Why Clubs Charge Cover Charges

This distinction rarely comes up, but the United States’ Prohibition against alcohol between 1920 and 1933 did not actually ban the consumption and possession of alcohol, but rather, the manufacture and sale of alcohol.

The wording of the now-repealed 18th Amendment to the United States Constitution made this clear:

“After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all the territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.”

In the early months of Prohibition, saloons would claim that they stockpiled beer from before Prohibition’s effective date, and then host events within the saloon that would charge customers for participating in the event and then provide “free” alcohol as a courtesy (these types of events came to be called “blind pigs” after a Pennsylvania saloon charged twenty-five cents to see a pig scurry about the saloon with no eyesight, all while providing free alcoholic drinks to customers during the spectacle). Throughout Prohibition, saloons would get their hands on illicitly manufactured alcohol and claim that it was manufactured before Prohibition went into effect, an argument whose legal effectiveness tended to track political bribes and donations to local politicians.

When Prohibition ended, the saloons were loath to give up a source of income, especially one that consisted of almost nothing but pure profits.

This practice continues in various forms to this day. For median data to smooth out the effects of Miami, New York, and parts of Southern California, the typical club charge is $16.34 with 364 customers paying the cover charge. That is essentially $6,000 that is close to pure profit coming in on a party night.

That comes close to paying the bar’s rent in a single night. The median rent for an establishment that sells alcohol in the United States in $7,300 per month. One night of cover charges almost knocks out the monthly cost of the property.

It amazes me how much fees, charges, and other indirect expenses have come to take on such an omnipresent role in the American economy. They exist largely to the extent that they become culturally accepted.

And all too often, once the original rationale for the fee ceases to exist, the fee remains. When fuel costs were $4 per gallon, legacy airlines began charging baggage fees to defray the cost. When the price of fuel fell by 70% in 2014-2015, the fees remained.

Cover charges existed as a way to charge for alcohol when the “sale” of alcohol was prohibited. But even when the sale of alcohol was once again legalized, the fee remained even as the alcohol itself had to be purchased as well.

For clubs, saloons, and bars that are able to pull off a cover charge without any deterioration in business, the effect is an immense competitive advantage. An extra $30,000 per month coming in, compared to competitors that have similar offerings but no cover charges, can be used to fund improvements, musical acts, and other offerings that may only require reinvestment of a small portion of those cover-charge related profits. When a portion of the “fee” economy becomes culturally accepted, it is almost always a pure profit source for the owners.