Coronavirus cancellations are devastating the staff-parties business in San Francisco

Coronavirus cancellations are devastating the staff-parties business in San Francisco

13 Mar    Finance News

Joseph “Joey the Cat” Mucha is in the business of bringing together tech-industry employees to shake hands, give each other high-fives, and repeatedly put their hands where many other hands have just been.

He runs a warehouse Skee-Ball and amusements arcade in San Francisco’s Mission District that’s a favorite venue for companies such as Adobe ADBE, +17.72% and Airbnb to rent out for nights of staff revelry.

And so Mucha is looking into a coronavirus abyss.

“Events in my space: crashing. Events in other spaces: crashing,” he said. “I am losing my lifeline, which is hellish.”

In San Francisco and in Silicon Valley, tech companies seek to outdo each other with the swankiest team-building events and vie for talent in part by offering the most appealing staff get-togethers.

Joseph Mucha, who operates the Mission District arcade Joey the Cat, competing in a Skee-Ball tournament in 2012.

This partying arms race has spawned a regional industry extending from Mucha’s venue, which is called Joey the Cat, to hipster bowling alleys and putt-putt golf courses, to tech conventions packed with Vegas-style entertainments, to the caterers, valet parking attendants, designers, lighting specialists, and thousands of other entrepreneurs and workers occupying this ecosystem.

The catastrophe crashing through this industry illustrates how coronavirus wreckage extends beyond international quarantines and travel bans. Mandated social distancing, even in seemingly prosaic forms such as companies nixing official offsite gatherings, is having broad commercial effects that will worsen as the crisis continues.

Doug Radtke, a local accountant who has San Francisco restaurants as clients, sees financial cushion of mere months before all but well-established area businesses could be forced to close up shop.

Workers here face impending job and health-care losses as businesses face a near-term future of putting off investments, trimming staff, letting unpaid bills pile up, delaying loan payments, and calculating the amount of time this can go on before doors have to close.

“I don’t see how a lot of these companies survive this,” said Ben Bleiman, a local bar impresario who previously owned a catering company and is president of the San Francisco Entertainment Commission. “They don’t have cash reserves. We’re not talking about Softbank 9434, -0.49% SFTBF, +8.19% . A lot of them are floating invoices, and delaying payment until another event comes in.”

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But they haven’t been coming in. Weeks before San Francisco announced school closures, canceled public events in city buildings, and discouraged myriad other types of public assemblies, tech companies had begun putting off morale-building events. If they were fashionable enough, restaurants and other venues had previously earned sizable revenue being “bought out” for these soirees. No longer.

“There’s just a lot of worry about what the future holds,” said Ryen Motzek, a Mission District parking-lot operator who’d just had to send a valet attendant home after a $65-a-plate restaurant got word of a last-minute cancellation by a tech company that had bought out the place for the evening. In the last 10 days Motzek has seen five cancellations for upcoming events, a crisis locals say will worsen for the industry as businesses draw down cash cushions.

“Every event company has basically every contract canceled for the next month, and that is not an exaggeration,” said Bleiman as he turned on lights, took down stools, turned on televisions, and washed glasses from the night before to get ready for the evening at his Mission District bar Teeth SF. “This is a meteorite headed for the dinosaurs. This is not a gentle correction in the market. This is a massive, massive thing that’s happening. We’re going to see layoffs. We’re going to see people who don’t have access to health care. We’re going to have people who can’t survive in San Francisco and need to go elsewhere.”

While this industry has expanded dramatically during the Bay Area’s 11-year economic boom, competition and high local costs have meant narrow margins. Catering companies that service San Francisco’s tech venues require expensive local warehouse space to store equipment, even as they pay off invoices to armies of providers of such line items as food, drink, glassware, lighting and audio-video equipment, DJs, and legions of cleanup staff. These contractors have had little financial leeway even in good times as they moved from job to job.

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According to the most recent local tax data, San Francisco had 12,000 companies meeting the city’s definition of small business in from 2018, earning annual gross receipts of $5 million or less. They grossed $50 million, up 4% from the previous year. The San Francisco Chamber of Commerce says 359,000 people work for small businesses in San Francisco.

Now Jay Cheng, a policy specialist with the chamber, sees companies in the city’s events economy teetering. Party rental outfits, for example, have seen revenues drop 80% in just the past month. That means tough decisions.

“They won’t make that up in April, and they will have to make it up in employee cuts. We will have a big job hit, a very significant job hit, in four weeks,” he said. “If you’re facing monthly payments you can no longer accommodate, in eight weeks we’re going to see discussions about what happens to those loan payments.”

Desperation looms for workers. “They’re not on salaries, for the most part,” said Bleiman, who said his comments aren’t the views of the Entertainment Commission but rather observations from his perch in the industry. “They don’t have a pension plan. They live in the margins and clean up medium- and small-sized places, and they’re totally screwed now. It goes on and on, and spreads out.”

This tech-events ecosystem also relies on highly skilled workers. They, too, are busy evaluating their rainy-day funds. Paul Efron, a lighting specialist who gets much of his income from lavish San Francisco–area tech gatherings, spent part of March 12 in an airport awaiting a flight to San Francisco from Detroit, where an event had been canceled after most preparations had been completed.

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“The whole industry has collapsed. There is no one doing events. People are reporting more cancellations, postponements, or [the suspension of] jobs they were actually on,” he said. “It’s devastating to everyone in the industry.”

Michael Williams, a Carmichael, Calif., graphic designer specializing in events displays, said clients have been allowing preparations to continue until the last minute before canceling.

“We were two days from traveling when I got the call. They said, ‘Stop printing. The show’s canceled. Find out how much has been printed, get the bill, and we’re done,’ ” said Williams. “Since they were just a few days out, there were people flying in, and the costs to the companies were massive. They ended up eating the hotel contract, the food and beverage, the audio-visual expenses, the restaurants you’ve booked — all those contracts. I doubt there is any way out of most of those.”

Mucha on Tuesday had just received an earful of stories like these while waiting in an airport on the way back from the Amusement Expo International 2020 in New Orleans, where entrepreneurs running routes for pinball machines and other amusements described a severe drop in business. Mucha had just learned a $12 billion San Francisco–based electronic documents company had canceled a party, and he was seeing no new business on the horizon.

“I may have to slim up my team,” he said, adding that his beverage caterer has just lost a month and a half’s worth of events. “I already have a small team, so that’s pretty catastrophic.”

Matt Smith reports for MarketWatch and Barron’s Group from San Francisco.

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