How does Hawthorn Suites By Wyndham recognize revenue from ongoing royalty fees?
Hawthorn_Suites_By_Wyndham Franchise · 2025 FDDAnswer from 2025 FDD Document
The principal source of revenues from franchising hotels is ongoing royalty fees, which are typically a percentage of gross room revenues of each franchised hotel. The Company recognizes royalty fee revenues as and when the underlying sales occur. The Company also receives non-refundable initial franchise fees, which are recognized as revenues over the initial non-cancellable period of the franchise agreement, commencing when all material services or conditions have been substantially performed. This occurs when a hotel opens for business in the Company's system or when a franchise agreement is terminated after it has been determined that the hotel will not open. The Company's standard franchise agreement typically has a term of 10 to 20 years. Additionally, the Company recognizes occupancy taxes on a net basis.
The Company's franchise agreements also require the payment of marketing and reservation fees, which are intended to reimburse the Company for expenses associated with operating an international, centralized reservation system, e-commerce channels such as the Company's brand.com websites, as well as access to third-party distribution channels, such as online travel agents, advertising and marketing programs, global sales efforts, operations support, training and other related services. Marketing and reservation fees are recognized as revenue when the underlying sales occur. The Company is generally contractually obligated to spend the marketing and reservation fees it collects from franchisees, in accordance with the franchise agreements. Marketing and reservations costs are expensed as incurred, which may not occur in the same period as the recognition of marketing and reservation revenues.
Source: Item 23 — RECEIPTS (FDD pages 92–402)
What This Means (2025 FDD)
According to Hawthorn Suites By Wyndham's 2025 Franchise Disclosure Document, the company's primary revenue source from franchising hotels comes from ongoing royalty fees. These fees are typically calculated as a percentage of the gross room revenues generated by each franchised hotel. Hawthorn Suites By Wyndham recognizes these royalty fee revenues as the underlying sales occur, meaning when the rooms are rented and the revenue is earned by the franchisee.
In addition to royalty fees, Hawthorn Suites By Wyndham also collects non-refundable initial franchise fees. These initial fees are recognized as revenue over the initial non-cancellable period of the franchise agreement. This revenue recognition begins when all material services or conditions have been substantially performed. For Hawthorn Suites By Wyndham, this typically occurs when a hotel opens for business under the brand's system or when a franchise agreement is terminated after a determination that the hotel will not open.
Furthermore, Hawthorn Suites By Wyndham's franchise agreements stipulate the payment of marketing and reservation fees. These fees are intended to cover the expenses associated with operating a centralized reservation system, e-commerce channels (such as brand websites), third-party distribution channels, advertising and marketing programs, global sales efforts, operations support, training, and other related services. Similar to royalty fees, Hawthorn Suites By Wyndham recognizes marketing and reservation fees as revenue when the underlying sales occur. The company is generally obligated to spend these fees in accordance with the franchise agreements, although the actual spending may not occur in the same period as the revenue recognition.