Skift Take
Sonder gets new marketing and distribution power through the licensing deal. While a positive, this isn’t a panacea for Sonder’s fundamental problems.
The fine print of the Marriott-Sonder licensing deal announced Monday spells out the basics of certain exclusivity protections, as well as Sonder royalty fees, and other terms such as renewal options and termination fees.
For example, during the first two years, Marriott agreed not to enter into a “platform transaction with certain specified Sonder competitors, subject to certain exclusions.” The parties did not publicly name those Sonder rivals.
Marriott did not take any equity position in Sonder.
During the span of the 20-year deal â which can be renewed for two 5-year terms â when Sonder opens a new property, it must first offer it to Marriott for inclusion in the licensing agreement. If Marriott decides it doesn’t want to include the property in the Sonder by Marriott Bonvoy brand, “the exclusivity will not apply so long as any third party that Sonder contracts with regarding such opening is not a Marriott Competitor.”
The parties did not reveal publicly the identity of those Marriott competitors.
Sonder Distribution Through Marriott
Under the licensing deal, Sonder properties will be offered on both Marriott.com and the Marriott Bonvoy app. In addition to that distribution, Sonder would get a boost from Marriott sales teams and Marriott’s marketing clout.
Sonder has been on shaky ground since its Nasdaq debut via a special purpose acquisition company merger in January 2022. The company faced a delisting, has conducted several rounds of layoffs and has piled up losses. It hasn’t reported financial results in recent quarters because it needs to restate prior earnings.
However, barring a bankruptcy or a violation of the exclusivity provisions, by March 31, 2025 the agreement calls for Marriott to pay Sonder $15 million in key money in two tranches. Sonder agreed to repay the unamortized portion of that key money if the agreement gets terminated prior to the end of the 20-year term.
Examples of How Much Sonder Would Pay Marriott in Termination Fees
The agreement calls for Sonder to pay Marriott royalty fees that escalate for the first few years and then reach a maximum. While the public version of the agreement doesn’t specify the amount of the royalty fees, it does provide potential examples of termination fees.
“For illustrative purposes of calculating the Termination Fee only, if the average monthly Royalty Fees owed to Marriott during the previous 24 months preceding termination equals $500,000 and (i) there are 14 years remaining in the initial Term as of the date of termination, the Termination Fee will equal $18,000,000 (i.e., one year of Royalty Fees (36 x $500,000)) or (ii) there are 4 full months remaining in the initial Term as of the date of termination, the Termination Fee will equal $2,000,000 (i.e., 4 months of Royalty Fees (4 x $500,000)).”
After the fifth anniversary of the agreement, both parties have the right to terminate it under certain conditions.
The licensing deal is not expected to be fully implemented until 2025, although late this year Marriott.com could provide links to Sonder digital platforms, where Bonvoy members would be able to earn and burn loyalty points.
Sonder is expected to save money on customer acquisition costs through the deal although so far it hasn’t specified how it’s mix of distribution partners would change.
