Hotel Management Contracts and Sales Efforts Quiz

Study Notes

Independent Hotel Management

No interlocking management, group purchasing, or general financing among independent hotels.
No prescribed limits on buildings or sites, as long as each property meets its own unique design standards.

Management Contracts and Management Companies

A management contract is an agreement between a hotel owner and a management company.
The contract outlines the terms of the management company's operation of the hotel.
The owner pays the management company a fee (2-4% of revenues) plus incentives.
Management companies may provide preplanning advice if involved early in the process.
Fees are paid regardless of profits or losses, which belong to the owner.
Management companies have low invested capital and risk, but have grown rapidly.

Management Contract Issues

Lawsuits may arise over issues not foreseen in the contract, such as revenue from guest data or rebates from purveyors.
Contract terms may favor one party over the other, depending on the economic cycle.
Owners may accept restrictive terms during bad times, but negotiate better terms during good times.

Management Companies

Management companies are a relatively recent innovation, originating from lenders taking control of hotels after owner defaults.
Lenders hire management companies to operate the hotels until they can be sold.

Leasing and Management Contracts

Leasing and management contracts are opposite views of the industry's health, with one or the other being popular depending on the economic cycle.
With leasing, the management company pays rent to the owner and keeps profits.
With management contracts, the owner pays the management company a fee, and profits or losses remain with the owner.

Franchising

Franchising is not a new idea, and is common in many industries, including lodging.
A franchise buyer (franchisee) pays for and acquires rights from a seller (franchisor).
The franchisee may use the franchisor's name, products, techniques, and advertising within a fixed geographic area.
Franchise fees are a major operating expense, but can add up to 10% to occupancy and $20 to ADR.

The Franchise Flag

Franchising hotels likely began in the late 19th century.
A franchisee can operate independently, but with the benefits of the chain.
Franchise fees buy services, including feasibility studies, site selection, financing, advertising, and systems design.
High-end franchises may include additional services, such as help with marketing and reservations.

Group Business

Group business is a post-World War II innovation that changed the concept of hotelkeeping.
Hotels now sell dozens or hundreds of room-nights at one time to groups, such as tour operators or wholesalers.
Buyers are either tourist/leisure visitors or business/commercial groups.

Tourist/Leisure Visitors

Rising disposable income and broader travel horizons have made travel appealing to people of all levels of society.
Packaging travel and accommodations has made it more affordable and accessible to many.

Franchisees and Franchisors

Franchisees are often small businesspersons who own and manage multiple properties.
The franchisor is a multifaceted company that writes the franchise contract.
Tension may exist between franchisees and franchisors, leading to the formation of organizations to counterbalance the franchisor's power.

Description

Test your knowledge on hotel management contracts, sales efforts, and the differences between franchises and management contracts. Learn about the agreements between hotel owners and management companies.