Strippernomics

Date: Thursday, January 22, 2009
Author: Dirk Smillie, Forbes.com

Hustler publisher Larry Flynt and Girls Gone Wild king Joe Francis facetiously asked Washington for a US$5 billion stimulus package for the porn industry in early January. "Americans can do without cars," said Flynt. "They cannot do without sex."

Or at least a reasonable substitute. Strip clubs and other adult businesses are booming as the rest of the economy craters. Rick's Cabaret International (nasdaq: RICK), a nationwide chain of jiggle joints, reported that for fiscal 2008, revenue is up 87 per cent to US$60 million.

Rick's attracts 70,000 customers a month to its 19 clubs. At its New York spot alone Rick's posted just over US$1 million in revenue in December. "The stimulus package has been very, very good to us," cracks Allan Priaulx, Rick's head of investor relations.
Francis Koenig, the goateed, 32-year-old chief executive of AdultVest, the first hedge fund for porn, reported a 50 per cent rise in its returns last year, though he won't say how much or which ones delivered.

Koenig's funds, called Bacchus and Priapus, invest in gentlemen's clubs and companies that acquire them in the U.S. and Canada. AdultVest purchased strip club chain VCG Holding (nasdaq: VCGH) last May and recently bought iPorn.com, a site that hosts online dating and live video.

Amid all this froth, AdultFriendFinder, which owns Penthouse magazine and other adult brands, floated a US$400 million IPO in December, though the ticker is not trading yet.

Not that skin trade stocks are on fire. Shares of adult oriented companies like Rick's and VCG Holdings are lagging. Others, like New Frontier Media (nasdaq: NOOF), Playboy Enterprises (nyse: PLA) and Private Media Group (nasdaq: PRVT) have been in the tank for months as Web porn offered by sites like AdultFriendFinder kill adult DVD sales and slam nails in the coffins of hide-bound adult magazines.

So how to account for the sex boom? Part of it is human psychology. Strip clubs and porn sites are about consumption and discrete gratification—typically the last kinds of behaviour people change when their wallet thins. It's what makes Rick's a cash-rich company.

Rick's also thrives by its ability to re-brand on a dime. The Rick's club in Philadelphia saw its sales skid recently, prompting the company to re-name it Club Onyx, after another chain of strip clubs it owns aimed at celebrity sport stars and hip hop artists. The location is right: Onyx is within a mile of sports complexes where teams like the 76ers and Eagles play. According to Priaulx, the club has since tripled sales.

In Dallas, just down the street from the future site of the George Bush Library and Institute, Rick's has converted its latest club into another brand it owns: XTC Café. It is the largest all-nude strip club in the U.S. but does not serve booze. "I think our non-alcohol policy would make a certain former president very comfortable here," says Priaulx.