How does Crowne Plaza recognize revenue from contracts with customers?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
to the income statement in the year ended December 31, 2022. There is no change as a result of recent amendments in the Agreement dated January, 1 2024.
| Allowance for credit losses at December 31, 2021 | $ 11,930,910 |
|---|---|
| Release for expected credit losses | (11,930,910) |
| on January 1, 2022 | |
| Allowance for credit losses at December 31, 2022, 2023 and 2024 | $ 0 |
Master License Agreement
The Company accounts for the Agreement in accordance with Accounting Standards Codification (ASC) Topic 350-30, General Intangibles Other than Goodwill. In accordance with ASC 350-30-35-18, indefinite-lived intangible assets are reviewed annually for impairment. The Company has not recognized any impairment losses in respect of the Agreement for the years ended December 31, 2024, 2023, and 2022.
Revenue Recognition
Revenue is recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer.
The Company disaggregates revenue from contracts with customers by type of agreement, being franchise royalty fees and Orange Lake Country Club, Inc. (OLCC) fees, reflecting the differing nature, amount, timing and uncertainty of related revenue and cash flows. All fee revenue arises from the transfer of services to customers over time.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
Fee Business Revenue
The Company's business comprises the franchising of hotels and resorts primarily under the following brands: Crowne Plaza, Holiday Inn, Holiday Inn Express, Staybridge Suites, Candlewood Suites, Hotel Indigo, EVEN Hotels, avid hotels, voco, Vignette Collection, Atwell Suites and Garner.
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.
Under the Agreement, the Company is deemed to be acting as agent in the provision of these services and, as such, nets 95% of the license cost and contract asset amortization against revenue and reports a royalty fee equal to the 5% commission it earns through the Agreement.
Source: Item 23 — Receipts (FDD pages 100–424)
What This Means (2025 FDD)
According to the 2025 Crowne Plaza Franchise Disclosure Document, revenue is recognized when the company transfers goods or services to a customer, at an amount that reflects the consideration Crowne Plaza expects to receive. The company disaggregates revenue by franchise royalty fees and Orange Lake Country Club, Inc. (OLCC) fees, as these agreements differ in nature, amount, timing, and uncertainty of related revenue and cash flows. All fee revenue is generated from the transfer of services to customers over time.
Crowne Plaza's performance obligation under franchise agreements is to provide a license to use the company's trademarks and other intellectual property. Franchise royalty fees are typically a percentage of hotel gross room revenues and are treated as variable consideration, recognized as the underlying hotel revenues occur. These fees also include any liquidated damage settlements from franchisees who terminate early. Application and re-licensing fees are recognized over the life of the related contract, as they are not considered distinct from the franchise service.
For managed properties, Crowne Plaza acts as the employer for the general manager and other hotel employees and is reimbursed for these costs. This performance obligation is satisfied over time as the employees perform their duties, consistent with when reimbursement is received. Reimbursements for these services are shown as revenue with an equal matching employee cost, resulting in no profit impact. Certain other costs relating to both managed and franchised hotels are also contractually reimbursable, and revenue and cost are shown on a gross basis where Crowne Plaza is deemed to be acting as principal in the provision of the related services.
Amounts paid to hotel owners to secure franchise agreements, referred to as "key money," are treated as consideration payable to a customer. A contract asset is recorded and recognized as a deduction to franchise royalty fee revenue over the initial term of the agreement. These contract assets are assessed for impairment based on future cash flows, and no impairment loss was recognized in 2022, 2023, or 2024.