What is considered a sales-based royalty in the context of Caption By Hyatt's performance obligations?
Caption_By_Hyatt Franchise · 2025 FDDAnswer from 2025 FDD Document
We satisfy the following performance obligations over time: access to Hyatt's symbolic IP, services provided under management and hotel services agreements, administration of the loyalty program, and the license of our brand name through our co-branded credit card agreements. Each of these performance obligations is considered a sales-based royalty or a series of distinct services, and although the activities to fulfill each of these promises may vary from day to day, the nature of each promise is the same and the customer benefits from the services every day.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to the 2025 FDD, Caption By Hyatt considers several aspects of its operations as sales-based royalties or a series of distinct services. These include providing access to Hyatt's symbolic intellectual property (IP), services provided under management and hotel services agreements, administering the loyalty program, and licensing the brand name through co-branded credit card agreements.
These elements are recognized over time, meaning that Caption By Hyatt recognizes revenue as these services are rendered and the franchisee benefits from them. Although the specific activities involved in fulfilling these obligations may vary daily, the fundamental nature of each promise remains consistent, with customers benefiting from the services continuously.
For a Caption By Hyatt franchisee, this means that the fees paid to the franchisor for these services are directly tied to the sales or performance of the hotel. The royalty fees are not considered a distinct performance obligation but are combined with other fees and recognized over the term of the franchise agreement. This approach aligns revenue recognition with the value derived by the franchisee from the ongoing use of Hyatt's brand and systems.