How does Crowne Plaza recognize franchise royalty fees, and what are they typically charged as?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
Under franchise agreements, the Company's performance obligation is to provide a license to use the Company's trademarks and other intellectual property. Franchise royalty fees are typically charged as a percentage of hotel gross rooms revenues and are treated as variable consideration, recognized as the underlying hotel revenues occur. Franchise royalty fees also include any liquidated damage settlements the Company receives from franchisees that terminate arrangements prior to expiration.
Application and re-licensing fees are not considered to be distinct from the franchise service and are recognized over the life of the related contract.
Source: Item 23 — Receipts (FDD pages 100–424)
What This Means (2025 FDD)
According to the 2025 Crowne Plaza FDD, the company recognizes revenue from franchise agreements by providing a license to use their trademarks and intellectual property. Franchise royalty fees are typically charged as a percentage of the hotel's gross rooms revenues. These fees are treated as variable consideration and are recognized as the underlying hotel revenues occur. This means that Crowne Plaza recognizes the royalty revenue as the franchisee earns revenue from renting rooms.
In addition to the percentage of gross rooms revenue, franchise royalty fees may also include liquidated damage settlements that Crowne Plaza receives from franchisees who terminate their agreements before they expire. Application and re-licensing fees are not considered distinct from the franchise service and are recognized over the life of the related contract. This indicates that these fees are amortized over the duration of the franchise agreement rather than recognized immediately.
For a prospective Crowne Plaza franchisee, this means that the royalty fees they pay will fluctuate based on their hotel's occupancy and room rates. Higher revenues will result in higher royalty payments. The franchisee should also be aware that early termination of the franchise agreement could result in owing liquidated damages to Crowne Plaza, which would also be considered part of the franchise royalty fees. Understanding how these fees are calculated and recognized is crucial for financial planning and assessing the overall profitability of the franchise.