You can't really blame the club owner on this. You really have to put the blame on the bands. The bands do have the choice of not playing these unpaid audition nights and the more that do show up to play them the more incentive the club has to keep nights like this.
So in the long run it doesn't matter how much money the club has floating around that night, they could have $1 million that night in profit, the bottom line is the bands are agreeing to do this for free in the hopes they will get the opportunity to play there. You can't really fault the club for that.
I partially agree. The fact is that clubs take advantage of bands that don't know better, because these guys have stars in their eyes and are naïve. Saying that it's the musicians' fault is akin to saying that the mortgage crisis is the fault of the people stupid enough to get loans they couldn't afford. Yes, this is true, but it's also because of predatory lending, which is becoming more and more illegal, and for a good reason: to protect people from inadvertently screwing themselves out of naïveté.
Similarly, clubs take advantage of bands because no one stops them. I think it is the duty of those of us who know better than to play [covers] for free to educate people who don't understand the harm they are causing. Some people will choose to screw themselves and others anyway, and that's arguably their prerogative. Being a musician is one of the few jobs where there is no government regulation about pay (in this country), aside from classical/Broadway etc musicians going union, partially because musicians allow it on account of tax evasion, but also because people have this idea that musicians aren't supposed to get paid. That's reinforced by musicians working for free.
I think the only real solution for working musicians is to simply make yourself worth more than someone willing to play for free. Alternatively, we can take the "if you can't beat 'em, join 'em" approach, give up, just get a day job ourselves, and then play for free or cheap, too.
Realistically, for 99% of guys I know who play, it's a no-win situation in the long-term. You are always going to be competing with youngsters who have stars in their eyes, no kids & no bills, who are okay with a 3- or 5-year romanticized toe-in-the-water-dip into the life of a musician, willing to live on $6,000/year until they wise up... and you are also going to be competing with 40-something IT guys with a wife, 2.5 kids, a dog, and a mortgage, who are willing to play for free year after year in order to re-live that summer in college when they went on a 10-day circuit tour, LOL.
It's only maybe 1% of the guys/gals I know who play, who actually work at it and are able to support themselves and make a living, because they don't take crap (like playing covers for free), and they are professional about it (showing up on time, really promoting their shows, not drinking or doing drugs, and playing with real proficiency). These are the guys who own two tuxes, so they can switch off which one they wear to the gig with which one is at the dry cleaner. These guys are worth more, and DO get paid, because they make an effort to be worth more.
My 2 cents...