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In hotel franchise fight, both sides warn of impact on World Cup readiness

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In hotel franchise fight, both sides warn of impact on World Cup readiness

Feb 26, 2024 | 6:57 am ET
By Dana DiFilippo
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In hotel franchise fight, both sides warn of impact on World Cup readiness
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Lawmakers in Trenton are considering legislation that would revamp hotel franchise agreements in an effort to make them fairer. (Getty Images)

Debate about how prepared New Jersey is for the 2026 World Cup final has focused on the beleaguered NJ Transit and MetLife Stadium in East Rutherford, where the match will take place.

No one’s paying attention to the thread counts of sheets and softness of toilet paper at the state’s hotels — but they should be, say industry groups that are fighting legislation in Trenton that would retool hotel franchise agreements statewide.

The bill, which was heard by an Assembly committee last week, is intended to protect franchisees from predatory franchisors in an industry that still hasn’t fully recovered from pandemic losses.

But it’s drawn “wildly opposite” reactions, as bill sponsor Sen. Raj Mukherji put it, depending on which side of the franchise agreement hoteliers are on.

Franchisors warn it would enable frugal franchisees to cut corners, and that doesn’t bode well for a state expecting a million visitors for the World Cup.

“Our state in future years is going to host numerous large events, things like the World Cup, things like the 250th anniversary of our country,” said Eric Orlando, a lobbyist for the American Hotel & Lodging Association. “When folks come here and if this bill were signed, (it) lowers the standards of our hotels, gives our state a bad reputation.”

Changing the franchise model is a “dangerous and ill-advised” idea that would “severely limit hotels’ ability to enforce the quality, service, and safety guidelines guests know and trust,” said Chip Rogers, the association’s president and CEO. He warned the bill could “drive well-known and respected hotels out of New Jersey and cost the state thousands of jobs.”

Franchisees agreed New Jersey could lose hotels — if the bill doesn’t pass. They blamed greedy franchisors for driving franchisees out of business.

Attorney Justin Proper said he’s represented franchisees who have surrendered the benefits of well-known brands and quit franchise agreements to operate independently, as well as those who have defaulted on loans, declared bankruptcy, and left the hospitality industry because of “system-wide abuses” by franchisors who enrich themselves at the expense of franchisees.

“My clients enter into a relationship with the franchisor in good faith, believing that the relationship is going to be one thing, and it turns out to be another, and a consequence of that is their bottom line is very different than what they thought it should be,” Proper said.

A lot is at stake.

New Jersey has about 1,180 hotels with almost 114,000 rooms, according to the American Hotel & Lodging Association. Hotel guests spent $13.4 billion in New Jersey in 2022, and 3.1% of all jobs statewide were supported by the hotel industry, the group says.

The World Cup is expected to have a major economic impact on the region. And heritage tourism drew almost 10 million visits in 2019, with visitors spending $3.6 billion, according to a state study.

Mukherji (D-Hudson) said his bill is meant to bring fairness to franchise agreements.

“Hundreds of victims of unfair franchising in our state, predominantly minority-owned small businesses, have come forward to the sponsors in both houses and expressed to us the challenges of surviving in the midst of the global pandemic and their recovery therefrom,” he said.

The legislation would extend an existing list of violations under the state Franchise Practices Act and prohibit franchisors from:

  • Changing brand standards or practices or charging new fees without the franchisee’s consent.
  • Requiring franchisees to buy goods and services from designated vendors, if the franchisees want to buy the same thing elsewhere.
  • Pocketing savings from vendors without disclosing them and passing them on to franchisees.
  • Charging franchisees for failing to reach a minimum number of guests.
  • Selling points in a loyalty program to guests to use at a franchisee’s hotel without compensating the franchisee for lost revenue.
  • Competing with the franchisee in their market under a different name without consent.

The bill has been around for a while, with Mukherji first introducing it in 2020 when he was in the Assembly. But it never made it to a full vote that session before either chamber. In the 2022-23 legislative term, it squeaked by in the Assembly in May by a 41-28 vote that fell along party lines, but it failed to move in the Senate.

Thursday, the Assembly’s financial institutions and insurance committee advanced it along party lines by a 8-5 vote, after almost two hours of testimony. Assemblymen Robert Karabinchak (D-Middlesex), Sterley Stanley (D-Middlesex), and William Spearman (D-Camden) are the bill’s prime sponsors in that chamber.

“I don’t think anybody in any industry in any business would like the terms changed arbitrarily in their contract, or at the same time, have the products that they have to buy are three or four times higher than what they could buy on the marketplace that’s exactly the same item,” Karabinchak said. “The intent of this bill is to protect those franchisees from certain abuses they have no control over.”

The bill now awaits consideration by the commerce committees of each chamber.