BILL ANALYSIS AB 813 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 813 (John A. Perez) As Amended September 10, 2009 2/3 vote. Urgency ---------------------------------------------------------------------- |ASSEMBLY: | |(May 28, 2009) |SENATE: |31-3 |(October 14, 2009) | ---------------------------------------------------------------------- (vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |13-1 |(October 26, 2009) |RECOMMENDATION: |Concur | | | | | | | ------------------------------------------------------------------------ Original Committee Reference: G.O. SUMMARY: Delete the prior version of the bill that made changes to the Gambling Control Act. Assembly member John A. Perez now authors AB 813. The bill creates a new tied-house exception to the Alcoholic Beverage Control Act (ABC Act) that authorizes the owner of a venue (Club Nokia) in Los Angeles to engage in a sponsorship agreement with an a beer manufacturer, holder of winegrower's license, California winegrower's agent, distilled spirits manufacturer, holder of a distilled spirits rectifiers general license, or a distilled spirits manufacturer's agent for the privilege of placing advertising in the on-sale licensee's premises. The bill contains an urgency clause. The Senate amendments delete the prior version of the bill, and instead: 1)Authorize 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 AB 813 Page 2 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 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 brands manufactured or marketed by the advertising beer, wine or distilled spirits manufacturer, or a holder of a distilled spirits rectifiers general license; and, e) No more than 15% of the retail licensee's purchases of distilled spirits and wine for sale on its licensed premises shall be manufactured, produced, or distributed by the holder of a winegrower's license, California winegrower's agent, distilled spirits manufacturer, holder of a distilled spirits rectifiers general license, or a distilled spirits manufacturer's agent that has purchased indoor advertising space. 1)Require the Department of Alcoholic Beverage Control (ABC) to prepare, as part of its annual legislative report, a listing of the number of certifications made pursuant to this bill or the absence of any certifications. Where there have been no certifications for two consecutive years, that information shall be included in the report. 2)Make 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. 3)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. AB 813 Page 3 4)Contain "boiler plate" language (legislative findings and declarations) relative to the necessity of requiring a separation among manufacturing interests, wholesale interests and retail interests. 5)Add an urgency clause, allowing this bill to take effect immediately upon enactment. EXISTING LAW : 1)Establishes the ABC and grants it exclusive authority to administer the provisions of the ABC Act in accordance with laws enacted by the Legislature. This involves licensing individuals and businesses associated with the manufacture, importation and sale of alcoholic beverages in this state and the collection of license fees or occupation taxes for this purpose. 2)States that the "Tied-house" Law or "three-tier" system separates the alcoholic beverage industry into three component parts of manufacturer (first tier), wholesaler (second tier), and retailer (third tier). The original policy rationale for this body of law was to prohibit the vertical integration of the alcohol industry and to protect the public from predatory marketing practices. 3)Prohibits, in general, an alcohol manufacturer, wholesaler, or any officer, director, or agent of any such person from owning, directly, or indirectly, any interest in any on-sale license, or from providing anything of value to retailers, be it free goods, services, or advertising (Tied-House Law). 4)Allows an alcohol manufacturer, winegrower's agent, holder of an importer's general license, distilled spirits manufacturer's agent, distilled spirits rectifiers general license to sponsor events promoted by, and may purchase advertising space and time from, or on behalf of, a live entertainment marketing company, as specified. 5)Defines an "On-Sale" license as authorizing the sale of all types of alcoholic beverages namely, beer, wine and distilled spirits, for consumption on the premises (such as at a restaurant or bar). AS PASSED BY THE ASSEMBLY , this bill amended the Gambling Control Act to require the Department of Justice (DOJ) to examine documents requested in a routine audit at a gambling establishment between AB 813 Page 4 the normal business hours of 8 A.M. to 6 P.M. within a five-day workweek schedule. FISCAL EFFECT : According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs. COMMENTS : This bill was substantially amended in the Senate and the Assembly-approved provisions of this bill were deleted. This bill, as amended in the Senate is inconsistent with the Assembly actions. 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 ABC on this issue has recently changed as a result of Business and Professions Code Section 25503(h) and a holding in Schieffelin & Somerset. 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 ABC has prohibited the Anschutz Entertainment Group (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 AB 813 Page 5 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 brands manufactured or marketed by the advertising beer, wine or distilled spirits manufacturer. This bill states that no more than 15% of the retail licensee's purchases of distilled spirits and wine for sale on its licensed premises shall be manufactured, produced, or distributed by the holder of a winegrower's license, California winegrower's agent, distilled spirits manufacturer, holder of a distilled spirits rectifiers general license, or a distilled spirits manufacturer's agent that has purchased indoor advertising space. ABC will be required to include in its annual report to the Legislature a listing of the number of certifications made pursuant to this new body of law or the absence of any certifications. If no certifications have been made for two consecutive years, ABC must also make a notation of this in its annual report to the Legislature. In opposition : Family Winemakers of California opposes AB 813. It argues that, "Our opposition is based on the inclusion of a 15% limitation on alcoholic beverage purchases except for beer. Traditional tied-house advertising exemptions do not include a limitation, nor do they exclude specific beverages from statutory requirements." Advertising exemptions often contain provisions that balance the competitive forces in the marketplace, such as requiring the on sale retailer to offer competing brands. The 15% limitation of purchases by the retailer 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. Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531 AB 813 Page 6 FN: 0003462