Our revenues include: (1) base management and incentive management fees; (2) franchise fees (including licensing fees from MVW and Vistana of $101 million for 2017, $73 million for 2016, and $59 million for 2015); (3) revenues from lodging properties we own or lease; and (4) cost reimbursements. Management fees are typically composed of a base fee, which is a percentage of the revenues of hotels, and an incentive fee, which is generally based on hotel profitability. Franchise fees are typically composed of initial application fees, continuing royalties generated from our franchise programs, which permit the hotel owners and operators to use certain of our brand names, and branding fees for third-party residential sales and credit card licensing. Cost reimbursements include direct and indirect costs that are reimbursed to us by properties that we manage, franchise, or license.
Base Management and Incentive Management Fees: We recognize base management fees as revenue when we earn them under the contracts. In interim periods and at year-end, we recognize incentive management fees that would be due as if the contracts were to terminate at that date, exclusive of any termination fees payable or receivable by us.
Franchise Fee and License Fee Revenue: We recognize application fees at hotel opening. We recognize ongoing franchise fees and license fees as revenue in each accounting period as we earn those fees from the franchisee or licensee under the contracts.
Owned and Leased Units: We recognize room sales and revenues from other guest services for our owned and leased units when rooms are occupied and when we have rendered the services.
Cost Reimbursements: We generally recognize cost reimbursements from managed, franchised, and licensed properties when we incur the related reimbursable costs. These costs primarily consist of payroll and related expenses at managed properties where we are the employer and include certain operational and administrative costs as provided for in our contracts with the owners. As these costs have no added markup, the revenue and related expense have no impact on either our operating or net income.
Other Revenue: Includes termination fees and other property and brand revenues. We generally recognize other revenue as services are rendered and when collection is reasonably assured. Amounts received in advance are deferred as liabilities.
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.