Management contract vs lease vs franchise: how the numbers differ

Three owners can buy the same hotel and walk away with three different businesses, because the structure they choose decides who takes the risk, who keeps the upside, and how much work lands on them.

This is the decision that shapes the whole investment. It is not really about the brand on the door. It is about where your money sits on the operating statement and how exposed it is. Here is how a management contract, a lease and a franchise actually differ once you follow the numbers down to what the owner keeps. If the statement itself is new to you, read the operating statement guide first.

The one idea behind all three

Every structure is a different answer to a single question: who carries the hotel's profit and loss? Move the risk around and the reward moves with it. A management contract leaves the profit and loss with the owner and pays a professional to run it. A lease hands the profit and loss to an operator and pays the owner a rent. A franchise leaves the owner running the hotel themselves while renting a brand and its systems. Everything else follows from that.

Management contract: you keep the business, you pay an operator to run it

Under a hotel management agreement, the operator runs the hotel on your behalf and charges fees, but the revenue and costs are yours. You keep the full upside when the hotel does well, and you carry the full downside when it does not. The operator earns a base fee on revenue and, usually, an incentive fee on profit above a hurdle.

On the statement, this shows up below gross operating profit: you keep GOP, then the management fees come off, then taxes, insurance and reserves, and what remains is yours. The attraction is control and upside. The risk is that a soft trading year is entirely your problem, and the fee stack can be heavier than it looks. This is the structure where the fee detail matters most.

Lease: you swap the upside for a steadier rent

Under a lease, an operator takes the hotel's profit and loss entirely and pays you rent. Your income is the rent, not the trading result. A lease is often a fixed base rent plus a variable element tied to revenue or profit, so you share some upside while keeping a floor.

On the statement, your position effectively stops near the top: you receive rent, and the operator lives with everything below it. The attraction is stability and far less operational exposure, which is why institutional and risk-averse owners favour leases. The cost is the ceiling: in a strong year the operator keeps the surplus that an owner on a management contract would have kept. You have traded the upside for certainty.

Franchise: you run it yourself, under a brand

Under a franchise, there is no operator running the hotel for you. You operate it, either directly or through a separate management company, and you license a brand name and its reservation and loyalty systems. You pay for that brand through a royalty on rooms revenue plus a stack of programme charges: marketing, loyalty, central reservations, technology, and so on.

On the statement, you keep the whole trading result, then the franchise fees come off as a group, then your own management cost if you have hired one. You keep the most of the three structures when the hotel performs, but you also carry the operational burden and the brand charges. The attraction is independence and a bigger share of a good year. The cost is that running a hotel well is a real job, and the franchise fee stack still takes its cut.

The same hotel, three ways

Numbers make it concrete. Take one hotel producing 4,000,000 of gross operating profit, and look at what the owner keeps under each structure. Figures are illustrative and rounded, in US dollars.

The point is not that one wins. It is that the right answer depends on how much risk you want, how much upside you are willing to give up for safety, and whether you want to run a hotel at all. The only way to choose well is to run your actual hotel through each structure and compare the owner's return side by side.

How USALI 12 helps you compare

Because all three report on the same standard, you can compare them honestly. A management statement, a lease and a franchise built on USALI 12 use the same definitions down to GOP, so the differences below GOP are the real differences, not an artefact of formatting. The 12th edition's new brand and operator cost schedule helps most here, because it gathers the operator and brand charges into one table, which is exactly the band where management and franchise structures diverge.