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Rick's Cabaret

Rick's Cabaret

April 19, 2006
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" Basically, we've always focused on the treatment of the employees and entertainers "

Most 20-year-olds would be happy just going to a strip club. But Eric Langan was determined to own one. He knew he could do better than the managers at the club where his girlfriend danced at the time.

"They were there to chase girls and have fun and party," he says. "It wasn't run like a business. Hardly any of the clubs were like that back in the 1970s."

So Langan sold his baseball card collection for $40,000 and used the money to open Sheeba's Lounge, a topless club in the Dallas-Fort Worth area. It was the first step on a path that would lead him to the helm of Rick's Cabaret International, the only company in the adult night club industry publicly traded on Nasdaq.

After successfully beating back an attempt by the city of Fort Worth to shut down Sheeba's for zoning violations, he opened other adult clubs, emphasizing an upscale ambiance to appeal to businessmen and professionals.

Langan: Son Of A Cop
Langan, the son of a police officer, had spent his childhood in Peoria, Ill. When the family moved to the Dallas area, his entrepreneurial instincts started to bloom. According to his official bio, by the time he was 17 he had an advertising company that was grossing $5,000 a week distributing fliers for local businesses.

Unbeknownst to Langan, a short time earlier in 1983, a key piece of his destiny had clicked into place when a failing disco in Houston was transformed into a sophisticated men's pleasure palace. The first Rick's Cabaret gained attention, not only for its beautiful dancers but also for its chandeliers, fountains and a menu that included lobster and steak.

Under CEO Robert Watters, a lawyer and graduate of the London School of Economics and Political Science, Rick's Cabaret would go public in 1995 to fund its expansion.

"Basically, we've always focused on the treatment of the employees and entertainers," Langan said. "The main reason I went public was so that my management and my employees could own part of it."

Rick's bought Taurus Entertainment in 1998 and took that public as well. Roberts named Langan vice president of operations. "After a few months, the CEO and I had different ideas of where we wanted to take the company," he recalls. "So I worked out a deal to basically take over the public company and allow him to keep the New Orleans location."

Rick's currently owns and operates nine adult nightclubs in Houston, Austin and San Antonio, Texas; Charlotte, N.C.; Minneapolis; and in New York, where a Rick's opened in September.

Langan, still boyishly enthusiastic at 37, says: "Our New York location is fantastic. We're a block from the Empire State Building, Madison Square Garden and Penn Station. We're nine blocks from Times Square. All the major trains have subway stops within a block of the club. The traffic is huge. We bring Southern hospitality to the New York market."

Langan notes that one of the advantages to patrons of this continuing expansion is that a VIP membership is good in any location. Given the number of traveling businessmen who frequent strip clubs, this seems like a smart marketing tactic, not unlike membership in a national health club chain — though for obviously different reasons.

Branching out beyond brick and mortar in recent years, Rick's now runs several websites including Naughtybids.com, an auction site for adult videos, photos, apparel and miscellaneous erotica. According to Rick's, the site has about 10,000 active auctions at any given time.

Swingers Mega Site
Another property is CouplesTouch.com, a personals site for swingers, which was originally developed for the patrons of Encounters, a Houston swingers club that Rick's once owned. The site is now a clearinghouse for swingers nationwide, and the company markets Couples Touch to various swingers clubs.

"We teach them how to use the site to communicate with their potential clientele and current customers," Langan says. CouplesTouch also recently started a webmaster affiliate program, SwingClick.com.

Langan compares Rick's Cabaret's visibility as a public company to casinos: "When the casinos first went public, they were shunned. After a while, they became more and more accepted. Of course, now they're all owned by these giant, publicly traded companies. I feel we're kind of following in those footsteps."

The company's stock fluctuated from $2.55 per share to $5.40 in 2005, closing out the year at $3.84, up from $2.89 at the end of the previous year.

As a result of increasing government regulation over the past few years, Langan says that smaller operators are starting to disappear and larger chains are starting to appear.

"I think that just the money that's involved is going to force people to look at the public markets," he says.

If his analysis is on point, smaller clubs that have so far withstood this trend might not want to break out the champagne just yet.

"A lot of our industry is 20 years behind the times," he says. "But because of different regulations and limited competition, they're allowed to keep operating that way. As the larger chains develop and expand in the public markets, that will have to change. If they don't, the Wal-Mart of the gentlemen's club industry will come in and move the little guy out by making him unable to compete."

While some might accuse Langan of painting a future of generic "McDancer" pleasure palaces with little room for strip clubs with any spark of individuality, how bad would this really be in a business where the quality of the main "product" — exotic dancers — is notoriously inconsistent? Many patrons might like an approach that breeds better quality control. Of course, not every demographic can afford the higher cover charges and drink prices associated with upscale gentlemen's clubs. That alone should guarantee that "mom and pop" adult clubs will continue to coexist with Rick's, Scores and other upscale establishments.

Strip Club Consolidation
Langan also suggests that consolidation within the industry could give greater legitimacy to exotic dancing — if not as a career, then at least as what he refers to as a "steppingstone."

"Over time, people will start to realize that there is an ability to come into our industry at 18 or 19 years old with very little education and no money for college and make enough money to actually put yourself through college and advance your career," Langan says.

"Obviously, beauty doesn't last forever, and you have to use what you have while you have it," he says. "I don't recommend being an entertainer as a career. Unless, of course, you're going to retire in 15 years, work your butt off, save all your money, invest everything and then never work again. If you're 18 and want to retire by 35, you can very easily do that in our industry as an entertainer."

In fact, 13 performers from Rick's have become Penthouse Pets (three made Pet of the Year), and three have become Playboy Playmates. One of those playmates, Anna Nicole Smith, met her now-deceased oil tycoon husband while dancing at Rick's.

Langan sees Rick's growing mainly through acquisitions. "We want to buy existing locations that are already up, running and profitable," he says. "We will build, if necessary, or if we can't find the right targets."

His game plan this year calls for adding clubs that can generate another $5 million-$6 million in revenue. "Our projections currently have us at about $23 million-$24 million with a $2 million net. We'd like to be able to take that to close to $30 million by the end of 2006."

Beyond that, Langan sketches out an even more ambitious agenda: "We hope to grow 30-50 clubs in major markets and hopefully become comparable to Hooter's at some point. I think that in the next 10 years, the majority of the top clubs in the country will be owned by less than 10 companies. We hope to be one of those companies."


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