BILL ANALYSIS
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THIRD READING
Bill No: AB 813
Author: John A. Perez (D), et al
Amended: 9/10/09 in Senate
Vote: 27 - Urgency
SENATE GOVERNMENTAL ORG. COMMITTEE : 9-1, 9/8/09
AYES: Wright, Harman, Benoit, Denham, Oropeza, Padilla,
Price, Wyland, Yee
NOES: Wiggins
NO VOTE RECORDED: Calderon, Florez, Negrete McLeod
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : Not relevant
SUBJECT : Alcoholic beverages: advertising
SOURCE : AEG
DIGEST : This bill creates a new tied-house exception to
the Alcoholic Beverage Control Act that authorizes the
owner of a venue (Club Nokia) in Los Angeles to engage in a
sponsorship agreement with an alcoholic beverage supplier
for the privilege of placing advertising in the on-sale
licensee's premises; adds an urgency clause; and adds
co-authors.
ANALYSIS : Existing law establishes the Department of
Alcoholic Beverage Control (ABC) and grants it exclusive
authority to administer the provisions of the ABC Act in
CONTINUED
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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, 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
(1) promote the state's interest in an orderly market, (2)
prohibit the vertical integration and dominance by a single
producer in the marketplace, (3) prohibit commercial
bribery and protect the public from predatory marketing
practices, and (4) 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
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.
The ABC Act (Section 25503(h) of the Business and
Professions Code) 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
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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 (Section 23055 of the Business and Professions
Code) 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: (1) the
amount of funds allocated and spent for licensing,
enforcement and administration, (2) the number of
licenses issued, renewed, denied, suspended, and revoked,
(3) the average time for processing license applications,
(4) the number and type of enforcement activities
conducted, (5) the number, type, and amount of penalties,
fines, and other disciplinary actions, and (6)
recommendations for legislation to improve the ability of
the department to expeditiously and effectively administer
the ABC Act.
This bill:
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
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indirectly, in any way, on the purchase, sale, or
distribution of any alcoholic beverage manufactured
or distributed by the advertising alcoholic beverage
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 wholesalers in addition to the
brand manufactured or marketed by the advertising
beer, wine or distilled spirits manufacturer.
E. 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 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, requires the Department to
recommend this information of this specific tied-house
exception to the Legislature if no certifications and
payments have been made for two consecutive years.
3. Makes it a misdemeanor (punishable by imprisonment or by
a fine) 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 provisions. The wholesaler
(licensee) would also be subject to license revocation.
4. Make it a misdemeanor (punishable by imprisonment or by
a fine) 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.
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5. Contains "boiler plate" language (legislative findings
and declarations) relative to the necessity of requiring
a separation between manufacturing interests, wholesale
interests and retail interests.
Background
As noted above, the ABC Act prohibits an alcoholic beverage
manufacturer, importer or wholesaler ("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 Section 25503(h) of the
Business and Professions Code 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
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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).
This bill creates 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 bill, among other things, requires the
on-sale licensee to serve other brands of beer, wine, and
distilled spirits distributed by a competing beer, wine or
distilled spirits wholesaler in addition to the brand
manufactured or marketed by the advertising beer, wine or
distilled spirits manufacturer.
This bill requires 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 percent of
the on-sale licensee's gross sales of all alcoholic
beverages during the period within which the licensee has
purchased indoor advertising. Quarterly recordkeeping
requirements would also be imposed upon the on-sale retail
licensee for purposes of complying with these provisions.
This bill creates 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 will 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 it is in fact being utilized. Certain alcoholic
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beverage industry representatives claim that the ABC Act
contains numerous tied-house exceptions that are obsolete
or unused. These industry representatives envision this
particular language will become a "template" to be included
in all newly created tied-house exceptions.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 9/10/09)
AEG (source)
OPPOSITION : (Verified 9/10/09)
Family Winemakers of California
TSM:mw 9/10/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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