How does Baymont Inn Suites recognize revenue from ongoing royalty fees?
Baymont_Inn_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
The principal source of revenues from franchising hotels is ongoing royalty fees, which are typically a percentage of gross room revenues of each franchised hotel. The Company recognizes royalty fee revenues as and when the underlying sales occur. The Company also receives non-refundable initial franchise fees, which are recognized as revenues over the initial non-cancellable period of the franchise agreement, commencing when all material services or conditions have been substantially performed. This occurs when a hotel opens for business in the Company's system or when a franchise agreement is terminated after it has been determined that the hotel will not open. The Company's standard franchise agreement typically has a term of 10 to 20 years. Additionally, the Company recognizes occupancy taxes on a net basis.
The Company's franchise agreements also require the payment of marketing and reservation fees, which are intended to reimburse the Company for expenses associated with operating an international, centralized reservation system, e-commerce channels such as the Company's brand.com websites, as well as access to third-party distribution channels, such as online travel agents, advertising and marketing programs, global sales efforts, operations support, training and other related services. Marketing and reservation fees are recognized as revenue when the underlying sales occur. The Company is generally contractually obligated to spend the marketing and reservation fees it collects from franchisees, in accordance with the franchise agreements. Marketing and reservations costs are expensed as incurred, which may not occur in the same period as the recognition of marketing and reservation revenues.
Source: Item 23 — RECEIPTS (FDD pages 97–443)
What This Means (2025 FDD)
According to Baymont Inn Suites's 2025 Franchise Disclosure Document, the principal source of revenue from franchising hotels comes from ongoing royalty fees. These fees are typically a percentage of the gross room revenues of each franchised hotel. Baymont Inn Suites recognizes these royalty fee revenues as and when the underlying sales occur. This means that as franchisees generate revenue from room rentals, Baymont Inn Suites simultaneously recognizes its share of that revenue in the form of royalty fees.
In addition to royalty fees, Baymont Inn Suites also collects non-refundable initial franchise fees. However, these initial fees are treated differently for accounting purposes. Instead of recognizing them immediately, Baymont Inn Suites recognizes these fees as revenue over the initial non-cancellable period of the franchise agreement. This recognition begins when all material services or conditions have been substantially performed, which typically occurs when a hotel opens for business under the Baymont Inn Suites system, or when a franchise agreement is terminated after it has been determined that the hotel will not open.
Baymont Inn Suites's franchise agreements also require franchisees to pay marketing and reservation fees. These fees are intended to reimburse Baymont Inn Suites for expenses related to operating a centralized reservation system, e-commerce channels, and various advertising and marketing programs. Similar to royalty fees, marketing and reservation fees are recognized as revenue when the underlying sales occur. Baymont Inn Suites is generally contractually obligated to spend these fees in accordance with the franchise agreements, although the actual expenses may not be incurred in the same period as the revenue recognition.