Asset-light franchisor revenue includes cost reimbursements that pass through at zero margin, overstating the revenue base by 2-3x

Claim

The franchisor collects an assessment from owners for marketing, reservations, loyalty and technology, spends it on their behalf, and is contractually required to run it at approximately break-even. It is an agency flow, not revenue. Accounting standards require it to be presented gross inside revenue anyway. Vendors read the gross line.

Evidence — IHG FY2025

Line	$m
Gross revenue flowing through IHG's system	35,200	third-party hotel revenue — not IHG's
Revenue from fee business	1,897	the real top line
Owned & leased + insurance	571	17 hotels
Revenue from reportable segments	2,468
System Fund + reimbursables	2,721	pass-through at cost
IFRS total revenue	5,189	the number vendors report

The pass-through line is larger than the fee business itself. Consequences:

Metric	On vendor revenue	On fee revenue
Operating margin	23.1%	64.8%	wrong by 2.8×
P/S	4.6×	~12.8×	wrong by 2.8×
EV/Sales	5.4×	~14.7×	wrong by 2.8×

A screen ranking lodging on operating margin puts IHG near a hotel operator, when it is a licensor earning an 84.2% operating margin in the Americas on $77m of annual capex.

It is the whole sector, not one name

Hilton H1 2026: total revenue $6,278m, of which $3,737m is cost reimbursements — 60% of the reported line.
Hyatt FY2025: total revenue $7,101m, of which $3,629m is "revenues for reimbursed costs". Hyatt is the most helpful of the three, disclosing an explicit gross fees ($1,198m) → contra revenue ($86m) → net fees ($1,112m) bridge.
Marriott, Wyndham, Choice all carry the same structure.

Because it is sector-wide, a peer comparison built on vendor revenue is consistently wrong and the relative ranking partly survives — but any comparison against a non-franchisor (an owner-operator, a REIT, or a cross-sector screen) is corrupted outright.

Guard

Find the fee line before computing anything. It is disclosed, and named differently by each issuer: "revenue from fee business" (IHG), "franchise and licensing fees" + "base and incentive management fees" (Hilton), "gross fees / net fees" (Hyatt), "gross fee revenues" (Marriott).
Never compare fee revenue across issuers without checking definitions — Marriott books co-brand card economics at gross inside fee revenue, Hilton includes timeshare licensing, and IHG books part of its co-brand economics inside the System Fund instead. Definitional noise is worth tens of percent.
The useful cross-issuer normaliser is fee revenue per room, which strips scale: Marriott ~$3,480 · Hilton ~$2,662 · IHG ~$1,852 (2026). That ratio is the real competitive-position metric and no vendor computes it.
Do not read the marketing fund as a profit pool. It is negotiated with a standing owner body (IHG's allocation is a PwC critical audit matter), and franchisors do cut assessments — IHG lowered its loyalty assessment in 2024.

What would falsify this

An issuer presenting reimbursements net, or a vendor feed adding a fee-revenue field. Neither has happened; the presentation is required by the revenue standard.

[[pitfall-vendor-revenue-is-net-construct-for-banks]] — the mirror image, where the vendor line is narrower than the economics. [[pitfall-contra-revenue-reclass-inflates-revenue-growth]]. [[pitfall-adr-ticker-resolution]] — the other reason IHG's snapshot is unusable.

History