My advise is to rent a hall and throw your own party, invite all the people the bar was expecting you to bring and pocket any proceeds. Screw them !!!
Unless you're selling drinks, you'll never even break even. Are you willing to put your name on the hall rental contract AND the liquor license and take full responsibility for any damage to the hall as well as any possible liability from drunk drivers that you sold alcohol to?
Depends. Bluesblaster still makes a valid point in principle, though; if the BAND has the captive customers, why should we bother asking a venue to let us play there? Because the logic of the venue-owner's open letter presumes that bands are supposed to have these captive audiences that show up wherever we play, rather than the venue itself attracting customers and the band providing a service that helps make the venue's reputation. If they're OUR customers, why not just get them to pay US directly?
So I just dug into a little internet searching for my area. Here's a place, American Legion hall, with a function room for up to 175 people. 5-hour rental costs $395, $295 if you're a member, bartender will cost you another $60 for the 5 hours. More than 100 people, you have to get a second bartender. Let's assume no members in the band, so that's $455 for the night with up to 100 people coming, $515 for 101-175. I assume that the Legion gets any profit off alcohol sales, because they charge you a $50 fee if you DON'T request bar service.
If the band wants to make money, you'd need a cover charge + any merch sales. If you're a band that can draw 100 people, you'd break even if they spent $4.55 apiece. , NOT including drinks. If you could get them to pay $10 apiece, you'd go home with $545. If you could bring in 175 people and pack the hall, you break even if they pay $3.11 apiece. If they pay $5 each, you make $360: if they pay $10 each, you make $1235.
There's a smaller room that holds 50 for $125, $185 with bartender. Might be too small for a gig unless it was a small jazz or acoustic thing, but just to crunch numbers, break-even is $3.70, $5 per person nets you $65, $10/person nets $315.
From the looks of things, other halls around here might be a bit cheaper (one doesn't post its precise rates but says they "start at $100," which might mean 20% cheaper across the board - or just that it's smallest room is 20% smaller). I assume that the VFW holds the liquor license and the liability insurance, so that wouldn't be a concern here.
Bottom line, seems to me, is that if you are an established band that really can motivate people to show up and spend money, you actually could do better running your own show. Otherwise, you'll be making money that you'd consider poor payment from a bar, if not just breaking even or actually losing money.