from www.portfolio.com – Scott Lindsay wants to bring a touch of Las Vegas to Louisville, Kentucky.
He already has the pretty ladies. He just needs the glamour.
In February, Lindsay, secretary and treasurer of Carson City, Nevada-based Lindsay Management Services Inc., took over management of The Godfather, one of at least 20 so-called gentlemen’s clubs in Louisville, Kentucky, where women strip either topless or totally nude for entertainment.
His wife, Eileen Lindsay, bought the club itself.
Since then, she has put about $250,000 of her own money into the 34-year-old establishment, and her husband has cleaned house. He let go most of the staff when he started doing regular drug testing and background checks, he said.
The Lindsays are betting on the success of adult nightclubs when—because of a case pending in the Kentucky Supreme Court, which heard oral arguments in February—their chances of continuing to operate as they do now appears to be in jeopardy.
Attorney Mike Hatzell, who has represented adult businesses for 20 years, expects the court to uphold a Louisville-Jefferson County Metro Government ordinance that he said would gut the businesses. It’s the kind of ordinance that has come up in cities across the country, and brings up similar conflicts. Authorities want to get rid of what many see as a seamy form of entertainment. But that form of entertainment is profitable, and it contributes plenty in taxes to governments’ bottom line.
Scott Lindsay, at least, isn’t worried.
“Cities fight and fight and fight adult entertainment, but adult entertainment is still here in some shape or form,” he said.
Adult-nightclub owners argue that, even if government officials do not like their type of business, the city needs them to attract some conventions and tourists. They say that two of their biggest weeks for customers are Kentucky Derby Week and the week of the annual National Farm Machinery Show at the Kentucky Exposition Center.
But Jim Wood, president and CEO of the Louisville Convention and Visitors Bureau, said that conventions choose Louisville for reasons other than the availability of adult nightclubs, including hotel rates and accessibility.
In his six years as head of the bureau, he said, his staff has given hundreds of site inspections to meeting planners, and the issue of availability of strip clubs never has come up.
Of course, the government is happy to take their tax money, adult-nightclub owners say.
In fiscal 2007-08, for example, adult nightclubs paid Louisville Metro more than $34,000 in liquor-license fees alone. They also paid $33,300 in state liquor-license fees.
Assistant Jefferson County Attorney Terri Geraghty declined a Kentucky Open Records Act request from Business First of Louisville to disclose how much tax revenue Louisville’s adult nightclubs paid last fiscal year, saying it would reveal private details of a taxpayer’s business.
But at one of the city’s most popular adult nightclubs, PT’s Show Club, the total annual tax burden is close to half a million dollars, said Brian Fransen, area director for Kentucky Restaurant Concepts Inc., the legal name of PT’s. That doesn’t include the taxes paid by the club’s 75 entertainers, who are independent contractors, Fransen said.
The club’s total payroll of 40 employees, not including the dancers, amounts to about $475,000 a year, he said.
Lindsay estimates that The Godfather and the entertainers who perform there will pay between $165,000 and $200,000 in local occupational taxes, state sales taxes, and state income taxes.
And he noted that The Godfather also is boosting the local construction economy, since he’s hired contractors to renovate the club.
He and his wife have installed new tables, overstuffed armchairs with a “G” emblazoned on the back, lighting, and even new menus with backlights that cost about $150 apiece. They also have added a VIP section for champagne sales.
Lindsay has installed four television sets for football season and has plans to install 16 more. And he plans to enclose an outdoor dining area to create another 3,000 feet of indoor space, with a third stage for dancers.
He expects to have between $1.5 million and $2 million in revenue this year, with a profit margin of between 20 to 30 percent.
“It has a bad reputation as a business, but it is a business. And it has to be run as such,” said Lindsay, 36, who also manages Racers Pit Stop Grille, a restaurant and gentlemen’s club in Sparta, near Kentucky Speedway.
The dancers like at least two changes that Lindsay has made, said Whitney Gresham, a bartender and manager at The Godfather and a former nude dancer.
Lindsay installed a tip rail around the stages so that patrons can get close to the stage and slip cash to the dancers while they’re doing their routines, she said.
He also lets them do as many dances as they want. The previous management did not allow them to dance until they had sold their quota of cocktails.
Gentlemen’s clubs such as The Godfather generate most of their revenue from alcohol sales, said Angelina Spicer, executive director of the Naples, Florida-based Association of Club Executives, the trade association for the adult gentlemen’s club industry.
Lindsay estimates that alcohol sales account for about 70 percent of his club’s revenue. He also charges a cover charge of $5 to $7, depending on the day. He serves food, but that’s not a moneymaker, he said.
He wouldn’t sell nearly as much of The Godfather’s champagne, however, if not for the dancers.
When they’re not dancing, they’re walking the floor in cocktail dresses, talking with the patrons and getting them to buy drinks that start at $20 apiece.
The dancers get half the revenue from each drink they sell, but they also pay a $20 daily fee to use the stages and a $5 fee for each couch dance they do, Lindsay said. He said the dancers charge between $30 and $40 for a couch dance.
At The Godfather, the dancers are independent contractors, responsible for keeping their own tax records.
That’s a common arrangement for these kinds of clubs, Spicer said, but it varies from state to state, with some states considering them employees.
Downtown at PT’s, where there are no stripper poles and the dancers gyrate on large tables surrounded by chairs, the dancers pay a $10 stage fee per day, said “Vaughn,” a 32-year-old dancer who would not give her real name.
She gets no money from drink sales, but she gets to keep 90 percent of the money she makes from lap dances. Patrons pay $30 for a two-song dance during off-peak hours, when Vaughn works.
She works the 11 a.m. to 6 p.m. shift because she wants to be home during the evening, when her kids are out of school. She makes about $100 to $300 a day, but she said she could earn three times that amount in the evening.
Her expenses include cocktail dresses, which can cost about $100 apiece, and about the same price for her shoes, which must have at least a four-inch heel.
Another PT’s dancer, “London,” who also declined to give her real name, said the dancers also get a percentage when they do lap dances in the VIP room, where patrons pay $175 for a 30-minute private dance and $300 for an hour-long dance.
She gets $100 of the 30-minute fee and $200 of the hour-long fee, she said.
She doesn’t like doing dances in the VIP room, she said, because she finds 30 minutes of continuous movement exhausting.
She has quit dancing before, but she always comes back because she cannot find a better-paying job, she said.
By working four days a week for six hours a day at PT’s, she can pay all of her bills for the month in two weeks.
The current recession has not affected business at PT’s, where Fransen said he expects to have revenue of more than $2 million this year. He declined to disclose the business’ profit margin.
“When times are hard, people want a place where they can relax a little bit,” he said. “We are an adult Disneyland.”
Nationally, over the past 18 months, the club owners that Spicer has talked with say their revenue is down 20 percent to 30 percent from normal—and even higher than that in rural areas.
Colorado-based VCG Holding Corp., which owns Kentucky Restaurant Concepts and 19 other adult nightclubs, reported to the U.S. Securities and Exchange Commission that for 2008, it had a net loss of $37.4 million, versus a profit of $8.9 million in 2007. The company posted a $2.18 million profit for the first quarter of 2009, compared with a $2.9 million profit for the first quarter of 2008.
VCG Holding bought Kentucky Restaurant Concepts in January 2007 for $4.5 million, according to a Securities and Exchange Commission filing.
As in many industries, the gentlemen’s club business has seen the rise of corporate ownership and consolidation, Spicer said. VCG Holding is traded on the Nasdaq, as is another chain, Rick’s Cabaret International Inc. VCG Holding chairman and CEO Troy Lowrie rang the exchange’s closing bell on July 22, 2009.
Louisville does not have a Rick’s Cabaret, but it does have a Deja Vu club. The local club licenses its name from Lansing, Michigan-based Deja Vu Consulting Inc., said Brad Shafer, an attorney who represents Deja Vu Consulting and the Louisville club. It’s one of 72 Deja Vu clubs worldwide, with another six in development.
In exchange for the license fee, which varies from club to club, the licensees get services from Deja Vu Consulting, such as business-development advice, marketing tips, and advertising on the company’s website, Shafer said.
They also can take advantage of the parent company’s buying power. For example, Deja Vu Consulting has negotiated a master agreement to buy Coca-Cola products for all of its licensees at a price cheaper than they could buy on their own, Shafer said.
That’s especially important at the Louisville club, which does not have a liquor license but sells nonalcoholic drinks at movie-theater prices. The local Deja Vu doesn’t sell alcohol because, at one time, the city of Louisville required clubs that featured full nudity to not sell alcohol.
Another local gentlemen’s club, Trixie’s Gold Room, which also features fully nude dancers, does not sell liquor for the same reason. Owner Denny Landrum also owns the Knockout Sports Saloon, which features topless dancers but sells alcohol.
Of the two clubs, the Gold Room always has been the biggest moneymaker, Landrum said. For a long time, profits were in the 60 to 70 percent range, he said, but they have fallen recently to 20 to 30 percent.
Most of the revenue comes from sales of food and drink. There’s a two-drink minimum, Landrum said, and a 12-ounce soda costs $4.
As in other clubs, the dancers work for themselves. They don’t get a percentage of drink sales, Landrum said, but they also don’t give the house a share of their lap-dance fees.
Landrum has worked in the nightclub business since 1969. He previously owned the Sen Den East, a gentlemen’s club that is now defunct. He also owned the Toy Tiger nightclub, the site of which is now a gas station. The Toy Tiger did not offer exotic dancing, but it did have lots of wet T-shirt contests.
When he started in the business, Louisville had many more gentlemen’s clubs with fewer regulations, Landrum said. Many of them sprouted up during World War II, and they catered to the soldiers at Fort Knox.
The clubs’ heyday was probably the 1960s and 1970s, said attorney Hatzell.
Since then, regulation by local government and competition from the Internet, where nudity is readily available in the privacy of one’s home, has reduced their numbers.
Many of the dancers have left Trixie’s for greener pastures, Landrum said, for Lexington, Kentucky, or even Las Vegas, where the rules about such businesses are more lax. They know that the pending city ordinance being reviewed by the Kentucky Supreme Court would radically change the business.
“They see the writing on the wall,” Landrum said.