By Dr. Gary L. Deel, Ph.D., J.D.
Faculty Director, School of Business
This is the first article in a six-part series on the particulars of club hospitality management.
(Note: For the purposes of this series, the word “club” should also be interpreted to include both “nightclubs” and “day clubs” (venues typically in and around a pool area and often referred to as “beach clubs”), both of which typically entail many of the same management particulars. Where differences exist, they will be distinguished for the reader.)
When the economic recession of 2008 threatened to crush the hospitality industry, it was actually clubs that saved the city of Las Vegas. Hotel occupancy rates plummeted, casino revenues fell and tourism in general declined.
But the Las Vegas club industry maintained a resilient allure for tourists and locals. Indeed, the club industry carried the financial solvency of “Sin City” through some of its most difficult economic times.
Las Vegas Hotel and Resort Operators Have Made Clubs the Center of Their Hospitality Attention
Since then, Las Vegas hotel and resort operators have made their clubs the center of their hospitality attention, always striving to build ever bigger, louder, more exciting and more expensive facilities. In order to maintain offerings that are within the realm of what is considered popular, trendy and fashionable, the club industry has been forced to constantly reinvent itself.
Nonetheless, the Las Vegas club industry continued to thrive right up to the emergence of the coronavirus pandemic in 2020. And although most clubs have been shut in an effort to contain the virus and limit its spread, with the distribution of vaccines now underway there is every reason to believe that, after the long and painful period of isolation we’ve all been through, tourists will be more anxious than ever to return to the clubs as soon as it is safe to do so.
Virtually all of Las Vegas’s biggest casino resort operators have invested heavily in clubs on their properties, and they have enjoyed tremendous revenues from these offerings. But what is it like to run these kinds of exciting attractions? I spent several years living and working in Las Vegas, and one of my roles and various functions was as a club manager. So this series is a compilation of the knowledge and wisdom I gained during that experience.
In the Main, Las Vegas Clubs Are Hospitality Businesses
Clubs are hospitality businesses. They are fast-paced, fickle, ever-changing, high-liability, extremely competitive and cutthroat, but businesses all the same. As such, club management typically entails the two staple functions of any business: sales/marketing and operations.
The goal of the marketing function of course is to increase revenue, as is the case with every business. Also similar to other industries, a variety of offerings in clubs exists from budget to luxury.
For an example of similarities between clubs and other industries, we can look to a familiar analogy with automobiles. Ford and Lamborghini could not be more different in terms of their automobile products, prices, and operating strategies. However, they’ve both managed to acquire and sustain their own markets with their respective offerings.
Therefore, the first step in creating a new club concept is to decide on and commit to the offering itself. Operators need to understand their product and market position, as all other particulars follow from that understanding.
Clubs Typically Enjoy Two Primary Revenue Streams: Gate and Consumables
Clubs like those in Las Vegas typically enjoy two primary revenue streams: gate and consumables. The gate includes admission/entry fees and any upgrades, including any kind of “VIP” status or priority treatment. Consumables generally includes beverages — alcoholic and others, such as bottled water and soft drinks.
Some clubs offer a limited food menu as well. A few even offer branded souvenirs and merchandise for sale.
If a club positions itself in the budget market segment, it may be forced to operate with little or no cover charge and lower-priced drinks than its upscale competitors. Volume is the objective here, as sufficient profits can only be realized by large numbers of customers.
Conversely, for a club positioned in the higher-end market, volume may not be necessary (and, as we will discuss later, may in fact be undesirable). The margins on cover charges and alcohol in the higher-end market are adequate to keep the doors open, even with fewer patrons. Just as Ford sells thousands of cars and Lamborghini sells only a handful, so too are clubs forced to make carefully calculated decisions about their products to maintain their market positions.
Capacity is another factor in determining the amount of marketing dollars dedicated to a club’s gate. All public buildings everywhere are subject to local capacity restrictions, usually governed by fire and safety codes.
Typically, managers whose clubs frequently fill to capacity will carefully monitor their headcounts at entry and exit points to avoid exceeding local ordinances at all costs. The few extra dollars that might be gained by cramming additional patrons into the building isn’t worth the risk of being fined or shut down by the authorities, not to mention the risk of people being injured or killed due to overcrowding during a potential emergency or the negative media exposure that would inevitably follow.
With that in mind, club marketers measure their actual gates carefully and determine the effort and investment necessary to meet but not exceed those numbers. Any money spent bringing people to the door who will be turned away due to capacity limits is a waste. If Ford were to generate more demand for its cars than it has vehicles to sell, the automotive giant would experience marketing inefficiencies.
Beyond the extent to which a club can service a certain number of guests, another important question becomes whether it should service all of them. We’ll talk about this dynamic and how it must be carefully controlled in Part II.