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Spitzer Sex Saga Offers MBA Case Study Lessons: Susan Antilla
2008-03-11 14:52 (New York)


Commentary by Susan Antilla
March 11 (Bloomberg) -- New York Governor Eliot Spitzer says
he's sorry for whatever he's done, which from the look of things
amounted to romps with pricey prostitutes from an outfit called
Emperors Club VIP. For students of business, the Spitzer scandal
opens a new window into the workings of an illegal industry.
As it turns out, prostitution has business principles,
human-resources challenges and marketing difficulties just like
every other line of work.
Take, for example, the transaction that no doubt will be
Spitzer's last with Emperors, whose four principals were arrested
last week. It was outlined in an affidavit by FBI Special Agent
Kenneth Hosey on March 5.
Spitzer, identified by the New York Times as ``Client 9'' in
Hosey's statement, was looking to purchase the services of
Emperors' ``Kristen'' for an evening just before Valentine's Day.
Management at Emperors had strict rules about payment -- major
credit cards, authorized bank cashier's checks and ``most foreign
currencies'' in advance. Add a 20 percent surcharge if you needed
Emperors to exchange your currency, according to Emperor's Web
page, which recently was shut down.
The New York governor tried to book his appointment with only
a $400 credit on his Emperors account, but Emperors wasn't buying
it. Sticking to its guiding principle (no money, no action)
Emperors kept the evening with Kristen on hold until Spitzer's
payment arrived on Feb. 13.
Not wanting to encounter payment issues next time around,
Spitzer gave Kristen an extra $1,700 as a deposit toward a future
transaction. (Her services that night went for $3,100). Emperors,
a class outfit, had no tolerance for delinquent payments.

Keep 'Em Honest

Along with a knack for keeping customers honest, Emperors
was a marketing whiz with a talent for knowing its customer. A
Web page for Emperors Publishing Media Group, which advertised
Emperors Club, boasted that 92 percent of Emperors Club VIP
International Members were ``CEO/Owner/Partners of a large''
company. Annual income of its tony clientele ranged from $1
million to $30 million a year, the Web page said.
And Emperors wasn't so foolish as to ignore the graying of
America: Its Web page said that 9.3 percent of members were
retired chief executive officers. Think of all the disposable
income from those stock options.
With such a monied clientele, it would be smart to push for
a little synergy. Seventy-seven percent of Emperors customers
owned or collected art, according to its Web page, so it was a
no-brainer to set up a division to buy and sell original art for
clients it described as ``millionaires and billionaires.''

Supply and Demand

Even good marketers can't control everything in the
marketplace, though, and Emperors did face its challenges. Among
conversations the FBI captured from phone calls, e-mail and text
messages was one which two principals concluded that there was no
point in advertising in Miami because of a tight supply of
prostitutes.
In a different conversation, the two bemoaned that the Los
Angeles market was sluggish because of too many girls, not enough
demand. It was Economics 101, right out of Adam Smith.
To keep customers happy, the company offered lots of
options. Customers who paid cash got a discount, much as you
might when you fill up the car at certain gas stations.
Two prostitutes for four hours came with a price tag of
$3,600 for cash, but $4,140 on the American Express card.
Taking a page from the auto industry, Emperors even offered
a ``buy or lease'' option. A customer who tried a prostitute and
liked her could pay a fee to buy her out, thereafter doing
business with her directly and avoiding the middleman.

Working Moms

Like every business, the world's oldest profession comes
with its human-resources problems. Management of Emperors Club
had to retrain prostitutes who didn't take proper imprints on
credit cards.
The company also faced all the issues that arise when
working moms are on the staff. In one recorded conversation, the
Feds learned that Emperors was annoyed that a prostitute left her
one-hour session after only 40 minutes, lamenting that she may
have darted out to pick up her kids at school.
With names like Raquel (``very clean..very fresh'') and
Sienna (``an educated, Italian enchantress''), Emperors'
employees were often the subject of hyperbole in the firm's
advertising. The prostitution ring included ``fashion models,
pageant winners and exquisite students, graduates and women of
successful careers'' from finance, art and the media, the online
ads said. The ``well-educated and accomplished'' escorts were
just what a ``leading gentleman of the world'' would expect.
Somehow, they didn't always sound like debutantes, though.
Kristen, who entertained Spitzer, told her boss that if Spitzer
had asked her to do something unsafe, ``I'd be like `Listen dude,
you really want the sex?'''
It was profitable, it was rich with marketing challenges
and it was a textbook example of human-resource issues. Can a
Harvard Business School case study be in Emperors' future?

(Susan Antilla is a columnist for Bloomberg News. The
opinions expressed are her own.)

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--Editors: James Greiff, Brenda Batten