How are The Standardx's system-wide services accounted for?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
- Access to Hyatt's IP, including the Hyatt brand names—We receive sales-based fees from hotel owners in exchange for providing access to our IP, including the Hyatt brand names and systems, among other services. Fees are generally payable on a monthly basis as third-party owners and franchisees derive value from access to our IP. Fees are recognized over time as services are rendered. Under our franchise agreements, we also receive initial fees from third-party owners and franchisees. The initial fees do not represent a distinct performance obligation, and therefore, are combined with the royalty fees and deferred and recognized in franchise and other fees over the expected customer life, which is typically the initial term of the franchise agreement.
- System-wide services—We provide system-wide services on behalf of owners of managed and franchised properties. The promise to provide system-wide services is not a distinct performance obligation because it is attendant to the access to our IP. Therefore, this promise is combined with the access to our IP to form a single performance obligation.
Source: Item 23 — Receipts (FDD pages 85–132)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, system-wide services are accounted for as part of a larger performance obligation related to access to The Standardx's intellectual property. The promise to provide system-wide services is not considered a distinct performance obligation on its own because it is tied to providing access to The Standardx's IP. Therefore, the accounting for system-wide services is combined with the accounting for access to The Standardx's IP to form a single performance obligation.
In practice, this means that the fees The Standardx receives for providing access to its brand names and systems are recognized over time as services are rendered. These fees are generally paid monthly by hotel owners and franchisees as they benefit from the ongoing access to The Standardx's IP. The FDD specifies that The Standardx uses a cost plus margin approach to determine the standalone selling price for performance obligations.
For a prospective franchisee, this accounting approach means that the fees they pay to The Standardx for system-wide services are not accounted for separately but are bundled with the fees for using The Standardx's brand and systems. This combined approach simplifies the accounting process for both The Standardx and its franchisees, as it avoids the need to allocate revenue between distinct performance obligations. The revenues and operating profits earned by the hotels during the reporting period for access to The Standardx's IP are indicative of the value that third-party owners and franchisees derive.
It is important to note that The Standardx recognizes revenues using an output method based on the value transferred to the customer. This means that revenue recognition is tied to the performance of the hotel, as measured by revenues and operating profits. This approach aligns the interests of The Standardx and its franchisees, as The Standardx's revenue recognition is directly linked to the success of the franchised hotels.