Management fees and hotel performance in the U.S.

Abstract

A management company takes care of the day-to-day operations of a hotel and thus has a great amount of influence on the hotel’s financial performance. Adopting models from O’Neill, Hanson, and Matilla (2008) and Hua, Morosan, and DeFranco (2015), a set of empirical models, with same-store data from 1471 hotels from 2011 through 2017, was used to test the impact of the total management fee and its subset of the base management fee and the incentive management fee on the hotels’ rooms revenue and gross operating profit while controlling for potential confounding factors including chain scale and location. This is the first paper to empirically validate the value of a management contract for both the owners and the management company, including the positive and significant effects that base management and incentive management fees have on hotels’ room revenue and gross operating profit.