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Editorial Open Access
Volume 2 • Issue 1 • 1000e107
J Hotel Bus Manage
ISSN: 2169-0286 JHBM, an open access journal
Hotel & Business Management
Turner, J Hotel Bus Manage 2013, 2:1
http://dx.doi.org/10.4172/2169-0286.1000e107
e objective of this article is to outline what a hotel management
contract is, the main challenges arising, and why it is a particularly rich
research context. e separation between ownership and management
through a hotel management contract has become relatively widespread
[1] and is seen as one of the driving mechanisms for the rapid
internationalization of the hotel industry [2]. A hotel management
contract enables a hotel owner to retain legal ownership of the hotel
site, building, plant and equipment, furnishings and inventories, while
the operator is responsible for the day to day business of the hotel [3].
e owner assumes full economic risk associated with ownership of
the commercial asset, whereas, the operator is only responsible for the
operation of the hotel [4].
Much of the reason for the popularity of management contracts
is that the expertise required to operate a large hotel is more readily
available under such an arrangement [5]. It enables a hotel owner
to derive the benet of owning a hotel without the requirement
of having to operate it [6]. However, despite its popularity, the
management agreement is the most problematic of all operating
concepts in the hospitality industry [4].e main challenge involves
the agency relationship that arises from the separation of ownership
and management [3], which can create a volatile mix of economics
and power that can explode due to the diering time horizons of the
owner and operator [7]. Operators, for example, are typically interested
in achieving short-term cash ows, while hotel owners prefer the
achievement of longer-term goals [8] is situation is known as the
‘horizon problem’ [9]. Operators also continually drive to increase the
value of their brand and the longevity of their management contracts
held so that they can secure good opportunities from new contracts
and increase the number of rooms under their management [7]. On the
other hand, owners typically want to put their limited resources into
projects that will maximize bottom-line returns [7].
Despite this most idiosyncratic facet of the hotel industry, little
research has examined hotel management contracting and implications
on hotel operation. To do this, researchers are likely to benet by
considering topics in which they specialize and how they might
exploit the hotel management contracting context to advantage. As an
example, issues pertaining to the topic of ‘capital budgeting’ have been
investigated in areas such as deciencies in owner-operator capital
expenditure goal congruency [10], accounting for the furniture, ttings
and equipment reserve [11], motivation of hotel owners and operators
to engage in earnings management [12], factors aecting biasing
of capital budgeting cash ow forecasts [13], and capital budgeting
implications arising from locus of hotel owner/operator power [14].
Investigation of such issues would not have been possible outside of the
management contracting context, thus allowing novel contribution.
Overall, the context of hotel management contracting is
particularly rich and further research is called for. Research of this kind
is important because it is likely to reduce the potential for acrimonious
relationships arising between hotel owners and operators. Further, a
better understanding of hotel management contracting could lower the
risk of investment, which might enhance the liquidity, size, and number
of investors willing to be involved in the market. Additional studies of
this nature can add to the diversity of research being conducted, which
is likely to signicantly add to our knowledge, thereby aiding decision-
making, planning and control.
References
1. Corgel J (2007) Technological change as reected in hotel property prices. The
Journal of Real Estate Finance and Economics 34: 257-279.
2. Eyster JJ (1997) Hotel management contracts in the US: Twelve areas of
concern. Cornell Hotel and Restaurant Administration Quarterly 38: 21-33.
3. Guilding C (2003) Hotel owner/operator structures: Implications for capital
budgeting process. Management Accounting Research 14: 179-199.
4. Schlup R (2004) Hotel management agreements: Balancing the interests of
owners and operators. Journal of Retail & Leisure Property 3: 331-343.
5. Field H. M. (1995). Financial management implications of hotel management
contracts: A UK perspective. In: Harris PJ (1995) Accounting and nance for
the international hospitality industry. Oxford.
6. Hotels of the future: Strategies and action plan. International Hotel Association,
UK.
7. Beals P, Denton GA (2005) The current balance of power in North American
hotel management contracts. Journal of Retail & Leisure Property 4: 129-145.
8. Guilding C, Kennedy D, McManus L (2001) Extending the boundaries of
customer accounting: Applications in the hotel industry. Journal of Hospitality
Tourism Research 25: 173-194.
9. Ittner C, LarkerDF, Rajan R (1997) The choice of performance measures in
annual bonus contracts. The Accounting Review 72: 231-255.
10. Turner MJ, Guilding C (2010) Hotel management contracts and deciencies in
owner-operator capital expenditure goal congruency. Journal of Hospitality and
Tourism Research 34: 478-511.
11. Turner MJ, Guilding C (2010) Accounting for the furniture, ttings & equipment
reserve in hotels. Accounting and Finance 50: 967-992.
12. Turner MJ, Guilding C (2004) An investigation of the motivation of hotel owners
and operators to engage in earnings management. Qualitative Research in
Accounting & Management 8: 358-381.
13. Turner MJ, Guilding C (2012) Factors affecting biasing of capital budgeting
cash ow forecasts: evidence from the hotel industry. Accounting and Business
Research 42: 519-545.
14. Turner MJ,Guilding C (2013) Capital budgeting implications arising from locus
of hotel owner/operator power. International Journal of Hospitality Management
35: 261-273.
*Corresponding author: Michael J. Turner, The University of Queensland, UQ
Business School, St. Lucas Campus, QLD 4072, Australia, Tel: +61 7 3346 8071;
Fax: +61 7 3346 8199; E-mail: m.turner@business.uq.edu.au
Received August 19, 2013; Accepted August 20, 2013; Published August 23,
2013
Citation: Turner MJ (2013) Hotel Management Contracts: a Particularly Rich
Research Context. J Hotel Bus Manage 2: e107. doi:10.4172/2169-0286.1000e107
Copyright: © 2013 Turner MJ. This is an open-access article distributed under
the terms of the Creative Commons Attribution License, which permits unrestricted
use, distribution, and reproduction in any medium, provided the original author and
source are credited.
Hotel Management Contracts: a Particularly Rich Research Context
Michael J. Turner*
The University of Queensland, UQ Business School, St. Lucia Campus, QLD 4072, Australia
