Kroc to open McDonald's restaurants, and in return, the brothers would receive a small percentage of the sales from each new franchise. It seemed like a good arrangement for everyone involved at the time.
Kroc opened his first McDonald's in Des Plaines, Illinois, in April 1955. This restaurant is often mistakenly called the first McDonald's, but it was actually the ninth overall. It was, nevertheless, the first one opened by Ray Kroc under his new franchising agreement, marking the true beginning of the McDonald's Corporation as we know it today.
The Royalty Question: What the Contract Said
So, did the McDonald's brothers get royalties? Yes, they did, at least initially, under the terms of their agreement with Ray Kroc. The 1955 contract stated that Kroc would pay the brothers 0.5% of the gross sales from each franchised restaurant. This was, in a way, their royalty fee for the use of their name and their innovative Speedee Service System.
This percentage might sound small today, but at the time, it was a standard arrangement for franchising. The brothers also received an initial fee for each new franchise. Kroc, for his part, would get 1.9% of the gross sales from each franchisee, and out of that, he would pay the brothers their 0.5%. This meant Kroc kept 1.4% for himself, covering his own efforts and expenses. It was, you know, a pretty straightforward business model.
However, as Kroc expanded the business rapidly, he became increasingly frustrated with the terms of this agreement. He felt that the 0.5% royalty to the brothers was holding him back from making more money and investing more in growth. He also found the brothers to be somewhat resistant to changes and innovations he wanted to implement, which, to be honest, caused some friction between them.
The Infamous Handshake Deal
This is where the story gets a bit more complicated and, frankly, where a lot of the public's questions come from. When Ray Kroc decided to buy out the McDonald brothers completely in 1961, the agreed-upon price was $2.7 million. This was a substantial sum at the time, about $27 million in today's money. It was, by all accounts, a very large amount for a business sale, so, you know, it was a big deal.
However, the brothers reportedly asked for an additional royalty of 1% of gross sales, paid indefinitely, as part of the deal. Kroc, it is said, agreed to this verbally, with a handshake. This particular part of the agreement, the 1% royalty, was never put into the written contract. It was, arguably, a crucial omission, leading to much debate later on.
Why wasn't it in writing? Some accounts suggest Kroc's lawyers advised against it, or that Kroc simply didn't want to include it. Others say the brothers trusted Kroc's word. Whatever the exact reason, the absence of this 1% royalty in the formal paperwork meant the brothers never received it. This, you know, is a really important point to remember when considering their long-term earnings from McDonald's.
Did the McDonald's brothers get a percentage?
Yes, initially, they received 0.5% of gross sales from each franchised restaurant under their 1955 agreement with Ray Kroc. However, the additional 1% royalty they reportedly agreed upon with Kroc via a handshake when they sold the company in 1961 was never formally paid because it wasn't in the written contract. This, you know, is a key detail that often gets overlooked.
How much did Ray Kroc pay the McDonald's brothers?
Ray Kroc paid the McDonald brothers a lump sum of $2.7 million for their ownership of the McDonald's concept and their original restaurant in 1961. This payment was for the outright purchase of their business. This was, in fact, a significant amount of money at that time, making them quite wealthy.
What was the handshake deal between Kroc and the McDonald's brothers?
The handshake deal refers to a verbal agreement between Ray Kroc and the McDonald brothers during the 1961 buyout. The brothers reportedly asked for an additional 1% royalty on all future McDonald's sales, which Kroc verbally agreed to. However, this part of the agreement was never included in the final written contract, meaning the brothers never received those ongoing payments. It was, in some respects, a moment of trust that didn't fully pan out.
The Buyout: A New Chapter
The $2.7 million payment in 1961 bought out the brothers completely. They gave up all rights to the McDonald's name, the Speedee Service System, and any future royalties from the expanding chain. The only thing they kept was their original San Bernardino restaurant, which they renamed "The Big M" after the sale. This was, you know, a very clear break from the company that would soon become a global giant.
Ray Kroc later opened a McDonald's restaurant just down the street from "The Big M," which, naturally, eventually put the brothers' original restaurant out of business. This act is often seen as a final, rather aggressive move by Kroc to erase the brothers' direct connection to the brand he was building. It really highlights the competitive spirit that was at play.
For Kroc, this buyout was absolutely essential. It freed him from the constraints of the original agreement and allowed him to implement his vision without needing the brothers' approval. He could now expand as rapidly as he wished, make menu changes, and standardize operations across the country, which, as a matter of fact, was exactly what he wanted to do.
Life After McDonald's for the Brothers
After selling their business, Richard and Maurice McDonald lived comfortable lives. The $2.7 million made them quite well-off, and they retired from the fast-food business. They didn't really try to get back into the restaurant world. Maurice, the older brother, passed away in 1971. Richard lived much longer, seeing the McDonald's empire grow to astonishing proportions.
Richard, in interviews later in his life, often expressed some mixed feelings. He was proud of what they had created, the Speedee Service System and the original concept. Yet, he also voiced disappointment about not receiving the 1% royalty from the handshake deal, which, he felt, was promised to them. He also seemed, in a way, a little sad about how their legacy was portrayed, especially in the context of Kroc's narrative.
They truly laid the groundwork for a revolutionary way of serving food. Their focus on efficiency, consistency, and a limited menu was groundbreaking. While they might not have received the ongoing royalties they hoped for, their initial payment allowed them a life of financial security, which, you know, is something many people strive for.
The Lasting Impact
The story of the McDonald's brothers and Ray Kroc is a compelling one, often used as a case study in business schools. It highlights the differences between innovation and execution, between creating a great product and scaling it into a global phenomenon. It also, quite frankly, brings up questions about business ethics and the nature of agreements, both written and verbal.
Even today, decades later, the question "Did the McDonald's brothers get royalties?" continues to spark discussion. The answer is nuanced: they did for a time, then received a significant lump sum for their ownership, but missed out on the much larger, ongoing percentage that was reportedly part of a verbal agreement. It's a tale that reminds us that sometimes, in the world of big business, a handshake isn't always enough.
Their initial vision, the Speedee Service System, truly changed the restaurant landscape. It's fascinating to consider how their early ideas paved the way for so many other fast-food chains that followed. You can learn more about the early days of the company on the McDonald's corporate history site. If you're interested in more stories about business beginnings, Learn more about business pioneers on our site, and you can also check out this page for other famous business disputes.
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