How does Springhill Suites By Marriott recognize revenue from initial application and relicensing fees?
Springhill_Suites_By_Marriott Franchise · 2025 FDDAnswer from 2025 FDD Document
Our revenues primarily include franchise fees, licensing fees, and cost reimbursements. For our franchised properties, we have a performance obligation to provide franchisees and operators a license to our hotel system intellectual property for use of certain of our brand names. As compensation for such services, we are typically entitled to initial application fees and ongoing royalty fees. Our ongoing royalty fees represent variable consideration, as the transaction price is based on a percentage of certain revenues of the properties, as defined in each contract. We recognize royalty fees on a monthly basis over the term of the agreement 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.
Source: Item 17 — , "Renewal, Termination, Transfer, and Dispute Resolution," is amended by the addition of the following paragraph(s) at the conclusion of the Item: (FDD pages 285–553)
What This Means (2025 FDD)
According to Springhill Suites By Marriott's 2025 Franchise Disclosure Document, the company recognizes revenue from initial application and relicensing fees as fixed consideration. These fees are payable upon submission of a franchise application or renewal. Springhill Suites By Marriott recognizes these fees on a straight-line basis over the initial or renewal term of the franchise agreements.
This means that when a new franchisee pays the initial application fee or an existing franchisee pays a relicensing fee, Springhill Suites By Marriott does not recognize the entire payment as revenue immediately. Instead, they spread the recognition of this revenue evenly over the duration of the franchise agreement's term. For example, if an initial application fee is $10,000 and the franchise agreement lasts for 10 years, Springhill Suites By Marriott would recognize $1,000 of revenue each year for those 10 years.
For a prospective Springhill Suites By Marriott franchisee, this accounting practice means that the initial fees paid to the franchisor are not immediately recognized as income by Springhill Suites By Marriott. This approach provides a more accurate reflection of how the franchisor earns revenue over the life of the franchise agreement, aligning revenue recognition with the ongoing services and support provided to the franchisee. This also affects Springhill Suites By Marriott's financial statements, as the unrecognized portion of these fees is recorded as deferred revenue, reflecting an obligation to provide services in the future.