How does Best Western recognize revenue from program fees?
Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
Best Western Rewards® frequent stay program ("BWR® program")
The Company administers the BWR program for the benefit of BWH and BWR program members. Under our BWR program, the Company has a performance obligation to provide or arrange for the provision of goods or services between BWR program members and BWH hotels in exchange for the redemption of points earned from past activities. Costs of operating the BWR program, including costs for marketing, promotion, and other member services, are charged to the BWH hotels through an assessment fee that is based on members' qualified expenditures. The assessment fees received from BWH hotels are deferred and recognized as program revenues in the Consolidated Statements of Revenues and Expenses as the loyalty points are redeemed and the related service, net of redemption expense, is provided. The amount of revenue the Company recognizes upon point redemption is impacted by the Company's estimate of the breakage for points that BWR members will never redeem. The Company estimates breakage based on historical experience and expectations of future BWR member behavior, including analyses performed by and input of third-party actuaries. All BWR program costs are recognized as incurred and are recorded in program cost of sales in the Consolidated Statements of Revenues and Expenses.
Program revenues in excess of redemption costs are used to fund the operational expenses of the BWR program.
Best Western Travel Card® (a card having no expiration date and no usage or non-usage fees) revenue is recognized when: (i) the Best Western Travel Card is redeemed, or (ii) the likelihood of the Best Western Travel Card being redeemed is remote (Best Western Travel Card breakage), and the Company determines that there is not a legal obligation to remit the unredeemed Best Western Travel Card balance to the relevant jurisdiction. The determination of the Best Western Travel Card breakage rate is based upon Company specific historical redemption patterns. Best Western Travel Card breakage is included in program revenues in the Consolidated Statements of Revenues and Expenses.
Source: Item 23 — Receipts (FDD pages 108–413)
What This Means (2025 FDD)
According to Best Western's 2025 Franchise Disclosure Document, the company recognizes revenue from its Best Western Rewards (BWR) program and Best Western Travel Cards. For the BWR program, Best Western defers assessment fees received from BWH hotels and recognizes them as program revenues as loyalty points are redeemed and the related service is provided, net of redemption expenses. The amount of revenue recognized is influenced by the company's estimate of point breakage, which refers to points that BWR members are not expected to redeem. This estimate is based on historical data, expectations of member behavior, and analyses from third-party actuaries. All BWR program costs are recognized as incurred.
For Best Western Travel Cards, revenue is recognized either when the card is redeemed or when the likelihood of redemption is considered remote (referred to as Best Western Travel Card breakage). In the latter case, Best Western must also determine that there is no legal obligation to remit the unredeemed balance to the relevant jurisdiction. The determination of the breakage rate is based on the company's historical redemption patterns. Breakage from travel cards is included as program revenues in the Consolidated Statements of Revenues and Expenses.
For a prospective franchisee, this means that Best Western's reported revenue may be affected by estimates of how many reward points and travel cards will ultimately go unused. These estimates are based on historical trends and actuarial analysis, but there is always a degree of uncertainty involved. Understanding these revenue recognition practices can help a franchisee better interpret Best Western's financial statements and assess the overall health and performance of the rewards and travel card programs.