Well I heard back from the Harry Fox Agency and it looks like you guys were right and I was wrong.
As illogical as it seems to me you can not recreate and record a copyrighted work for replay in a public place even if even if it's just a backing track and the club has paid their ASCAP fee's. Maybe explains why I've been having trouble finding a US company to custom make some backing tracks for me, however since their are several UK company's that will do it maybe the laws are different there.
Well if you'll excuse me I've got a plate full of crow I need to get working on.
Sam