Erotic entertainment is protected because, according to the Court, it has modest social value. However, its value is nominal compared to serious literary, artistic, scientific, and political speech. Therefore, government regulation of erotic entertainment is more tolerated by Courts than regulation of other protected categories of free speech.

Regulations concerning erotic entertainment are subject to the intermediate scrutiny standard of review. The regulation must not be meant to suppress the speech, and it must be aimed at preventing its harmful secondary effects. Secondary effects consist of higher crime rates, lower property values, and sexual assault and prostitution, in the vicinity of adult entertainment businesses. To withstand Constitutional muster, the government must show that the regulation advances its interest in minimizing these secondary effects. However, the government is not required to present hard factual data. Rather, it may rely on common sense. Once the government meets this burden, the Plaintiff must present clear and convincing evidence that discredits the foundation upon which the government's justification rests.

At issue in this case was a Virginia regulation that forbade serving mixed drinks in strip clubs. The regulation permitted beer and wine to be served. The rationale of the policy was that there would be less secondary effects such as disorderly conduct, prostitution, and sexual assaults, if only beer and wine were served. Because beer and wine have a lesser concentration of alcohol than mixed drinks, patrons consuming these beverages would be less likely to be intoxicated than patrons consuming mixed drinks. Where patrons were less intoxicated, there would be less incidents of prostitution, sexual assault, and disorderly conduct. Although no studies directly supported this notion, the Court agreed with Virginia that this was common sense. Consequently, the Court held that Virginia met their burden in proving that the regulation which prohibited mixed drinks advanced its interest in minimizing the secondary effects associated with strip clubs.

To rebut Virginia's case, Papermoon relied on a study conducted by its expert witness, a professor from the University of California at Santa Barbara. At one time, Papermoon was allowed to serve mixed drinks. This lasted for a period of nine months. The expert opined that during those nine months, the crime rate was no higher than when Papermoon was only allowed to serve beer and wine. However, the Court found deficiencies with the study. Namely, the study was based on only nine months of data, while studies on crime rates should generally be based on three years of data. Therefore, the Court found Papermoon's study failed to clearly and convincingly rebut the government's regulation.

The Court concluded by reminding Papermoon that more draconian regulations on strip clubs, such as out-right bans on alcohol, had been upheld by the Supreme Court of the United States. In comparison, Virginia's regulation was much more temperate. The Court praised the government for demonstrating moderation in its efforts to balance the expressive value in erotic dancing with the unwanted encouragement of secondary effects. As such, there was no First Amendment violation, and the law prohibiting mixed drinks in strip clubs would stand.