New Jersey Bill Would Ban Hotel Loyalty Programs From Selling Points

Hotel chains have been bending over backwards not to offend property owners, at the expense of their brand and customers. But many hotel owners still aren’t satisfied, and have lobbied for government to rewrite the rules of the game to save them money.

In fairness, hotel chains have at times been bad actors. For instance, twenty years ago hotel property owners sued purchasing collective Avendra, which was founded by Marriott and Hyatt. They were required to buy supplies through Avendra, and they contended they were being overcharged – vendors marked up goods that they purchased, and rebated a portion to Avendra itself.

Concerns about purchasing, among other issues, are included in New Jersey’s ‘fair franchising legislation’ which is bill A1958 before the Assembly Commerce and Economic Development Committee, and state Senate S3165.

One of the surprising things in that bill though is an effective ban on selling hotel points at a profit.

It shall be a violation of the “Franchise Practices Act,” P.L.1971, c.356 (C.56:10-1 et seq.) for a hospitality franchisor or an entity owned or controlled by the franchisor or affiliated under common ownership by the franchisor to…

j. Sell points or credits in a hospitality franchisor’s loyalty program to a guest for the purpose of permitting the guest to redeem points for a specific stay at a specific franchisee’s facility without compensating the franchisee for the stay at no less than the franchisee’s lowest publicly advertised rate for that stay or the value of the points sold, whichever is less;

Loyalty programs like Marriott Bonvoy, World of Hyatt, IHG One Rewards, and Hilton Honors all sell points to consumers, and generally the cost to the program of redemption is lower than the cost of sale. That practice would be banned by New Jersey law if this ultimately passes.

It’s not at all clear how a program would segregate which points were purchased and then redeemed for a hotel in New Jersey, such that the New Jersey hotel would need to be compensated at the actual cost of points paid by the member. And if hotels had to sell points at cost, why would they sell them? (What the actual cost of the points is can also be unclear when using a third party intermediary like points.com for the transaction.)

Hotel room night redemptions are a boon to many hotels. They represent revenue for rooms that would otherwise go empty, so it’s incremental revenue. When the hotel is heavily occupied, the property generally receives more money (something akin to their average room rate). The hotel chain is generating value for the property by driving these room nights to a property by selling points.

And of course more points are sold to credit card companies than direct to consumer, but it’s only the sales to a guest directly that the law takes issue with. In seeking to force hotel chains to pay properties more for redemption nights, it just removes any likelihood that chains can sell points for redemption at covered hotels in the first place.

Analogizing to supplies, where franchisees and owners of managed properties object to the hotel chain earning a margin, they don’t want the loyalty program to earn one either. But hotels are paying for supplies, and getting paid for redemption nights. That’s a big difference.

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