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STRATEGY

Things are Getting Ugly

Some company owners are really good at dancing on bars and sassing men. Others know how to expand and license their brand. It wasn't easy, but Lil Lovell, founder of the Coyote Ugly saloons, managed to master both.
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Liliana Lovell's Cabo San Lucas bar started out badly. Then it got worse. Back in 1993, Lovell, known as Lil, had founded the Coyote Ugly Saloon, a rowdy, honky-tonk dive in New York City's East Village. Seven years later her life as a barkeep changed drastically when Coyote Ugly, a movie set in a Hollywood version of her bar, was released. Seizing on the free publicity, Lovell ginned up plans to turn Coyote Ugly into an international chain.

She wasn't the only one with the idea, however. Shortly after the movie's release, Jorge Manterola, the brother of the well-known Mexican singer Patricia Manterola, set up a website claiming to be the "master franchise" for Coyote Ugly in Latin America.

"Just like you have seen in the movie," the website claimed, "there will be very preety [sic] and sensual women from all over the world serving drinks, dancing on the bar, and doing the most funniest and unimaginable things."

Lovell was not amused. The hard-drinking cowgirl brand that she'd spent years building was being hijacked. "People are taking my hard work, and it's frustrating," says Lovell, a petite woman who delivers tough talk in a smoky voice. "I put my time in and I paid my dues, and for people to steal things is weak of character." Her lawyers swung into action and by August 2001 she'd made a deal: She'd help Manterola open a huge Coyote Ugly in Cabo as long as he paid license royalties to her.

But Lovell's Baja problems didn't end. She could revoke the license if she wasn't paid, but she had little control over how the bar was run. It was bad enough for Lovell that Manterola wasn't paying all of the rent and taxes on a bar closely associated with her name. What was worse was what she heard from his employees. Manterola hired women from America to bartend with promises of housing and cabs to work, but they were e-mailing Lovell, who they'd met in Cabo, with claims that Manterola was neither paying them nor living up to his other promises (Manterola denies their claims). And Lovell could do nothing about it.

"I'm not willing to sit back and let someone else control my company."

Lovell's Cabo experience illustrates a dilemma faced by any small-business woman who wants to turn her first venture into something big. How do you expand and make money while still controlling your brand? In a short-term view, the answer seems simple: License willy-nilly, drive hard, and just go--which is exactly what Lovell did. This past September the ninth Coyote Ugly opened in Boston for Ugly Inc., Lovell's licensing company, which brought in $1.5 million in 2002 and is expected to make almost triple that this year. Together, the bars pull in between $22 million and $24 million annually and employ about 300 people. But after her experience in Cabo and after watching other licenses stray from the brand she defined, Lovell came to another conclusion: no more. Except for the 14 licenses she's already sold, she will protect her brand by keeping a controlling stake in all new Coyote Ugly Saloons. "If I license to too many people, it's going to lose its foundation. So I'm just going to stop," Lovell says. "I'm not willing to just sit back and let someone else control my company."

To understand Coyote Ugly, you have to understand a basic equation: Lil Lovell=Coyote Ugly. It was late 1992 and Lovell, then 24, had spent nearly three years managing the Village Idiot, a notorious New York City gin mill where owner Tom McNeil raced customers through pints of Guinness, chewed Pabst cans, and peed behind the jukebox. There, Lovell developed the style that became Coyote. "I'd get a few drinks in me and I'd jump on the bar and get the girls on it too," says the Westchester County, N.Y.-raised Lovell. When the Idiot starting receiving overdue tax notes, Lovell and one of her regulars, Tony Piccirillo, each gave Lovell's then-boyfriend $10,000 to buy up the stock of a foundering baseball card shop that would then be sold for a profit. Instead, the boyfriend leased a shuttered restaurant for $4,200 a month. Lovell and Piccirillo (now her husband) soon kicked him out and on January 27, 1993, Coyote Ugly was born.

Lovell's genius was to wrap the barfly fantasy in a tough-girl blanket. Her theory: Men would stay late and spend lavishly if the bartenders were smart enough to sass them and sexy enough to dance on the bar. "The whole concept is girls keeping patrons in the bar drinking," says Jacqui Squatriglia, the chain's choreographer and New York bar manager. "It's not about the prettiest girl. It's somebody with spark." It wasn't an entirely unique proposition--similar bars, like Hogs & Heifers Saloon in New York City's meatpacking district, were popping up--but it worked. Lovell and Squatriglia built a Thelma & Louise version of their lives. "Lil was pouring liquor down her body and off her toe. I was saying, 'I'll arm-wrestle you for a beer," Squatriglia recalls.

Drinkers flocked to the bourbon-and-beer joint--decorated with Harley-Davidson signs and castoff bras--to witness the coyotes (as the bartenders call themselves) insult patrons who ordered "froufrou" drinks, perform fire-breathing tricks, and shimmy atop the bar. It was a spontaneous, somewhat combative place, and it bred a fierce loyalty in its regulars and coyotes who fit the ethos.

Then in 1997, GQ published "The Muse of the Coyote Ugly Saloon," a celebratory tale by onetime coyote Elizabeth Gilbert. Soon Disney bought the rights and über producer Jerry Bruckheimer came calling. In 2000, audiences shelled out $61 million to see the PG-13 love story about a New Jersey girl who gains confidence working for a tough-but-fair woman named Lil at a dive where the bartenders wear hip-huggers, light the counter on fire, douse patrons who order water, and dance.

"I knew right away that I had to be aggressive," Lovell says. "You don't get $40 million of free press [the cost of the movie] and not use it."

How to expand presented a problem. Unlike most chains, Coyote Ugly was not famous for its decor or signature dishes but for its attitude (the name refers to a man so homely that a one-night-stand partner would rather chew off an arm to escape his bed--like a trapped coyote--than wake him). "This is about being a strong woman," Lovell says. "You're expected to get on the bar and entertain and serve people, do a show and still make money at the same time." It was a tough hurdle to clear: Half of the first 400 New York coyotes quit or were fired their first night. Piccirillo recalls a new bartender on duty one quiet evening. When five Wall Streeters stood to leave, Lovell warned the coyote, "If they go through that door, you're fired." The bartender ran back, bought the five a round, and danced on the bar. "They stayed for four hours," says Piccirillo. "You don't have to accept a bad night."

Gilbert says that her fear of getting on Lovell's bad side meant that on slow nights she would run out onto the street to round up patrons and, if that didn't work, put $10 or $20 into the till. "You would steal from yourself," she says.

Lovell's Coyote Ugly is more than a tavern version of Chained Heat, however. At the same time they sass men, the coyotes must make women comfortable enough to come in and get on the bar. "Women customers mean more men customers mean more money," says Lovell. And Lovell has specific ideas about music (southern rock), drinks (beer, yes; martinis, no), bartender gender (female), and sales tactics. Coyotes mock patrons into buying shots for them, pour liquor directly into patrons' mouths (a "penalty shot" for naughtiness), serve shots in their navels (a "body shot")--and charge for every drop.

"It's a powerful experience to have a woman half your size pull on your hair, tilt your head back, and pour tequila up to your teeth," says Ben Choi, a New York bar patron. It's lucrative too: "Body shots cost $20. We give the girl $5, and we get $15 for what costs us 50¢," says licensee John Cestare.

After the movie release tourists packed the New York bar demanding a re-creation of the Hollywood experience. "There was a backlash," says Squatriglia. "The regulars got angry when the movie first came out, it was so jammed in here. You couldn't blame them." But there was a financial opportunity in creating bars somewhere between the original 1,500-square-foot dive and the sanitized Hollywood version. So Lovell decided to create larger, nicer variations, with dances choreographed to some of the songs in the movie--ironically, codifying one of the original bar's most spontaneous practices.

Without capital to expand alone, Lovell could either franchise her bar or license the trademark. While franchising would give Lovell control down to decor and drink sizes--à la McDonald's--it involved expensive and time-eating legal filings. So she chose licensing, which let her anoint licensees but did not allow her to dictate operating procedures. Lovell wasn't worried. "At first, Liliana said, 'I don't want that much control. If they're coming to me they know what the concept is. They've seen the movie," says Jeff Wiseman, Ugly Inc.'s general counsel and a onetime Lovell regular at the Village Idiot.

Lovell chose a standard licensing scheme--licensees pay $50,000 up front, plus 5% of gross sales and a quarter of merchandise sales. Jennifer Worthington, an associate producer on the movie, bought the rights for Las Vegas, which opened in October 2001 (in the New York, New York casino, the Vegas bar is the highest earner--$14 million a year; Atlanta, at $1.5 million, is the lowest). Around the same time, Cestare, a 31-year-old club promoter, dropped by the Manhattan bar to see if he could cut a deal. He offered between $2 million and $3 million for U.S. rights (Lovell laughed at him), eventually settling for four cities--Chicago, Atlanta, Boston, and San Diego. Lovell herself renovated a bar of her own at a cost of $1.4 million in New Orleans, where she lives with Piccirillo, a screenwriter, and their four-year-old son.

The lack of franchise regulations made vetting licensees that much more important. After deciding which cities had the right demographics (more than a million people in the area, a young population), Lovell had potential licensees sign a nondisclosure agreement and visit her in New Orleans for a personality check of sorts.

Mike Hudson, a partner in the Dallas bar, describes his visit: "I thought, 'I'm a potential licensee, I'm a VIP, I'm drinking for free tonight.' But at the end of the night Chantal [a coyote] said, 'Buy me a shot.' All I had was $5. She snatched it out of my hand and did a shot and said, 'Thanks, have a nice night.' I said, 'I can't believe you took my cab fare.' She eventually gave it back."

Once they've inked the contract--which grants exclusivity within a 75-mile radius and allows Lovell access to bar records--they prepare to open. First, they choose a location with Lee Killingsworth, Ugly Inc.'s director of business development, who scours heavily trafficked locations for high-ceilinged spaces between 2,500 and 8,000 square feet. Once one is picked, Lovell offers decorating advice and a line of merchandise.

Then the brand work starts. "The hardest part about licensing is making sure they don't stray off course," says Killingsworth, who assembled a 200-page manual of procedures for everything from hiring coyotes to which celebrity birthdays should be celebrated (think Kid Rock and the late Johnny Cash).

Then the owners hold tryouts that are judged by Lovell, Squatriglia, and local celebrities. Hundreds of women audition (normally between 300 and 400, though Vegas had 700). "I'm constantly surprised at how popular the movie is. Girls cry because they didn't get the job," Squatriglia says. After they winnow down the aspirants to 25 or so, Lovell's crew starts training coyotes and licensees.

At the time of the movie Squatriglia turned the bar-top dancing--which had been left up to the coyotes--into choreographed, copyrighted numbers. For a week the new coyotes toil on three--Def Leppard's "Pour Some Sugar on Me," the Charlie Daniels Band's "The Devil Went Down to Georgia," and Tom Jones's "Sex Bomb"--and learn clogging, bartending, and attitude. "There's a lot of role-playing on what to do, how to harass somebody," says Joanna Olsen, a partner in Atlanta and three others. "We pretend that we're dudes and have them say something." According to Olsen, a coyote earns on average between $300 and $400 on a Friday night.

"Licensees do things I wouldn't. Nobody understands Coyote the way I do."

Soon, though, it became apparent that licensing and Lovell didn't mix. Manterola's was the first of a number of bars (he eventually closed in summer 2002) that either tried to use her brand without paying (Ugly Inc. spends several hundreds of thousands a year stopping unlicensed bars from using the Coyote Ugly name) or, once licensed, ran their bars in ways that Lovell did not like.

In one instance, Lovell walked into one bar--she won't say which one--and as a test ordered a froufrou drink. That she was served it angered her. "That's something I'm totally against," she says. Atlanta and Dallas both toyed with karaoke nights. All Lovell could do was complain. "Liliana will call up," says Dallas partner Hudson. "With karaoke, it was, 'I don't like it. I don't do that in mine.' She expresses her disapproval."

Atlanta dropped the practice and while Hudson says that Lovell has accepted his Wednesday-night gig--featuring American Idol also-ran Nikki McKibbin--the inability to give orders gnawed on her. "I have a decent relationship with my licensees, and I'd call them up and usually they'd change what they were doing. But it's frustrating that they would do things that I wouldn't," Lovell says. "Nobody understands Coyote the way I do."

Of course, not every licensee is sanguine about Lovell's close supervision. Kevin Callanan, a partner in the Philadelphia bar who calls Lovell "a super control freak," points to his coyote tryouts. According to Callanan, because Ugly Inc. booked a theater he couldn't fill, he decided to put the celebrity judges onstage and give them microphones. That way, the media cameras could take in the girls and the judges without showing the partially empty space. Lovell, he says, was "furious, almost to the point of walking out," because she wanted the girls to be alone onstage and didn't want the judges miked in case they were lewd. "She didn't join us in the judging. I haven't spoken with her since," says Callanan. "When you run a bar for 10 years everybody says yes when you say yes. But when you're dealing with other successful businesspeople, they question you. I wonder how that is for her." Lovell disputes Callanan's claim that she refused to take part in the judging.

In early 2003 Lovell stopped selling licenses (there are eight licensed cities still to open). From that point on, Ugly Inc. would take outside investments, even majority stakes, but would maintain managing rights. The first bar to open under this arrangement was Tampa, with Olsen as a partner. There, Lovell got to install a manager despite the fact that she only has a 10% stake.

"I'm learning that I'm more of a control freak than I originally thought," Lovell says. "It's hard for me to completely commit a project to someone else without being involved in some way."

At some point in her growth, however, Lovell realizes, she will have to trust others to run parts of the show. She plans to do so by hiring people who fit snugly with the Coyote ethos. "You'll have general managers and regional managers trained by me," she says. "It's about me hiring the right people who have the same image of Coyote that I do."

Right now, between 35% and 50% of the patrons are regulars, a key sign that the bars still feel like local hangouts. Lovell says she's not concerned about central control making her bars cookie-cutter tourist traps because she's always allowed each bar to reflect its location--thus, southern rock on the Dallas jukebox and Eminem in Atlanta.

It even appears that Lovell is learning the first lessons in stepping back. In Tampa, Lovell's inner control freak seems soothed by knowing that she is able to get involved, without her always doing so. "We only talk about once a month," says Olsen. "She's not in on every little thing."

Still, don't get Lovell wrong. While she may ease her grip from white-knuckle to firm, the old equation still holds.

"At the end of the day, this is my company and Coyote Ugly is going to be as strong as I make it," says Lovell. "When I have 100 I want you to be able to go to London and have as good a time as when you went to New Orleans or New York."

And that good time you're having? It will be on her terms.

Ian Mount is a freelance writer living in New York City.

Last updated: Nov 1, 2003




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