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Strip club owner got $5.4 million from Paycheck Protection Program

Small businesses fighting to survive the pandemic
Small businesses fighting to survive the pandemic 09:31

The owner of one of the largest chains of strip clubs in the country, Rick's Cabaret, as well as a chain of military-themed sports bars called Bombshells, got $5.4 million from the government's small business coronavirus relief fund. 

The loan is notable for its size: It's roughly 54 times the average loan made through the small business aid program. It's also notable for this: Strip clubs were specifically barred from the Paycheck Protection Program. 

RCI Hospitality, the owner of Rick's, received funding from the Paycheck program in early May, according to its quarterly financial statement filed with the U.S. Securities and Exchange Commission. 

RCI said in the filing that 10 of its restaurant facilities applied for loans from the Paycheck Protection Program and received a total of $4.2 million. Another $1.1 million government-backed loan was granted to its "shared-services subsidiary," according to the filing. RCI doesn't say what that subsidiary does.

The Paycheck Protection Program, run by the U.S. Small Business Administration, is meant to help small employers survive the crushing impact of the coronavirus pandemic through a total of $660 billion in forgivable loans charging just 1% interest. The deadline for applications was to be June 30, but Congress voted earlier this week to extend the deadline into early August so that some $120 billion in still-unallocated money can be tapped by small businesses. 

The PPP has drawn criticism for allowing larger companies, including publicly held enterprises, to use the initiative for funding while many other small businesses were initially shut out. 

Publicly traded RCI has 2,200 employees and a total stock market value of just over $125 million. The company said in the filing that none of its PPP loans will go toward funding its "adult nightclub" business. It's not clear from the filing how that would work.

Small businesses worry about spending PPP money 05:31

RCI, which changed its name from Rick's Cabaret International in 2014, gets more than 80% of its nearly $200 million in revenue from its strip clubs. Just 17% comes from its 10 Bombshells restaurants. According to the company's filings, "Bombshell Girls, with their military-inspired uniforms, are a key attraction" of the restaurant chain.

Loans from the Paycheck Protection Program are meant to cover two months of employee costs. RCI got $5.4 million, or $2.7 million per month for two months. That is more than the $750,000 a month the company said it spent on average to compensate employees of its Bombshells division. RCI's chief executive, Eric Langan, was paid $1.3 million last year.

In addition to the restaurants and strip clubs, RCI also runs conferences for the "adult nightclub industry," the trade publication Exotic Dancer, and an awards show. Last year, the Club Favorite Entertainer of the year was won by BJ McNaughty. Rick's Cabaret has won the best club chain category in two of the past three years.

A spokesperson for RCI Hospitality decline to comment to CBS MoneyWatch for this article.

At least a half a dozen strip club owners have sued the federal government to gain access to the Paycheck Protection Program. A U.S. district judge ruled in favor of the strip clubs in May, saying the government can't exclude legal businesses deemed to be of a "prurient sexual nature" from coronavirus relief aid. But the ruling only applied to clubs in Michigan. RCI was not part of the suit.

RCI reopened a number of its strip clubs in Texas in mid-May. But last week, nine of those clubs were forced to close again after a resurgence of COVID-19 cases in Texas and elsewhere paused local reopening plans. 

The company said in a press release last week it hopes to reopen its three locations in New York City this month. But New York City Mayor Bill DeBlasio on Wednesday said he was shelving plans to reopen indoor bars and restaurants in July under certain capacity limits, given the soaring rates of infections in other states that had reopened businesses.

States roll back reopenings as U.S. sees more than 50,000 new COVID-19 cases for the first time 02:57

The watchdog nonprofit group, which has been tracking the Paycheck program and other government coronavirus relief efforts, singled out RCI as one of four companies that got PPP loans that also had paid fines or large settlements for alleged violations in the past few years. 

Back in 2013, Rick's Cabaret International was ordered to pay dancers and other workers more than $10 million in back pay. 

In addition, RCI's most recent financial statement said the company was under investigation by the SEC and that the inquiry, which started last year, has turned into a formal investigation and is ongoing. No further details were available.

The company on Tuesday reported it had recently cut employees, but didn't say how many or at which divisions.

"We are disappointed at our subsidiaries' staff being laid off again at certain locations but pleased to report quick recovery times for all those who have had the coronavirus, and we hope that trend continues," CEO Eric Langan said in a statement. 

"We also hope government officials will only keep bars closed for a short time so staff at affected subsidiaries will be able to return to earning a living as quickly as possible," Langan's statement said.

The company also said it was in good financial shape with as much as $13 million in cash in the bank at the end of June. More than a third of that cash, or $5.4 million, came from the Paycheck Protection Program.

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