When does Embassy Suites recognize franchise termination fees as revenue?

According to Embassy Suites's 2025 Franchise Disclosure Document, franchise termination fees are recognized as revenue in the period when the payment is received. This revenue recognition is contingent upon two primary conditions. First, there should typically be no further service to be provided by Embassy Suites to the franchisee after the termination. Second, revenue recognition depends on the certainty of collection, which can be uncertain due to the termination of the relationship with the hotel owner.

This approach to revenue recognition is significant for prospective franchisees because it directly impacts Embassy Suites's financial reporting. Termination fees are not recognized as revenue until they are actually received, reflecting a cautious approach to accounting for these fees. This aligns with standard accounting practices, which prioritize recognizing revenue when it is both earned and reasonably assured of collection.

For a potential Embassy Suites franchisee, this policy means that the franchisor's reported revenue from termination fees can fluctuate based on the timing and collection of these payments. The 2024 franchise termination fees and other revenues totaled $18,276,000, compared to $2,434,000 in 2023 and $4,757,000 in 2022. This variability highlights the potential impact of individual franchise terminations on Embassy Suites's overall financial performance. Franchisees should be aware of these potential fluctuations when assessing the financial health and stability of the Embassy Suites franchise system.

In summary, Embassy Suites recognizes franchise termination fees as revenue upon receipt of payment, provided there are no further services to be rendered and collection is reasonably assured. This revenue recognition policy is a standard accounting practice that reflects the uncertainties associated with franchise terminations and their impact on the franchisor's financial statements.