Originally Published May 11, 2009

In the Nightlife & Entertainment industry, money & success are oftentimes not as important as public perception and an individual’s ego. If someone is doing well then everyone wants to be their friend due to perceived “benefits” (free entry & alcohol, enhanced social connections, money, drugs, etc.). It works both ways though, as Industry Insiders (“Insiders”) use these relationships to enhance and perpetuate the profitability of parties, pacify egos and satisfy personal desires.

All people want to feel important and have an ability to do whatever they want at all times; people are intrigued by those that live a privileged or desired life. After all, wouldn’t it be cool to be like Jay Z, be a “Boss”, and receive respect & admiration in virtually all situations?

Jay Z Video

But life isn’t always how it appears, or how others would like you to believe. Most successful people have worked hard to overcome hardships before appearing on anyone’s radar; most never “make it” and the ones you hear about are the survivors. It’s a major accomplishment for an individual to have the general public take interest in their lives and many thrive,manipulate and profit from this attention to further enhance their public image and achieve even more. It’s a cycle: initial attention leads to profit & monetization which aids additional achievement, leading to more attention, profit and achievement of personal goals.

Unfortunately people are very bad at resisting temptation and managing power; even those that have overcome tremendous hardships to become public figures oftentimes succumb to greed and selfishness. Additionally, many public figures simply become “Image Managers” with the goal of perpetuating an image that’ll receive the most attention.

Eliot Spitzer Finally Gets Caught

So How Does this Apply to Nightlife and Entertainment?

Many Insiders that have slowly transformed into Image Managers feel tremendous internal pressure to remain relevant and will do whatever it takes to attract attention. It’s actually in their best interest to deceive others if they lack confidence in their ability to achieve future goals; they live off past achievements by managing current perceptions.

Gossip More Important than the Truth?

When Insiders discuss sensitive topics, it’s safe to assume that they’ll only portray information that places them in the best possible light.
Few Things about the NYC Nightlife Industry Economy:

• The top ~5 to 6 exclusive places in NYC are so profitable that even if profitability declines 50% they will still net a few million in operating profits
• Middle tier venues will continue to shut down; many of these places that used to do $35K on a Saturday (liquor sales plus entrance revenue) are now doing ~$12K and can’t pay their bills even with severe cost cutting (best example: The Grand).

Bottom Line: It’s difficult to get an honest answer from people unless they have an incentive to be truthful.

Regardless of poor economic conditions, the smart businesspeople and exceptional Industry operators will likely emerge stronger than before. They understand that real, sustainable and consistent profitability takes precedence over public perception.

Update: October 2009 I was accurate in predicting, back in early May, that 3-4 venues would close. Currently, I think we’re beyond the major consolidation and closing phase. Instead I foresee increases in both renovations (closing for 2-8 weeks then relaunching under a new name) and capital raises where borrowers place less of their personal equity at risk.