What is the primary source of deferred income for Delta Hotels By Marriott?
Delta_Hotels_By_Marriott Franchise · 2025 FDDAnswer from 2025 FDD Document
as those amounts become payable. Initial application and relicensing fees are fixed consideration payable upon submission of a franchise application or renewal and are recognized on a straight-line basis over the initial or renewal term of the franchise agreements.
Under our franchise agreements, franchisees participate in certain centralized programs and services, such as marketing, sales, reservations, and insurance programs, which Marriott operates for their benefit. These programs and services do not generate a profit over the long term, and accordingly, when we recover the costs incurred for these programs and services from our franchisees, we do not seek a mark-up. The am
Source: Item 7 — Franchisor reserves the right to challenge the applicability of any law that declares provisions in the Agreement void or unenforceable. (FDD pages 288–363)
What This Means (2025 FDD)
According to the 2025 FDD, Delta Hotels By Marriott's primary source of deferred income relates to payments received in advance of fulfilling their service obligations. Specifically, these payments are associated with franchise application and relicensing fees. Deferred income is recorded when Delta Hotels By Marriott receives payment or has the unconditional right to receive payment before the services related to those fees are fully provided. This means that when a franchisee pays an initial application fee or a relicensing fee, Delta Hotels By Marriott doesn't immediately recognize that as revenue. Instead, it's recorded as deferred income.
The FDD states that current and noncurrent deferred income increased by $4,010,000 primarily due to a deferred termination fee. However, this increase was partially offset by the recognition of $1,175,000 in revenue that had been deferred as of December 31, 2023. This indicates that while application and relicensing fees are a consistent source of deferred revenue, specific events like termination fees can also significantly impact these balances.
For a prospective Delta Hotels By Marriott franchisee, this accounting practice means that the initial fees paid to the franchisor are not immediately recognized as revenue by Delta Hotels By Marriott but are instead recognized gradually over the term of the franchise agreement. This approach aligns revenue recognition with the actual delivery of services and the ongoing value provided to the franchisee. Understanding this can help franchisees better interpret the financial statements and understand how their fees contribute to the franchisor's revenue over time.