1. What is Marquee's business model? What makes Marquee a "hot" nightclub? What are the key sources of revenues and costs (e.g. Exhibit 3)?
2. How important are the different customer segments to Marquee's business? And what role do promoters play in managing the customer base?
3. How would youcharacterise the market forDJs? What is the source of the power of the superstars in this market? Can Strauss andTepperbergdo anything to control their rising fees?

Marquee: Reinventing the Business of Nightlife Nightlife impresarios Jason Strauss and Noah Tepperberg looked out over a crowded dance oor where hundreds of revelers were enthusiastically ringing in the rebirth of their famed New York City-based nightlife establishment Marquee. The cofounders and co-owners had chosen this night in early January 2013 for a spectacular reopening after a costly, five-month-long renovation that, they hoped, would again place Marquee among the country's most sought-after venues. If anyone could bring back the magic, it was the two of them: before Marquee temporarily closed its doors, the club had been going strong for almost nine yearsan eternity for a venue in one of the world's most competitive nightlife markets. While operating Marquee, Strauss and Tepperberg had also signicantly expanded their portfolio of clubs. Along with Lou Abin, Marc Packer and Richard Wolf, they were partners in the umbrella company TAO Group, and under that banner had launched three new establishments in New York CityAvenue, LAVO, and PH-Dwhile also managing the popular TAO, LAVO, and a second Marquee in Las Vegas, and even introducing a Marquee in Sydney, Australia. Located in the new $4- billion Cosmopolitan Hotel, the $50-million Marquee Las Vegas with a capacity crowd of 3,000 people in particular was a huge betand an undeniable success. In 2011, its first full year, it became the highest-grossing club in North America, with an estimated $80 million in revenues, and it hung on to the top spot in 2012 with $85 million in revenues.1 A departure from the original Marquee that focused on selling expensive bottle service to guests hoping to rub elbows with a celebrity or VIP, Marquee Las Vegas embraced electronic dance music and featured a high-profile D] every night. The entrepreneurs now wanted to bring that model to New York City. \"We want to make it less about who is who, about seeing and being seen, and make it more about the experience about who is playing,\" Tepperberg commented. \"There is so much competition for bottle service noweveryone has copied our model.\" Renovating the 01d space to place the D] in the center of the action and to update the technology and overall look had cost nearly $3.5 million (one especially expensive change wasliterallyraising the roof), but a focus on star DIS would have high ongoing expenses, too. "Well-known Dls make up to $400,000 a night,\" said Tepperberg, which was a sizeable sum also given Marquee's capacity. But he believed in the new model: "If you are open three nights a week, or 150 nights a year, it is difcult to make each night special. D]s are a way to program a venue. The idea is to open when we have content." Strauss reected on the task in front of them: \"Being in the hospitality industry is about doing good work. We know how to manage the operations side. The challenge is to remain relevant.\" Would Strauss and Tepperberg' 5 investment in the oldestand now newestMarquee pay off? The Nightlife Industry New York City By some estimates, there were more than a thousand nightlife establishments in the ve boroughs of New York City, of which 80% were located in Manhattan. The city' s nightlife industry collected well over a billion dollars in direct revenues, many more in economic activity, and a hundred thousand jobs. Nightlife venues were thought to generate more than 65 million admissionsmore than three times the attendance of all New York City's sports teams combined. An average bar or lounge could expect around 60,000 admissions annually, while the figure stood at 180,000 for clubs and music venues.2 While the industry as a whole was booming, most nightclubs struggled to recoup their initial investment in equipment, furniture, xtures, and licenses, as well as to reach sales levels that covered ongoing rent, personnel, marketing, alcohol, and other expenses. In fact, although no hard numbers existed, the typical lifespan of nightclubs in Manhattan was thought to be about 18 months.3 Of the top ten grossing New York City clubs in March 2010,4 fourLotus, Pressure, Home, and Plumm had closed their doors by 2012. Other Markets in the US and Abroad The lion's share of top~grossing clubs in the United States were located outside New York City~ especially in Las Vegas and, to a lesser extent, Miami Beach (see Exhibit 1). A number of nightlife groups had multiple properties across the country. TAO Group was one of the largest nightlife conglomerates in the world, with over 15 properties in New York City (including TAO, Avenue, LAVO, The Stanton Social, Rue 57, Avra, Beauty and Essex, Marquee, Dream Downtown and Arlington Club), Las Vegas (TAO, TAO Beach, LAVO, and Marquee day 8: night club), and Sydney (Marquee night club). Other large nightlife groups included the Los Angeles based SBE Nightlife Group, which managed a portfolio of hotels, restaurants, and nightlife establishments in Los Angeles, Miami, and Houston, and had announced plans to expand to New York City. Light Group, based in Las Vegas and majority owned by the Morgans Hotel Group, managed and operated fourteen properties in Las Vegas (including the nightclubs 1 Oak at the Mirage Hotel, Haze at Aria Hotel, and The Bank at the Bellagio Hotel) and three in Miami. Internationally, the nightlife scene was diverse. Ibiza, a Spanish island, was a mecca for clubgoers. Local club Pacha had been one of the most in-demand venues since the 19705. Benefiting from the growing popularity of electronic dance music, the 3,000~capacity club was estimated to gross between $15 million and $25 million annually.5 Leveraging its brand name, Pacha had licensed rights to franchisees, leading to Pacha~branded clubs in close to a dozen international markets, including Moscow, London, and New York City. In London, another city known for its nightlife, private clubs that required annual member fees of typically anywhere between $750 and $4,000 had long been common. Those clubs started off catering to different interest groups as places for social and work meetings but, over time, expanded their offerings by providing sports facilities, restaurants, and clubs. The Arts Club in London's Mayfair district was one example. Founded in 1863 and relaunched in 2011, the club served as a gathering spot for members interested in the arts and sciences. In addition to numerous dining and lounge areas, the space featured a nightclub - Club Nouveau that was run by celebrity DJ Mark Ronson. The 'Old' Marquee New York City'- Jason Strauss, 38, and Noah Tepperberg, 37, began their fascination with the nightlife business while both were in high school in New York City. "I feel like we had a head start on other people in the industry. Jason and I started as promoters when we were 15 years old,\" said Tepperberg. The native New Yorkers went to different collegesStrauss went to Boston University and Tepperberg to the University of Miamibut formed a partnership upon their return to New York City in 1997 to pursue their business fulltime. \"That summer after we graduated, before we knew it, we were working four nights a week in New York City, organizing interesting events, filling up clubs, and building our database. We were establishing a brand that represented a certain crowd, a certain experience.\" Launching Marquee New York City Strauss and Tepperberg had already built up impressive resumes in the hospitality industry by the time they, in 2003, set out to convert an old, 5,000squarefoot Manhattan garage building into the nightclub that would become Marquee. \"When we started, it wasn't much of a neighborhood just a lot of warehouses and subsidized housing projects across the street. But we thought that we would be strong enough to create a destination, and we saw the vision of the room, so we took out a lease on an old, broken-down garbage truck garage that had no plumbing, no electricity, and a roof that was partially open with pigeons and leaks going through it like you wouldn't believe,\" said Strauss. The impresarios undertook an extensive construction and remodeling effort. They developed three separate spaces inside the property (see Exhibit 2 for selected impressions): o A 2,500~squarefoot 'cabaret' space that featured 15foot ceilings, an elevated D] platform, a dance oor, and banquet and high~top seating, with a total capacity of 300~350 people. a A 1,500-squarefoot 'private' space lofted on top of the \"cabaret" space with a birdseye view of the sprawling facility, along with a 25foot bar, couch, ottoman and banquet seating, and a separate D] booth and sound system, with a capacity of 100 to 150 people. a A 800squarefoot 'lounge' space that featured banquet seating for large groups, a separate bar, ambient lights, and limited access for private parties, with a capacity of 50 to 100 people. \"New entries into the nightlife market are usually re~vamped spaces with new finishings and new names,\" said Tepperberg. \"This building was a 'raw' space that we could transform however we wanted. So we built it in a strategic way. We felt we knew what a clubgoer wants, because we had so much experience going to clubs ourselves. We knew how much bar space we wanted, how big the dance oor needed to be, where we had to have a coat check, where the bathroom needed to be all the details that matter.\" Strauss and Tepperberg contributed a total of $200,000 and found investors who paid around $2 million in return for a 20% stake in the venture to fund the $2.2 million start-up costs. Tepperberg (29.75%), Strauss (29.75%), their legal advisor Ronald Fishman (3%), and a group of advisors and partners together owned the remaining 80% of the business, which was organized as a limited liability company. As managers, Tepperberg and Strauss both received an initial annual salary of $150,000. Those with an ownership stake also received a share of the net cash ow in proportion to their percentage interests. Running Marquee New York City Marquee quickly became a magnet for clubgoersand notoriously difficult to get into, with a crowd of cars and people often blocking several lanes of traffic and a line of hopefuls usually stretching around the block: \"Only the fashionable, famous, or financially secure need apply,\" observed one insider.7 Over the next few years, Marquee's neighborhood would see an inux of new and revamped clubsso much so that it became known as 'club row,' described as a \"onestop party shop\" and \"an amusement park for adults.\"3 \"A whole neighborhood has erupted,\" said Strauss in 2008. \"Everything from restaurants to galleries to a dozen other nightclubs trying to feed off of the energy that we brought to the area.\" Customers By then, Tepperberg and Strauss had Marquee's operations down to a science. Each night, two managers, a doorman, six bartenders, six cocktail waitresses, thirteen other staffers, and twelve security people served Marquee's customers. The club admitted up to 1,200 people during a busy night. Of these, 400 so-called 'bottle customers'~socialites, bankers, models, celebrities, and other jetsetterswould pay handsomely for the right to sit at any of the 36 tables. They were asked to purchase at least two or three bottles of top~shelf liquor, with prices ranging from $350 for a bottle of Absolut Vodka (which retaed for $25 at a local liquor store) to $900 for Cristal champagne. (For that price, customers got to mix their own drinks, as juice, tonic, and an ice bucket were included). Occasionally, customers paid $10,000 for a special bottle of Dom Perignon Vintage Methusalemf" From each table of bottle customers alone, Marquee generated upwards of $1,500 in revenue on a typical Saturday night. In fact, bottle customers usually accounted for approximately 40% of any given nigth customers yet represented 80% of the revenue. Bottle customers came in all sizes and shapes. Celebrities and models made up one subcategory, although clubs often waived fees for Alist stars. Professionals formed another segment. Some were young men who had come into money for the first time and started to 'live large,' perhaps spending $5,000 or more in one night. Others were the veterans, the more loyal customers who purchased two bottles on a weekly or monthly basis. The average 'life' of a bottle customer was about six months, noted VIP services manager and partner Andrew Goldberg: \"There might only be 150 or 200 consistently great customers out there.\" A third group were socialites with a taste for the fashionable and plenty of money to spend. Many lived on Manhattan's Upper East Side, one of the wealthiest areas in the United States known for its elite schools, world-class museums, expensive restaurants and boutiques, and proximity to Central Park. The remaining customersthe 'filler crowd'paid a $20 cover charge to gain entrance, ordered their drinks from the bar, danced on the main floor, and moved around the establishment' 5 different rooms, perhaps hoping to run into a celebrity. \"The filler crowd creates the energy,\" said Strauss. On a good night, scores of people were turned away. Marquee's main doorman, Wass Stevens, known among clubgoers as 'the most powerful doorman in the universe,' explained it as follows: "The key to having a successful run of a nightclub is having a good mix of people and styles, people who have money, people who are from different parts of the world. The key... is to make it like a salad. A salad with too many mushrooms isn't very tasty, a salad with too much lettuce is just lettuce; it' s a nice big mix of all the elements that makes a delicious salad. So we're talking about some of the gay crowd, some of the Upper East Side crowd, some of the trendy crowd, a very heavy sprinkling of the model crowd, just so that there's not too much of one thing. That can be very boring. My goal is to make it a mixed salad every night of the week.\" Promoters Marquee worked with so~called 'promoters' to guarantee a steady flow of the right bottle-service and filler customers. \"They hold the crowd, create the energy, and give the place a certain look,\" said Tepperberg. \"They are the hosts.\" Each promoter had his or her own approach to finding desirable patrons for Marquee and cultivating relationships with them. Some drew heavily on their own network of friends or acquaintances. For instance, several promoters were former or current fashion models who knew many other models. Promoters often coordinated their activities using social media and event sites. One of Marquee's most successful promoters was Jonathan Schwartz, 29, who had started promoting after graduating college. Since then, he had built up experience with several clubs in New York City and gradually came to work 'in house' for Marquee. He helped Tepperberg promote Strategic Group's 2008 New Year's Eve party in Miami; Schwartz sold close to 500 of the 1,800 available tickets. He joined the company as a full-time promoter shortly afterwards, working exclusively for Marquee and Strategic Group's other properties. \"Longterm friendships form the core of my network,\" Schwartz said in 2008. \"I know a lot of people from high school. And now that most of my friends have started to work full-time, I get more corporate clients as well. My referral rate is very high.\" Schwartz was constantly on the lookout for new contacts: \"When I am going out early in the week, on a Monday or a Tuesday, I know I am going to run into many people who are serious about going out. Those are the people I like to invite to Marquee.\" He added: \"I like to book events in advance, to get commitments on the calendar, and I use my network to let it snowball from there. On the day itself, people text me to ask what is happening, and I text them to come out.\" Each night the promoters worked for Marquee, they would inform the doorman of which guests were expected; the doorman would then make sure those patrons were given priority. Promoters like Schwartz often spent the early part of the evening outside near the doorman, waiting for their guests to arrive and making sure they had easy entrance into the club. 0f the available tables at Marquee, around 30% were usually reserved for promoters. Promoters also brought in approximately 10% to 20% of the filler crowd. \"When we opened, we had 10 promoters. And then every few months, as other clubs would open and as we got older, we would hire more promoters. We are now up to 10 to 12 promoters a night, so maybe 50 in total,\" Tepperberg remarked in 2008. \"Some of our current promoters probably couldn't get into the club four years ago. Many started as our customersthey used to have to pay for their drinks.\" The average promoter worked three nights a week and, in return for their efforts, earned several hundred dollars a night. But the most successful promoters could make a lot more. \"Here in New York City, promoters usually start at a low rate, but as their crowd develops, and as they start to bring in more and more people, other clubs offer them higher salaries, or higher commissions,\" said Tepperberg. \"They then come to us, saying 'hey, you need to pay me more if you want me to stay.' We make an effort to develop our own promoters, but as they get more successful, it ends up costing the club more money.\" Laughing, he added: \"We create monsters.\" Marquee New York City's Temporary Closing By the time Marquee New York City closed for renovations towards the end of the summer of 2012, its run had been a tremendous success by all measures. Strauss commented: \"Nine years is almost unheard of in New York City nightlife. We've had iconic events, top celebrities, and great press, and we think we've made a signicant contribution to the nightlife culture. Marquee really was the staple. If we were open ve nights a week, people were going out ve nights a week.\" In its last year, Marquee opened only on Fridays and Saturdays. Although the club continued to have a robust special-events business during weeknights, its profits had dwindled (see Exhibit 3 for the club's financial performance). \"If you run a nightclub, you know that the longer you are open, the higher your costs will be,\" said Tepperberg. \"The rent goes up every year, and payroll and promotional fees are going up even faster.\" The nancial crisis that peaked in 2008 put severe pressure on the bottle-service model more generally: In 2007, twelve clubs and lounges neighbored Marquee on 27th street corridor between 10th Avenue and 11th Avenue; by late 2012, as Tepperberg noted, \"only two venues remained within a 10~block radius.\" In addition, TAO Group's newer clubs Avenue, LAVO, and PH~D had overtaken Marquee in the buzz they generated among clubgoers. And so Strauss and Tepperberg decided to temporary close Marquee, extend the lease on the building (which originally was scheduled to expire in 2018) to 2025, and started to renovate the club. If they were looking for new ideas, they did not have to look very far. Marquee Las Vegas Launching Marquee Las Vegas Located in the new $4~billion Cosmopolitan Hotel, the 62,000square-feet Marquee Las Vegas with a capacity of 3,000 people opened in December 2010. Initiated by developer Bruce Eichner, Deutsche Bank took over the development of complex in 2008 when Eichner defaulted on his $768 million construction loan.10 It was also Deutsche Bank that played a decisive role in carving out space for a nightclub in the hoteland in selecting TAO Group to run the club. \"The bank met with a number of operators, but chose us,\" recalled Strauss. \"I think it was because we had been in the market for six years, and we knew every concierge on the strip.\" Because the Cosmopolitan Hotel was a new development, Marquee Las Vegas could, according to Strauss, \"be built entirely with the clubbing experience in mind.\" Working with a $50~million budget, the architect David Rockwell designed a venue that instantly became the largest nightclub in Las Vegas. A departure from the New York Citybased Marquee, Marquee Las Vegas embraced electronic dance music and from the start planned to feature a highprole D] spinning that music every night. \"The world's largest bank took a gamble on a sevenyear old brand, Marquee, and we as operators gambled on a new model,\" said Strauss. \"We already had two clubs in Vegas, and didn't want to compete with ourselves.\" The impresarios had noticed that nightlife mainstays like Paris Hilton and Kim Kardashian had become less effective at drawing bottle customers and ller crowds, and they were early believers in the growth of the electronic dance music genre. \"They were recognizing something that no one else in Vegas was recognizing yet,\" said Pasquale Rotella, founder and chief executive ofcer of Insomniac, who each year hosted the Electric Daisy Carnival, an international electronic dance music festival, along with several other events. The Cosmopolitan shelled out $3 million for a topnotch ghting and sound system, a 40by40 foot LED screen behind the DJ booth, and equipment for cryogen effects such as smoke and mist. The venue had seven bars in three rooms: a 30,000-squarefoot 'main room' with 58 tables, an intimate, lounge-style 'library' overlooking the main room, which was home to a fireplace, billiards table, vintage books and ten tables, and a 'boom box' room on the club's lower level with a separate DJ booth, twelve tables, and views of the Las Vegas Strip (see Exhibit 4). \"The main room is designed to give it a festival feel, in a coliseum~like setting, with sight lines to the DJ boo ,\" explained Strauss. \"We created a throne for our DJsin a way, we said, 'Let's give Kaskade a Maybach to drive.\" Ryan Raddon, better known as Kaskade and described by industry magazine DI Mag as being \"among the vanguard of electronic musicians,\"11 acknowledged the impresarios had done just that. \"Right now it' s the premier club in North America,\" he said. " It's the best thing we have in this country. Their sound and lights are amazing. And the way the room is designed, with that tiered halfdome around the D] booth, it' s really cool, because the most diehard core fans are right in front of me. That's where the energy is, and that' s where it should be.\" Marquee's dayclub, an expansive outdoor space adjacent to the main room, featured eight cabanas with infinity pools and ten three-story bungalow lofts with living quarters and openair party decks. During nights, it gave patrons an easy opportunity to catch a breath of fresh air without having to leave the partyor join one of the 48 tables set up outside. During the day on weekends, the dayclub often hosted top DJs playing to thousands of revelers. At those times it featured 66 tables (with two chaise lounges counting as one table), and had a capacity of 2,000 people. Taking into account the typical flow of clubgoers coming and going, Marquee's dayclub accommodated up to 3,500 partygoers during a single day. Counting both the inside and outside spaces, Marquee's nightclub had a total capacity of 3,500 people, and could see between 4,700 and 5,500 clubgoers during a night. Looking back on the launch, Tepperberg said: \"There wasn't a club in Vegas that had featured well-known electronic DIS every night. Everyone told us we were crazy to try. But within a month, a major competitor had switched to headlining electronic DJs every Friday and Saturday, too. The market exploded now, Vegas is all about the DIS.\" The Rise of the Superstar DI Electronic dance musicdescribed by one journalist as \"high~energy waves of mechanized sound that, at its best, creates a communal experience for a sea of strangers\"12-emerged years ago in Ibiza (which remained the bastion of the genre), conquered most of Europe next, and was taking over the US since the early 2010s. \"People are ready to hear something new,\" said Kaskade. \"We had rock 'n roll, then hiphop came along. Electronic dance music is the next wave.\" The hottest DJs had seen their fortunes rise sharply in recent years: they had begun to play stages and stadiums once reserved for only the most successful rock, pop, and hiphop musicians. In 2012, Kaskade sold out a concert at Los Angeles' Staples Centera feat that was previously unheard of for a DJ in North America. Top spinners like Armin van Buuren, Ti'sto, Avicii, David Guetta, and Deadmau5 (see Exhibit 5 for a list of the world's top DJs) could earn well over $1 million for a festival appearance, and as much as $10 million for a high-profile Las-Vegas nightclub 'residency' that required them to commit typically between eight and twelve performances in a given year.\" By some estimates, the world's ten highestpaid DJs collectively earned $125 million annually in the 2011-2012 seasonmore than the Los Angeles Lakers' payroll. Dutch DJ Tiesto topped the list with reported earnings of $22 million, and an average nightly gross of $250,000.14 Top DJs closely watched their rankings. \"Every year there is a new guy who makes it onto the scene and onto the list,\" Kaskade said in 2012, adding: \"Last year it was Skrillex. And the year before that it was DeadmauS. This year Avicii will get a high spot.\" D]s also often worked hard to establish a presence in social media, as Lou Abin also noted: \"DJs have a vested interest in people showing up, so they have incentives to market events.\" Clubs booked DJs through talent agents and managers. Those representing DJs with clout often drove a hard bargain in their negotiations with nightlife impresarios. \"For actresses and rappers, appearances in clubs are just a side thing. But for D]s, this is what they dothis is how they make their money,\" explained Tepperberg. Strauss added: \"They put their music online for free, and hope to make money playing clubs. That is their model.\" Club owners faced a difcult challenge, explained Rotella: \"Everyone wants certain guys, and lots of people are now trying to jump into the business of hosting events. That is driving up the fees.\" Some D]s went so far as to demand a share of ticket sales or bar revenues. Strauss, based in Las Vegas, experienced those dynamics rst hand. \"Stupid operators spend stupid money,\" he said. \"For some, it is just about market share. They ruin the market for us.\" Rotella remarked: \"Some clubs are booking every big name, and when they don't have a big name the place is dead, it is empty. You can't ever be at the mercy of the acts. You have to own the experience.\" Not all DJS made high fees their rst priority. For instance, Kaskade said: \"If the room isn't conducive to my performances, I will not do the deal, regardless of the money involved.\" \"It's important to have the right D] booth and the right sound system,\" agreed Ash Pournouri, Avicii's manager and the producer of his shows. \"But when we are looking for venues to play, we want the whole package. The marketing that the venue puts behind the show is important, too, and that ties directly to the type of crowd that ends up coming to the show.\" Kaskade added: \"Promoters that really sit down and listen to what I want to achieve on the night, and executing that to perfection- those are the partners I like to work with over and over again.\" Marquee Las Vegas by 2013 In 2011, its first full year, Marquee Las Vegas became the highest~grossing club in North America, with an estimated $80 million in revenues.15 One year later, it tied for the top spot with XS, another Vegasbased club, with revenues estimated to be between $80 and $90 million (see Exhibit 1).16 Nightclub 6' Bar, which published the prestigious ranking, wrote: \"Marquee, the megaclub in The Cosmopolitan, continued to draw tremendous crowds and feature topnotch entertainment/'17 D] Mag, which let the public vote on top clubs on a global scale, ranked Marquee in eleventh place for the year 2012, behind Green Valley in Brazil, and Space and Pacha in Ibiza, but as the highest ranked North American club (XS came in 45th place) (see Exhibit 6 .13 In its rst years, Marquee Las Vegas often featured the biggest stars to headline its events. Strauss and Tepperberg convinced Kaskade to sign on to a year~long residency that required him to commit to a dozen performances in Marquee's first twelve months. But the club also featured several talented upand-corning DJs. (Exhibit 7 provides a snapshot of the club's line-up, and Exhibit 8 of Kaskade's schedule, both for sample months in 2012.) TAO Group had centralized the booking of Dls, enabling the company to offer multiple engagements for a DJ across its venues in New York City and Las Vegas. It had also created an in- house ticketing system to help the venues take advantage of the strong demand for star D]s. \"If we book Tie'sto, thousands of customers will want to buy a ticket in advance,\" said Tepperberg, adding: \"Some DIS bring bottle service customers, some bring in ticket buyers, and some do both.\" Marquee Las Vegas pre-sold close to $4 million in tickets in 2012 alone, compared with roughly $6 million in cover charges generated at the door that same year. "In the past, at Marquee New York City, we used to only sell tickets for New Year's Eve," said Strauss. "Now it is an important part of our business when we have top DJs. But we don't sell all our tickets in advance. We might only sell 250 tickets, and do the rest at the door at a higher price point. We want to manage the crowd." Balancing the ratio of men to women was an important goal; generating the right amount of bar and table sales was another (see Exhibit 9 for typical metrics). With the increased focus on star DJs and ticket sales, social media gained in relevance, too. TAO Group employees relied on Facebook, Twitter, and other social media to send out announcements about upcoming events at Marquee, direct customers to where tickets could be bought, and post pictures and videos of past events at the dayclub and nightclub. In early 2013, Marquee Las Vegas had 135,000 Facebook fans and 70,000 Twitter followers. Marquee's success spawned copycats. Some competitors showed an even greater appetite for programming their nights around top DJs. XS, the highest-grossing nightclub in 2010 but falling behind Marquee in 2011, made big bets on star DJs in 2012 to reclaim its top spot. It named 36 DJs as residents. "Last year was a colossal year for XS on several accounts, from the assembly of incredible electronic dance music residencies, to the number of guests that poured in for holiday weekends, and of course the overall revenue from the success of these events," said Jesse Waits, managing partner of XS and Tryst, about 2012. Dubbed "the Yankees of nightlife" by Rolling Stone, XS added even more star power to its line-up for 2013, announcing a residency list of 40 DJs, including Avicii, David Guetta, Above & Beyond, Knife Party, Afrojack, Porter Robinson, and even pop star will.i.am. 19 Strauss and Tepperberg's Nightlife Empire By 2013, Strauss and Tepperberg were among the most highly regarded nightlife impresarios in the world. They managed a portfolio of eight clubs. Some they owned; in others they were managing partners with a revenue, profit, or equity interest (see Exhibit 10). To oversee day-to-day operations, Strauss had taken up residence in Las Vegas; Tepperberg stayed in New York City. Las Vegas In Las Vegas, Strauss, Tepperberg and their partners managed two clubs next to Marquee: TAO and LAVO. TAO Launched in September 2005, TAO was an ambitious 40,000-square-foot complex located in the Venetian Resort Hotel Casino that combined a restaurant and a nightclub. TAO boasted a 40- foot-long outside terrace with views of the Las Vegas Strip, go-go dancers, advanced audio and lighting systems, and two main rooms. The club was decorated with lush velvets and silks, waterfalls, century-old woods, stones, and even a hand-carved 20-foot-tall signature Buddha that floated' peacefully above an infinity pool complete with Japanese koi. Resting atop the TAO Las Vegas nightclub and restaurant was TAO Beach, a beach club catering to the jet set that offered a pool light show, floating Chinese lanterns, four 14-foot-tall fire columns, day beds, and seven $1,000- minimum poolside cabanas, each with its own HD plasma-screen television, video-game console, chilled luxury terry-cloth towels, and other amenities. In 2006, its first full year, TAO generated over $55 million in business, making it the highest- grossing independent restaurant in the United States-it hauled in $16 million more than its closestcompetitor, Tavern on the Green in New York. The chief operating officer of that establishment marveled at TAO Las Vegas's statistics: noting that it served 600,000 meals, its average dinner check was $70, and 50% of its revenues came from alcohol, he said, \"It' s really a nightclub with the food to complement the club.\" By 2013, its annual revenues were thought to be as high as $70 million. LAVO Three years after TAO's opening, TAO Group launched LAVO. The 20,000-squarefoot restaurant, nightclub, and lounge, located inside the Palazzo Resort and Casino, featured 40 bottle- service tables and a more intimate setting than TAO. The club had a capacity of 800 guests and was decorated in a Mediterranean style reminiscent of the baths of ancient Rome~with tile walls, plaster, water features, high wooden ceilings, and lowhanging chandeliers. It was open from Tuesday to Sunday. The restaurant, open every day, revolved around Italian cuisine. LAVO's terrace, also overlooked the Strip. LAVO's opening coincided with a global economic downturnStrauss noted that throughout 2009, \"Hotels were at 30% occupancy, and many ights to Vegas were canceled\" but the club managed to weather the storm, and by 2013 was estimated to bring in revenues of around $30 million 20 New York City In New York City, the entrepreneurs ran three clubs besides Marquee: Avenue, LAVO, and PH-D. Although each of the four venues had a unique look and feel, finding the right balance in their portfolio was not easy. \"One of the challenges has been growing the business without competing with ourselves,\" observed Tepperberg.\" If one club has a big D], another club won't be as busy.\" The impresarios often relied on a distinct positioning of nights to further differentiate their clubs, by dening target audiences (a 'hipster' night, for instance) or by focusing on a certain type of music. \"Catering to our diverse customer base is important to us,\" said Goldberg. \"We want to give our guests a unique experience at each of our venues every night.\" Avenue Located ten blocks south of Marquee in Manhattan's Chelsea neighborhood, Avenue opened in the spring of 2009. Tepperberg and Strauss raised $2.5 million to renovate a space that was previously home to a restaurant. The venue, designed to be what Tepperberg described as a \"gastro lounge,\" was a 3,100squarefoot space with a full kitchen, a combined 26 tables spread out over two floors, and a capacity for 300 people. The main room resembled a luxurious living room with vaulted ceilings and worn leather banquets and ottomans, while a glass enclosed upstairs space had a similar feel and featured its own DJ booth and sound system \"It's not a typical club, and it's not a typical bar that serves food,\" clarified Tepperberg. \"It's a mix.\" Avenue was open from Monday through Saturday. LAVO Inspired by the club by the same name in Las Vegas, LAVO New York City opened in Midtown Manhattan in September 2010. The venue featured an Italian bistro upstairs and nightclub downstairs. The restaurant, a space of 6,000 square feet with room for 200 guests, had a D] booth to keep diners engaged until its 3 AM closing time on a typical weekend night. On Saturdays between 2 and 6 PM, LAVO hosted clublike 'brunch parties' in its restaurant; these were among the venue's most popular events. The 4,600~squarefoot club in the venue's basement had a capacity of 500 people, 25 tables, and was open on Thursday, Friday, and Saturday. No expense was spared to make LAVO a state~of~the~ art club. "When we were building our DJ stage, which is elevated above the dance oor,\" recalled Strauss, \"we knew that we wanted Rony Seikaly to be a regular D]. But Rony is 6 feet 9 inches tall and he would have to duck when he's spinning. So we built a trapdoor in the D] stage oor, just for him. It drops down 3 feet so he'll be comfortable.\"21 By 2013, many of the world's most recognizable DJs had spun at LAVO. It had become a destination for special events, such as star D] Tiesto's birthday party, D] Magazine's celebration of Armin Van Buuren as the world's top D], and the official Victoria's Secret Fashion Show after-party. PH-D Rooftop Lounge Occupying the penthouse oor of the Dream Downtown Hotel, PH~D opened in June 2011. Under a management deal between TAO Group and hotel owner Sant Chatwal, TAO Group operated the twelfthoor lounge as well as the hotel's main restaurant, Marble Lane, located on the ground oor, and the three other food and beverage outlets at the hotel. Lined with glass walls and featuring an outdoor patio with skyline views of the city, the 2,900~square~foot PH~D had a capacity of 400 guests, 26 tables set up for bottle service customers, and two large bars near its elevator entrance. \"Our number one goal is to act as an amenity for the hotel guests,\" said Tepperberg. \"With PH-D we have the luxury of a built~in customer base given its location within the Dream Downtown Hotel and, therefore, don't have to solely rely on outside traffic." Sydney Marquee In March 2012, TAO Group opened a third Marquee in The Star, Australia's second largest casino situated on the waterfront in Sydney Harbor. The opening of the 20,000squarefoot club with a capacity of close to 1,500 guests was a part of a $870~million redevelopment of the complex. TAO Group was brought in to run the venue under a management deal with Echo Entertainment, based in Australia. Like its counterparts in New York City and Las Vegas, Marquee Sydney's 'main' room featured a DJ booth, projection stage, and a large dance oor. The 'boom box' room offered a separate DJ booth and sound system. A third 'library' room provided a more intimate lounge experience, complete with a working replace. And a 'chillout' area gave guests impressive views of the Sydney skyline. \"Australia is not used to bottle service,\" said Tepperberg. \"So we have to educate the market on what it is, and why it is worth paying for. That has been a challenge, but we are off to an excellent start.\" The 'New' Marquee New York City Their successes enabled Strauss and Tepperberg to pursue a new goal: to bring the model of focusing on electronic dance music and star DJS to Marquee New York City. A venue that once was all about selling high~priced alcohol delivered to table customers seated at hot spots could, they thought, be converted into one that was at least as much about selling tickets to heavily marketed events featuring Alist and upand-coming DIS. \"The market has changed,\" observed Tepperberg. \"People want more for their money, they want a show, a real productionthey don't just want to look at each other, or look at the pretty people. They care about who is playing, and they care about the quality of the light show and sound system. We saw what worked in Las Vegas, and now want to bring that to New York City.\" He added: \"The old model is about letting ten groups in for free, so fifty will pay. But almost all of our competitors have copied that bottle service model. So we think it makes sense to move from our club being promoter~driven to it being DJ driven, and to focus on giving our customers an experience.\" Renovating the Space The entrepreneurs set out to substantially renovate the space. They kept the familiar structure of three rooms: a main room, a 'library' room upstairs (formerly the 'private' room), and the 'boom box' room on the ground level (formerly the 'lounge' room). But virtually everything else was changed. The D] booth was placed centrally on a platform in the main room (instead of being tucked away on the side), and a floor~to~ceiling programmable LED wall was installed behind it. Table seating was designed to be easily removable so the main room could be transformed into an open dance floor. The roof was raisedan expensive undertaking in and of itself~to improve sight lines and give the club more of a stadium feel. Elevated areas were introduced in the library for the same reason, the wall separating it from the main room was opened up, and the stairs to the upstairs area (a defining feature of the old Marquee) were moved to the side. A stateof-theart lighting and sound system was installed, and the interior was given a more modern, sophisticated look. The resulting space (see Exhibit 11 for impressions) had a capacity of close to 600 guests, and could accommodate around 1,000 guests throughout the night \"on flow,\" as Tepperberg put it. Depending on the configuration, the club could seat people on as few as 20 or as many as 36 tables. Outside, also speaking to the renewed focus on content, the impresarios installed a customizable board that displayed the names of the DJs playing that night (much like oldschool cinemas displayed movie titles). The entire renovation, completed just days before the reopening on January 16, cost nearly $3.5 million. How to Make the Investment Pay 015'? The entrepreneurs knew that relying on high-profile DJs would have high ongoing expenses, too. Djs, Tepperberg noted, \"cost anywhere from $10,000 to $400,000 a night.\" Marquee would be the rst large club focused on electronic dance music to open in New York City in years; Pacha, which also focused on the genre and had a capacity crowd of over 2,000 people, was seven years old. But competition for the most soughtafter DJs was intense. There were strong rumors of other new electronic~dance~music clubs opening in Manhattan that would be vying for the services of star DJs. And demand in Las Vegas was growing, too: Hakkasan Las Vegas, an 80,000-squarefoot megaclub developed for a reported cost of $100 million, was set to open in April. It had already signed up Tiesto for a residency.22 \"I'm sure that Marquee's competitors in this space are a little scared right now,\" said Kaskade about Marquee's new role in the market for DJs like him. \"How many millions of people have already had an amazing night at Marquee? Those people will seek out the brand again.\" In their projections, Strauss and Tepperberg assumed their new club would bring in $16 million in gross revenues and have close to $13 million in various costs in 2013, leading to a projected profit of just over $3 million (see Exhibit 12) They estimated their expenditures on DIs to be twice as high as those on promoters, a distinct difference with the 'old' Marquee New York City. Cover and ticket prices were likely to vary significantly from night to night, according to Tepperberg: \"It will depend on what night of the week it is, and on who the talent is.\" Tepperberg noted that the club was not necessarily tied to electronic dance music. \"In our new venues, we can do other things, too: a performance by a hip-hop star, a celebrity night, or a Cirque- duSoleiltype show,\" he said. \"DJs, live music, performance artwe can accommodate all those different types of content.\" That ability fit the market, argued Lou Abin: \"What's unique about New York City is that you can really diversify your product based on the variety of the people who live and visit there.\" Strauss, always concerned with, as he described it, \"being on the cusp of new trends,\" pointed out another advantage of Marquee's new direction: \"Unlike big concert venues, nightclubs are optimized to monetize on customers from the moment they walk in the door.\" Would the impresarios' big new bet in New York City pay off? And how could they best execute their DJ-driven model, managing costs while at the same time generating the revenues needed to recoup their investment