Under what condition are Embassy Suites By Hilton's royalty fees recognized?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of our IP over the terms of the franchise contracts. We do not typically include extended payment terms in our contracts with customers.
Our revenues consist of the following:
- Franchise royalty fees are generally based on a percentage of the hotel's monthly gross room revenue and, in some cases, may also include a percentage of gross food and beverage revenues and other revenues, as applicable. These fees are typically billed and collected monthly, and revenue is generally recognized as services are provided. Consideration paid or anticipated to be paid to incentivize hotel owners to enter into franchise contracts with us is amortized over the life of the applicable contract, generally including any extension periods that are at our sole option, as a reduction to franchise royalty fees.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to the 2025 FDD, Embassy Suites By Hilton recognizes franchise royalty fees as services are provided. These fees are typically based on a percentage of the hotel's monthly gross room revenue. In some instances, the fees may also include a percentage of gross food and beverage revenues, as well as other revenues, if applicable. These fees are usually billed and collected on a monthly basis.
Embassy Suites By Hilton recognizes fee revenue in the period earned per the terms of the contracts, using time as a measure of progress. The franchise disclosure document clarifies that the company does not estimate revenues expected to be recognized related to royalty fees since they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of their intellectual property over the terms of the franchise contracts.
Furthermore, consideration paid or anticipated to be paid to incentivize hotel owners to enter into franchise contracts with Embassy Suites By Hilton is amortized over the life of the applicable contract, generally including any extension periods that are at the company's sole option. This amortization is recognized as a reduction to franchise royalty fees. This means that initial incentives provided to franchisees are accounted for over the duration of the agreement, effectively lowering the royalty fees recognized during that period.