The encyclopedia · Legal & Compliance · Legal decision · 1977–1980
Studio 54 earned $7M in its first year — its owners went to prison and lost it
The world's most famous nightclub opened in April 1977; in January 1980 founders Steve Rubell and Ian Schrager were jailed for tax evasion, and the club closed.
Studio 54 · 1980-01
What happened
Studio 54 opened on 26 April 1977 in Manhattan, founded by Steve Rubell and Ian Schrager, and within months became the most famous nightclub on earth — 2,000 guests a night behind the most selective door in New York, and $7 million taken in the first year. In November 1977 Rubell boasted that 'only the Mafia made more money.'
The takings never reached the taxman. Roughly $2.5 million — about 60 percent of receipts over two years — was skimmed, and a tip from a disgruntled ex-employee brought the IRS raiding in December 1978. On 18 January 1980 Rubell and Schrager were each sentenced to three and a half years in prison and fined $20,000.
The club lost its liquor licence on 29 February 1980 and shut at the end of March. Mark Fleischman bought it for $5 million and reopened the room in September 1981, but Studio 54 as its founders made it had ended in a courtroom.
Why it happened
- About 60 percent of receipts were skimmed for two years: the club's own success made the evasion large enough to matter.
- A single tip from a disgruntled ex-employee brought the IRS; the secrecy was as fragile as the door policy was strict.
- With the founders in prison and the licence gone, no brand loyalty could keep the room open.
The lesson
Studio 54 earned $7M in its first year and skimmed 60% of its receipts for two — until one ex-employee's tip reached the IRS; the founders went to prison and the club shut within months.
Aftermath
Fleischman's reopened club ran until April 1986; Rubell and Schrager later rebuilt their careers in the hotel business.
Sources
- Wikipedia — Studio 54 (opened 26 April 1977 by Steve Rubell and Ian Schrager with Jack Dushey; $7M in first year, 2,000 guests per night; Rubell November 1977: 'only the Mafia made more money'; ~$2.5M hidden, about 60% of receipts over two years; IRS raid December 1978 after tip from disgruntled ex-employee; Rubell and Schrager sentenced to 3.5 years each in January 1980; liquor licence lost 29 February 1980; closed end of March 1980; Mark Fleischman option for $5M, reopened 15 September 1981)
- The Washington Post, 19 January 1980 — Studio 54 Owners Get 3 1/2-Year Terms (sentenced 18 January 1980 by U.S. District Court Judge Robert Owen; Steve Rubell and Ian Schrager each 3.5 years and $20,000 fine for evading $366,000 in corporate taxes since 1977)
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