Did Marriott give you a break on franchise and management fees?
During these challenging times, hotel owners and franchisees are within their rights to approach brand companies and ask for a break on fees. In an analyst call in March, Marriott CEO Arne Sorenson and CFO Leeny Oberg both acknowledged the difficulty that their franchisees and owners are going through, stated they were going to marketing fees, and that the company is “doing all that [it] can to reduce the costs [it] need[s] to charge the hotels in these times.”[1] But owners will need to be proactive about requesting relief.
Marriott leadership: we can be flexible, but we don’t have to
The company posted the transcript of its March analyst call here.
Sorenson said to analysts, “We’re announcing internally here today as well, we are dramatically reducing the cost pools that depend on reimbursement from the owners so that they are rightsized. And I think in year’s past we’ve had conversations internally and with many of you about what percentage of those are fixed and what percentage of those are variable. These are the times in which we proved that actually even fixed costs are variable, that we will do things we’ve not anticipated before in order to make sure that we are not burdening our owners and not burdening Marriott until such time as the business comes back.” [2] (emphasis added)
However, Marriott may not be forgiving across the board.
Oberg said, “Our contracts are clear that we have the right to be reimbursed for our costs, including the ability to request additional working capital from our managed hotel owners to ensure we are paid. Needless to say, we are doing all that we can to reduce the costs we need to charge the hotels in these times.” [3] (emphasis added)
What Marriott has done about fees so far
Marriott expects to cut expenses for certain systemwide programs by two-thirds, but it announced that it cut the charges to franchisees and owners for “certain systemwide programs and services” by 50% in April and May.
In an April 15th SEC filing, the company stated it “has taken additional steps, including reducing by 50 percent the cost of and offering delayed payment for certain systemwide programs and services charges for April and May, and supporting owners and franchisees who are working with their lenders to utilize furniture, fixtures, and equipment (FF&E) reserves to meet working capital needs.”
Marriott stated later in the same filing, “The Company also remains focused on significantly lowering the reimbursable expenses it incurs on behalf of its owners and franchisees to provide centralized programs and services such as loyalty, reservations, marketing and sales, which are generally charged on the basis of hotel revenue or program usage. Given the significant decline in hotel-level revenues and occupancy currently anticipated, the Company has implemented plans that it estimates could reduce these centralized, system-funded reimbursable expenses by approximately two-thirds compared to the monthly costs initially budgeted for 2020.”[4] (all emphasis added)
What can you do?
- Take a close look at your franchise or management agreement to see what kind of relief might be available.
- Document all your lost business, when local events canceled or attractions closed, when any state or local shelter-in-place requirements took effect, etc.
- Take note of any fee breaks Marriott has already given you and compare those with the above quotes from the company’s SEC filings to see if you’ve gotten the relief they announced.
- Call your contact person at Marriott and ask for a break on fees, and tell them you’re more likely to stay open later if they can work with you now.
Notes