Hotels are reimbursed by IHG for reward nights but it is nowhere near the full cost of the room. There are different reimbursement tiers that are directly tied to the property's annual ADR and those tiers are in the lower two-digits. However, if the night of a rewards reservation has over 95% occupancy then IHG will reimburse that night's ADR.

I believe there were other provisions that if a hotel was a top performer they get reimbursed for the day's ADR regardless of occupancy but A) don't quote me on that and B) if it was the case at one time, I think it has since been rescinded.

I fully side with the OP --- the guest is entitled to just compensation. Just trying to shed some light on the reimbursement issue... and we are definitely not getting a great deal of money for the room!