With news that American Idol contestant David Hernandez (I personally think Kady is the next idol) will remain in the singing contest despite reports that he used to be a nude performer at a male strip club in Phoenix, the question is whether the show itself should get rid of him, like they have done in the past, as well as how should investors treat publicly traded companies like Ricks Cabaret Int'l Inc. (NASDAQ: RICK)?
American Idol executive producer Ken Warwick told TVGuide.com he was unaware of the singer's past before the news report but that it would have made no difference. "We're never judgmental about what people do to earn a living. They've got to put food in people's mouths," he said. Historically, the way the show deals with these kind of controversies is a mixed bag. Last year, Antonella Barba appeared in provocative online photos and she remained. But Frenchie Davis, a Season 2 singer, was dropped after reports that as a 19-year-old she appeared on a website designed to appeal to men interested in underage girls.
There is an obvious difference. Neither Hernandez nor Barba ever did anything illegal. Though many viewers believe that what they have done is morally reprehensible, it is still not a crime, and why shouldn't they have an opportunity to try and change their lives.
Rick's is a company that runs 15 adult entertainment clubs, and whose stock tripled last year. With a weaker economy, and lower Wall-Street salaries (up to a third of clients are Wall-Street types), '08 may be a tough year for the company.
As for how should investors deal with these types of investments, there are two schools of thought. On the one hand, the goal of any investment is to make money so if a company like Rick's provides that potential, then invest. The other school of thought takes a more moral view towards investing. While I am not a big fan of socially responsible investing, because it often is an investing proxy for liberal causes, I do feel that investing in "adult entertainment' clubs crosses the line and if we want a better world in which to raise our precious children we probably can do without these types of companies.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no positions in any stock mentioned as of 3/05/08.