The question in the thread title is one that is much debated in the travel blogosphere, including here on MilePoint. My own view has consistently been that the best approximation of the fair market value of a loyalty point may be that which is set by the program that issues the point. I arrived at the above conclusion through some very simple reasoning. Take for example Delta Skymiles (SM). Each SM belongs to DL because they created this “currency” out of thin air and thus own it since it would otherwise have no meaning or value; DL gives SM its "value". This means that anyone who sells Skymiles for less than what DL thinks they are worth is a “counterfeiter” because they would have to manufacture their own skymiles in order to be able to sell them cheaper without losing money. It would also be a felony. Alternatively, one can do what AMEX does and purchase billions of $$$ worth of Skymiles, which they can sell cheaper if they wish because DL quite likely gave them a huge discount. The “resale” value of the Skymiles for AMEX, because there is a resale value, is known only to AMEX so that "value" at this point starts to become subjective. However, point sale transactions between a loyalty program and third-party entities seem like a good way to determine the fair market value of loyalty points. Well, is my view on this off the mark? It turns out that according to a document [PDF] prepared by PricewaterhouseCoopers(PwC) analysts entitled “Loyalty analytics exposed: What every program manager needs to know”, my view may not be too far off. Here’s the relevant bit: “Because of diverging accounting practices, International Financial Reporting Interpretations Committee 13 (IFRIC 13) was issued in 2007 (effective July 1, 2008) to provide more specific guidance and to bring greater consistency regarding the treatment of loyalty program liabilities. The two major concepts underlying the application of IFRIC 13 to loyalty program accounting are: 1. The issuance of credits or points must be accounted for as a separate component of the sale. In essence, this requires a deferred revenue approach, whereby the income statement immediately recognizes the portion of revenue related to the sale of a good or service and defers the remaining revenue allocable to the value of loyalty points. This deferred revenue is recognized when the loyalty points earned at good/service purchase are redeemed, forfeited or have expired. [NYCUAK1K says: this is one of the reasons why loyalty programs devalue their points, promote the redemption of points by pushing all sorts of ancillary merchandises, or set an expiration date — all designed to decrease ‘liability’ and boost real profits] 2. The process of calculating the amount of deferred revenue when issuing points must be based upon the FAIR MARKET VALUE of those points to the customer. This guidance means that a company must defer the value of the points (less expected “breakage”) according to the value that customers put upon them. In contrast, US GAAP allows an alternative approach for the recording of points at a value that is based upon the program sponsor’s internal cost of goods sold. IFRIC’s starting position for determining fair value is “the amount for which the award credits could be sold separately.” In practice, this definition can require significant estimation and judgment by management, particularly in the absence of significant sales of points to third parties. Where third-party point sales are significant, the cost of the points in the sales transaction is often the most appropriate and compelling evidence of the fair value of the points. In the absence of third-party point sales, the estimated fair value of the goods and services for which the points may be redeemed likely would be used to determine the fair value basis of the points.” [Emphasis added] Got that? “Where third-party point sales are significant, the cost of the points in the sales transaction is often the most appropriate and compelling evidence of the fair value of the points.” As in the case of DL and AMEX, or Chase with pretty much everyone out there, loyalty programs do sell a whole bunch of points to various entities (banks, individuals, etc) from which they can estimate how much their points are worth monetarily. Therefore, the FAIR MARKET VALUE of a loyalty point is best approximated by the value which is assigned to it by its issuer, because it is estimated from “significant third-party point sales.” Any other "value" -- e.g. those peddled by most bloggers -- would be too subjective to have any practical or real-world utility or meaning... Chime in!