BILL ANALYSIS
Bill No: AB
813
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 813 Author: John Perez
As Amended: September 2, 2009
Hearing Date: September 8, 2009
Consultant: Art Terzakis
SUBJECT
Alcoholic Beverages: tied-house exception
DESCRIPTION
AB 813 is an urgency measure that creates a new tied-house
exception in the Alcoholic Beverage Control (ABC) Act
authorizing the owner of a venue (Club Nokia) in Los
Angeles to accept payment for advertising from an alcoholic
beverage supplier. Specifically, this measure:
1. Authorizes a beer manufacturer, holder of a
winegrower's license, a California winegrower's agent, a
holder of a distilled spirits rectifiers general license,
distilled spirits manufacturer, or a distilled spirits
manufacturer's agent (these entities will hereafter be
referred to as "alcoholic beverage suppliers") to
purchase indoor advertising, at Club Nokia in Los
Angeles, subject to the following conditions:
a. The indoor advertising is purchased exclusively at
the Club Nokia venue.
b. The purchase of indoor advertising is conducted
pursuant to a written agreement entered into by the
alcoholic beverage supplier and the owner of the Club
Nokia venue.
c. The agreement shall not be conditioned directly or
indirectly, in any way, on the purchase, sale, or
distribution of any alcoholic beverage manufactured or
distributed by the advertising alcoholic beverage
AB 813 (John Perez) continued
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supplier by any on-sale retail licensee.
d. The on-sale retail licensee operating at Club Nokia
must serve other brands of beer, wine, or distilled
spirits distributed by competing beer, wine or
distilled spirits suppliers in addition to the brand
manufactured or marketed by the advertising beer, wine
or distilled spirits supplier.
e. The total gross sales by the on-sale licensee of
wine and distilled spirits brands owned or distributed
by the alcoholic beverage supplier that has purchased
indoor advertising shall not exceed 15% of the on-sale
licensee's gross sales of all alcoholic beverages
during the period within which the licensee has
purchased indoor advertising.
f. The on-sale licensee must maintain records which
reflect separately the gross sales of brands owned or
distributed by the alcoholic beverage supplier that has
purchased indoor advertising and the on-sale licensee's
gross sales of all alcoholic beverages during the
period within which the on-sale licensee has purchased
indoor advertising. Such records must be maintained on
a quarterly basis and made available to the department
of ABC on demand.
2. Requires the venue owner to obtain an annual
certificate from the department of ABC and pay an initial
certification fee of $750 and thereafter pay an annual
certification renewal fee of $750 for the privilege of
holding this tied-house exception.
3. Also, requires the department of ABC to prepare, as
part of its annual legislative report, a listing of the
number of certifications and payments made pursuant to
these provisions or the absence of any certifications and
payments. In addition, would require the department to
recommend repeal of this specific tied-house exception to
the Legislature if no certifications and payments have
been made for two consecutive years.
4. Makes it a misdemeanor for an alcoholic beverage
supplier to coerce or induce, directly or indirectly, a
licensed wholesaler to fulfill the contractual
obligations entered into pursuant to the above
AB 813 (John Perez) continued
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provisions. The alcoholic beverage supplier (licensee)
would also be subject to license revocation.
5. Makes it a misdemeanor for the on-sale retail licensee
to solicit or coerce, directly or indirectly, an
alcoholic beverage supplier to purchase indoor
advertising. The on-sale licensee would also be subject
to license revocation.
6. Contains language (legislative findings and
declarations) relative to the necessity of requiring a
separation between manufacturing interests, wholesale
interests and retail interests.
EXISTING LAW
Existing law establishes the Department of Alcoholic
Beverage Control (ABC) and grants it exclusive authority to
administer the provisions of the ABC Act in accordance with
laws enacted by the Legislature.
Existing law, known as the "tied-house" law, separates the
alcoholic beverage industry into three component parts, or
tiers, of manufacturer (including breweries, wineries and
distilleries), wholesaler, and retailer (both on-sale and
off-sale).
Tied house refers to a practice in this country prior to
Prohibition and still occurring in England today where a
bar or public house, from whence comes the "house" of tied
house, is tied to the products of a particular
manufacturer, either because the manufacturer owns the
house, or the house is contractually obligated to carry
only a particular manufacturer's products.
The original policy rationale for this body of law was to:
(a) promote the state's interest in an orderly market; (b)
prohibit the vertical integration and dominance by a single
producer in the marketplace; (c) prohibit commercial
bribery and protect the public from predatory marketing
practices; and, (d) discourage and/or prevent the
intemperate use of alcoholic beverages. Generally, other
than exceptions granted by the Legislature, the holder of
one type of license is not permitted to do business as
another type of licensee within the "three-tier" system.
Existing "tied-house" law prohibits paid advertising by
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winegrowers, beer manufacturers and distilled spirits
producers in cases where a retail licensee also owns a
sports or entertainment venue. Over the years numerous
exceptions to this prohibition have been added to the ABC
Act encompassing various venues throughout the state (e.g.,
ARCO Arena in Sacramento, Raley Field in West Sacramento,
Grizzly Stadium in downtown Fresno, California Speedway in
Fontana, Indian Wells Tennis Club in Indian Wells, Kern
County Arena in Bakersfield, Visalia Oaks Stadium in
Visalia, Arrowhead Pond Arena in Anaheim, Oakland Coliseum
in Oakland, the National Orange Show event center in San
Bernardino, Disneyland in Orange County, Universal City
Walk in Hollywood, the Home Depot Center in Carson, the
Nokia Theater in Los Angeles, HP Pavilion in the City of
San Jose, and others).
The ABC Act [Business and Professions Code Section
25503(h)] prohibits an alcoholic beverage supplier from
paying money, or giving or furnishing anything of value,
for the privilege of placing or painting a sign or
advertisement, or window display, on or in premises selling
alcoholic beverages at retail.
The department of ABC has determined that this prohibition
applies both directly and indirectly. Therefore, any
alcoholic beverage supplier who pays a fee, or provides any
other thing of value, to a multi-media company for the
privilege of having its brand advertising placed on or in
retail-licensed premises is in violation of the ABC Act.
While retailers often receive payments and/or things of
value through third-party advertising schemes, the
statutory language does not require monetary payments or
things of value to be given or furnished to retailers for a
violation of this specific provision to occur.
Existing law (Business and Professions Code Section 23055)
requires the director of ABC to prepare and submit to the
Legislature, on or before March 1 of each year, an annual
report containing the following information on the
department's activities for the previous year: (a) the
amount of funds allocated and spent for licensing,
enforcement and administration; (b) the number of licenses
issued, renewed, denied, suspended, and revoked; (c) the
average time for processing license applications; (d) the
number and type of enforcement activities conducted; (e)
the number, type, and amount of penalties, fines, and other
AB 813 (John Perez) continued
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disciplinary actions; and, (f) recommendations for
legislation to improve the ability of the department to
expeditiously and effectively administer the ABC Act.
BACKGROUND
As noted above, the ABC Act prohibits an alcoholic beverage
supplier, or any officer, director or agent of an alcoholic
beverage supplier, from giving any money or other thing of
value, directly or indirectly, to any on-sale retail
licensee. Historically, this prohibition has not applied
where the owner of a venue is not the alcoholic beverage
licensee.
The position of the Department of ABC on this issue has
recently changed as a result of Business and Professions
Code Section 25503(h) and a holding in Schieffelin &
Somerset. The ABC's position is that an alcoholic beverage
supplier cannot pay anyone, even an unrelated third party,
for the privilege of placing an advertisement in on-sale
retail premises, even if that payment does not amount to a
payment or thing of value paid to or received by the
alcoholic beverage licensee.
According to the author's office, the position of the
department of ABC has prohibited AEG from engaging in a
sponsorship agreement with Club Nokia at LA Live in Los
Angeles.
AEG, a wholly owned subsidiary of the Anschutz Company,
controls a collection of companies worldwide, including
sports franchises and facilities such as the Staples Center
in Los Angeles and the Home Depot Center in Carson,
California. Club Nokia is a fully enclosed venue, which
accommodates over 2,000 guests with box office sales and
attendance by the public on a ticketed basis. Club Nokia
is located in Los Angeles County within the area subject to
the Los Angeles Sports and Entertainment District Specific
Plan adopted by the City of Los Angeles pursuant to an
ordinance approved on September 6, 2001.
AEG and its subsidiaries constructed Club Nokia and are
responsible for the booking and presentation of events at
the venue. AEG has contracted out the food and beverage
operation to Wolfgang Puck who is the alcoholic beverage
licensee at the venue (Club Nokia).
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AB 813 would create a new tied-house exception in the ABC
Act applicable to AEG, the venue owner, and not the on-sale
retail licensee (Wolfgang Puck), thus enabling AEG to enter
into a contractual agreement with an alcoholic beverage
supplier interested in purchasing indoor advertising space
at Club Nokia. This measure would, however, require the
on-sale licensee to serve other brands of beer, wine, and
distilled spirits distributed by a competing beer, wine or
distilled spirits manufacturer in addition to the brand
manufactured or marketed by the advertising beer, wine or
distilled spirits manufacturer.
Also, this measure would require that total gross sales by
the on-sale licensee of wine and distilled spirits brands
owned or distributed by the alcoholic beverage supplier
that has purchased indoor advertising must not exceed 15%
of the on-sale licensee's gross sales of all alcoholic
beverages during the period within which the licensee has
purchased indoor advertising. Quarterly record-keeping
requirements would also be imposed upon the on-sale retail
licensee for purposes of complying with these provisions.
Additionally, this measure would create an annual
certification process whereby the venue owner must pay an
initial certification fee of $750 to the ABC and thereafter
an annual fee of $750 for the privilege of holding this
tied-house exception. Furthermore, the department of ABC
would be required to include in its annual report to the
Legislature a listing of the number of certifications and
payments made pursuant to this new body of law or the
absence of any certifications and payments. If no
certifications and payments have been made for two
consecutive years, ABC must include a recommendation of
repeal of this particular tied-house exception in its
annual report to the Legislature.
The purpose of this "use it or lose it" tied-house
exception provision is to create a mechanism to keep track
of whether this particular exception is in fact being
utilized. Certain alcoholic beverage industry
representatives contend that the ABC Act contains numerous
tied-house exceptions that are obsolete or unused. These
industry representatives envision this "use or lose"
language will become a "template" to be included in all
newly created tied-house exceptions. According to the
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Page 7
sponsor of this measure (AEG), the certification of
compliance provision ("use it or lose it" language)
reflects a consensus which has been reached by the sponsor
and certain alcoholic beverage industry representatives.
Arguments in Opposition: Family Winemakers of California
(FWC) has expressed opposition to this measure based on:
(1) the inclusion of a 15% limitation on beverage sales
tied to gross sales; (2) the exclusion of beer from any
limitation; (3) the imposition of a fee for the exception;
(4) the inclusion of a repealer provision; and, (5) the
inclusion of tied-house separation language.
FWC points out that tied-house advertising exceptions often
contain limiting provisions, which is understandable since
these exceptions attempt to balance the competitive forces
in the marketplace. FWC argues that the 15% limitation
based on gross sales during the period of the advertising
partnership between a supplier and AEG goes well beyond the
traditional requirement to offer competing brands of beer,
wine or spirits. FWC believes that such a numeric
limitation could prevent suppliers and the on-sale licensee
from offering certain promotions. FWC states that
"excluding beer from the 15% limitation puts other beverage
types at a distinct disadvantage and creates an
inappropriate precedent."
FWC also points out that none of the existing tied-house
exceptions in the ABC Act require a fee. FWC believes that
the implementation of a new fee, as proposed by AB 813,
would set a negative precedent which could adversely affect
all existing and future exceptions. Since the ABC Act only
allows a licensee to do what is articulated in statute, a
tied house exception fee could be considered a pay to play
approach.
Additionally, FWC notes that current tied-house advertising
exceptions contain no repealer provisions and argues that
such language contained in AB 813 is another bad precedent
that will require the ABC to "waste limited resources on
minor matters." Furthermore, FWC emphasizes that
tied-house separation language (which exists to remind
everyone that there are legislatively mandated tiers within
the alcohol industry as an aftermath of the repeal of
prohibition) "should be limited to statutes that deal with
cross-ownership exceptions, not simple advertising
AB 813 (John Perez) continued
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exceptions."
SUPPORT: AEG (sponsor)
OPPOSE: Family Winemakers of California
FISCAL COMMITTEE: Senate Appropriations Committee