BILL ANALYSIS                                                                                                                                                                                                    






                                                       Bill No:  SB 
          778
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                       Senator Roderick D. Wright, Chair
                           2011-2012 Regular Session
                                 Staff Analysis

          
          SB 778  Author:  Padilla
          As Amended:  January 5, 2012
          Hearing Date:  January 10, 2012
          Consultant:  Art Terzakis

                                     SUBJECT  
                 Alcoholic Beverages: contests and sweepstakes

                                   DESCRIPTION
           
          SB 778 adds a new section of law to the Alcoholic Beverage 
          Control (ABC) Act that authorizes wine, beer and spirits 
          producers to conduct, sponsor, or participate in consumer 
          "contests" or "sweepstakes."  Specifically, this measure:

             1.   Stipulates that, notwithstanding any other 
               provision of law, an authorized licensee may conduct, 
               sponsor, or participate in consumer contests and 
               sweepstakes, as defined.

             2.   Prohibits a purchase or entry fee to enter a 
               contest or sweepstakes and makes it explicit that 
               entrance into a contest or sweepstakes shall be 
               limited to persons 21 years of age or older.

             3.   Prohibits the use of caps, cap liners, corks, 
               labels, cartons, cases, or other material attached to 
               an alcoholic beverage when purchased as an entry to a 
               contest or sweepstakes or as a means of determining 
               the amount or size of the prize or the winner.

             4.   Authorizes "neck-hangers" to carry an entry form 
               only if similar entry forms are available at the point 
               of sale and are reproduced or an alternative means of 
               entry is available.

             5.   Prohibits the use of scratch-offs, pull tabs, or 




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               other means of instant wins.  Also, prohibits any 
               requirement to visit a retail premises in order to 
               enter a contest or sweepstakes.

             6.   Makes it explicit that alcoholic beverages or 
               anything redeemable for alcoholic beverages  shall not 
               be awarded  as a contest or sweepstakes prize.

             7.   Prohibits a retail licensee from serving as the 
               agent of an authorized licensee for purposes of 
               collecting or forwarding entries or awarding prizes to 
               a contest or sweepstakes winner.
             8.   Prohibits a licensee that is not an authorized 
               licensee from sharing in, or contributing to, the 
               costs of a contest or sweepstakes.

             9.   Stipulates that advertising of a contest or 
               sweepstakes must comply with existing signage and 
               advertising restrictions and regulations issued by the 
               Department of ABC.  Also, prohibits such advertising 
               from identifying or referring to any retail licensee.

             10.  Makes it explicit that a prize awarded for a 
               contest or sweepstakes shall not be subject to the 
               monetary limitations imposed by existing provisions of 
               the ABC Act (Section 25600 of the Business & 
               Professions Code) or a regulation issued by the 
               Department of ABC.

             11.  Provides that contest or sweepstakes prizes shall 
               not be awarded to any retail or wholesale licensee or 
               agent officer, or family member of any retail or 
               wholesale licensee.  Additionally, requires authorized 
               licensees to maintain all records pertaining to a 
               contest or sweepstakes for three years following the 
               completion of a contest or sweepstakes. 

             12.  Provides that an authorized licensee that violates 
               any of the above listed provisions, in addition to any 
               other penalties imposed by law, may be prohibited by 
               the Department of ABC from offering a contest or 
               sweepstakes to California residents for a period of 12 
               months.

             13.  Defines "authorized licensee" to mean a winegrower, 
               beer and wine importer general, beer manufacturer, 




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               out-of-state beer manufacturer certificate holder, 
               distilled spirits manufacturer, distilled spirits 
               manufacturer's agent, distilled spirits importer 
               general, distilled spirits rectifier, distilled 
               spirits general rectifier, rectifier, out-of-state 
               distilled spirits shipper's certificate holder, brandy 
               manufacturer, and brandy importer. An authorized 
               licensee is allowed to hold more than one license.

             14.  Defines "contest" to mean a game, contest, puzzle, 
               scheme, plan, or similar activity that holds out or 
               offers to participants the opportunity to receive or 
               compete for gifts, prizes, gratuities, or other things 
               of value as determined by skill, knowledge, or ability 
               rather than upon random selection ("skill, knowledge, 
               or ability" does not include the consumption or use of 
               alcoholic beverages).

             15.  Defines "sweepstakes" to mean a procedure, 
               activity, or event for the distribution of anything of 
               value by lot, chance, or random selection where the 
               odds for winning a prize are equal for each entry.

                                    EXISTING LAW

           Existing law establishes the Department of 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. 
          Existing law, known as the "tied-house" law, separates the 
          alcoholic beverage industry into three component parts of 
          manufacturer, wholesaler, and retailer.  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.  Generally, 
          other than exemptions 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.

          The ABC Act prohibits any licensee from giving any premium, 
          gift, or free goods in connection with the sale or 
          distribution of any alcoholic beverage, except as provided.




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          With respect to beer, existing law provides that premiums, 
          gifts, or free goods, including advertising specialties 
          that have no significant utilitarian value other than 
          advertising, shall be deemed to have greater than 
          inconsequential value if they cost more than $0.25 per 
          unit, or cost more than $15 in the aggregate for all those 
          items given by a single supplier to a single retail 
          premises per calendar year.  Additionally, existing law 
          prohibits the ABC from imposing a dollar limit of less than 
          $3 per unit original cost to the beer manufacturer who 
          purchased it.

          With respect to distilled spirits and wines, a licensee may 
          furnish, give, rent, loan, or sell advertising specialties 
          to a retailer, provided those items bear conspicuous 
          advertising required of a sign and the total value of all 
          retailer advertising specialties furnished by a supplier, 
          directly or indirectly, to a retailer do not exceed $50 
          dollars per brand in any one calendar year per retail 
          premises.

          Existing law prohibits the ABC from imposing a dollar limit 
          of less than $5 for consumer advertising specialties 
          furnished by a distilled spirits supplier to a retailer or 
          the general public.  Existing law also provides that 
          consumer advertising specialties furnished by a wine 
          supplier to a retailer or to the general public shall not 
          exceed $1 per unit original cost to the supplier who 
          purchased it.

          ABC Rule 106 prohibits the giving of any premium, gifts or 
          goods of any sort, whether by way of sweepstakes, drawings, 
          prizes, cross merchandizing promotions with a non-alcoholic 
          beverage or product, or any other method if the value of 
          the premium, gift or good exceeds $0.25 with respect to 
          beer, $1 with respect to wine, or $5 with respect to 
          distilled spirits.  Rule 106 authorizes alcohol suppliers 
          to sponsor contests and other similar activities subject to 
          these monetary limits and other specified conditions.

          The ABC Act permits an on-sale retail licensee of wine or 
          distilled spirits to conduct "instructional" consumer 
          tastings on the licensed retail premise provided the 
          following conditions are met: (1) no more than  ounce of 
          distilled spirits is offered in one tasting; (2) no more 




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          than one ounce of wine is offered in one tasting; and, (3) 
          no more than three tastings are offered to an individual in 
          one day.  

          Existing law authorizes beer manufacturers and wholesalers 
          to offer beer samples (not to exceed 8 ounces per person, 
          per day) to individuals of legal drinking age at on-sale 
          retail licensed premises under specified conditions.  
           
          Existing law permits a licensed winegrower, manufacturer, 
          importer, or wholesaler to provide samples of the alcoholic 
          beverages which are authorized to be sold by the licensee 
          in accordance with rules prescribed by the ABC.  A retail 
          licensee, however, is not authorized to provide any free 
          samples of alcoholic beverages.  Moreover, ABC regulations 
          provide that samples of alcoholic beverages may only be 
          given away to licensees or employees of licensees who are 
          in a position to purchase the product or who are in need of 
          additional information about the product, as specified.

          Existing law authorizes distilled spirits manufacturers to 
          conduct tastings and provide distilled spirits without 
          charge for events sponsored by nonprofit organizations.  
          Only persons affiliated with the nonprofit organization, 
          including up to three guests, may attend.  No distilled 
          spirits may be sold or solicited for sale at the tasting, 
          and the organization must obtain a permit from ABC prior to 
          the event.
                                         
                                   BACKGROUND
           
           Purpose of SB 778:   The author's office notes that this 
          measure is co-sponsored by the Wine Institute and the 
          Family Winemakers of California and is simply intended to 
          allow Californians 21 years of age or older to join the 
          rest of the nation's consumers in being able to take part 
          in marketing activities conducted by producers as a means 
          to build brand awareness and interest.  The sponsors point 
          out that SB 778 is modeled after guidelines previously 
          utilized by the Department of ABC and includes numerous 
          restrictions and safeguards to preserve the integrity of 
          the state's alcoholic beverage laws and regulations in 
          order to guide authorized licensees in how to legally 
          conduct contests and sweepstakes.   

          Proponents emphasize that SB 778 is "responsible 




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          legislation that does not encourage consumption of alcohol. 
           In fact, the legislation prohibits a requirement of 
          purchase for participation.  It also requires that 
          participants be of legal drinking age and requires that all 
          such promotions meet the existing advertising laws and 
          guidelines issued by the Department of ABC."
                                        
           Arguments in Opposition:   The California Council on Alcohol 
          Problems (CCAP) is opposed to this measure on the basis 
          that it is a "gut-and-amend" of a two year bill which must 
          be passed through the House of origin in less than three 
          weeks.  Writing in opposition, CCAP states that "The 
          public, the media, and interest groups outside the alcohol 
          industry have a right to be given the opportunity to 
          digest, consider and respond to such a measure in a more 
          deliberative fashion."  
           
          A Sampling of 2011 Winery Sweepstakes/Contests Offered to 
          "Non-California" Residents:   
           
           Barefoot Wine & Bubbly Hosts Jake Owen Sweepstakes
          Prize - The grand prize winner and three friends will win a 
          once-in-a-lifetime opportunity; a trip to Jake's hometown 
          in Florida to catch his concert in Vero Beach in a premium 
          viewing area and will have the opportunity to meet and 
          mingle with Jake.
          
          Concannon Vineyard "Family First" Celebration Sweepstakes
          Prize - Chance to win $20,000 to host the family reunion of 
          their dreams.

          

          Wente Discover the Wine, Discover the Music Sweepstakes
          Grand Prize - trip for two (2) to Livermore, CA for a 2012 
          Concert at Wente Vineyards, consisting of domestic coach 
          air transportation within the United States for two people, 
          (2) nights accommodations at the Wente Vineyards cottage, 3 
          meals per day for 2 days for winner and travel companion at 
          Wente Vineyards, and ground transportation to and from 
          airport to Wente Vineyards. 

          Robert Mondavi Wine Country Getaway Sweepstakes
          Prize - A trip for two (2) to Napa, California, to attend a 
          Robert Mondavi Winery concert scheduled between July 2011 
          and August 2011, consisting of round-trip coach air 




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          transportation from major airport nearest winner's 
          residence to San Francisco, two (2) nights double-occupancy 
          Napa hotel accommodations, three (3) days car rental, $500 
          cash, admission for two (2) to the concert including a VIP 
          reception, and a winery tour. 

          Beringer and Buble Ultimate VIP Experience Sweepstakes
          Prize - A trip for 2 to Beringer Vineyards to attend a 
          special performance by Michael Buble.  Prize also includes 
          airfare, accommodations, and dinner at Beringer.
          
          Fetzer's Big Green Egg Grill Sweepstakes
          Prize - The grand-prize winner will receive a large Big 
          Green Egg Grill and one starter kit.

          Korbel Mimosa Girls Getaway Contest
          Prize - Package includes all airfare and accommodations for 
          four days of VIP extravagance in California with limousine 
          transportation, an exclusive winery tour, a private chef 
          and poolside spa treatment at the Korbel Winery for the 
          grand prize winner and her 5 girlfriends.  

          Sutter Home Build a Better Burger Contest
          Prize - The Grand Prize Winner for the Best Beef Burger 
          will receive a cash prize of $100,000.

          Beringer Great Steak Challenge
          Grand prize $25,000; Second prize $7,500; Third prize 
          $2,500; Fourth prize Weber Genesis E320 grill.

           Staff Comments
          
          Historical Perspective:   For the better part of a 20-year 
          period California consumers were eligible to enter 
          alcoholic beverage sweepstakes like other states due to the 
          fact that the Department of ABC had sanctioned the use of 
          sweepstakes, and had issued a series of policy guidelines 
          authorizing sweepstakes under specific conditions.  
          However, in response to what many felt was an overly 
          aggressive brewer marketing program, where increasingly 
          attractive gifts could be redeemed based on the quantities 
          of alcohol consumed (e.g., redemption of bottle caps), the 
          Department of ABC in 1999 amended its Rule 106 to clarify 
          the existing law that prohibits the giving of any premium, 
          gift, or free goods, by any means whatsoever, including, 
          but not limited to, sweepstakes, drawings, prizes, and 




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          cross-merchandising promotions, where the value of such 
          premium, gift, or free good exceeds the monetary limits 
          determined in statute.      
          At the time, various segments of the alcohol industry 
          complained that the revised rule was inconsistent with the 
          Department of ABC's previous position regarding consumer 
          promotions and sweepstakes.  This prompted the Department 
          of ABC to pursue legal means to halt the marketing program 
          and issue a warning to the alcohol industry that the ABC 
          was returning to a strict interpretation of existing law 
          and would prohibit future alcohol advertising campaigns 
          that sought to use sweepstakes, contests, or cross 
          merchandising themes.  Subsequently, several beer 
          manufacturers filed legal challenges claiming that the 
          Department of ABC had exceeded its statutory authority by 
          in effect prohibiting beer manufacturers from conducting 
          sweepstakes promotions.  These challenges were ultimately 
          rejected by the Third District Court of Appeal and the 
          State Supreme Court and were denied a hearing.  In doing 
          so, the court observed that the ABC's position regarding 
          sweepstakes prizes was consistent with the statute despite 
          its 20-year history of authorizing sweepstakes. 

          SB 778 would once again permit California residents to 
          enter alcohol-related sweepstakes and contests, giving them 
          the same opportunity to win a prize as someone from outside 
          the state.  There have been several attempts (see 
          prior/related legislation listed below) over the past dozen 
          or so years to clarify existing law with respect to this 
          matter however, those efforts failed due to a lack of 
          consensus within the alcohol beverage industry as to the 
          appropriate policy on the use of contests, sweepstakes, and 
          cross merchandizing themes in industry advertising 
          programs.

                            PRIOR/RELATED LEGISLATION
           
           AB 1245 (Torrico) Chapter 629, Statutes of 2008.   Modified 
          an existing provision of the ABC Act to allow beer 
          manufacturers to give adult consumers promotional 
          advertising items valued at $3 per unit original cost to 
          the beer manufacturer who purchased it.    
           
          AB 2518 (Bill Campbell) 2001-02 Session.   Would have 
          allowed alcoholic beverage suppliers to conduct sweepstakes 
          or contests that offer adults the opportunity to win prizes 




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          or things of value.  (Failed passage in Assembly G.O. 
          Committee)

           AB 642 (Strickland) 2001-02 Session.   Would have provided 
          that no rule of the Department of ABC may permit a licensee 
          to offer any premium, gift, or free goods to a consumer in 
          such a way that would encourage the purchase or consumption 
          of alcoholic beverages by minors, and that is conditioned 
          on the purchase of an alcoholic beverage.  (Held in 
          Assembly G.O. Committee)
          
           AB 953 (Brown) 1997-98 Session.   Would have allowed a 
          distilled spirits or beer supplier to sponsor a consumer 
          sweepstakes or contest, as defined, offering the chance to 
          win prizes or other things of value, if specified 
          conditions are met.  (Withdrawn from Senate third reading 
          and re-referred to Senate Committee on Rules)
          
          SB 1069 (Thompson) 1997-98 Session.   Would have allowed a 
          winegrower or brandy
          manufacturer to sponsor a sweepstakes or contest, as 
          defined, offering the chance to win prizes or other things 
          of value, if specified conditions are met, and to provide 
          rebates or
          discounts on nonalcoholic beverages or services in 
          connection with the sale or distribution of wine and brandy 
          under certain conditions.  (Placed on Assembly inactive 
          file)
           
          SB 993 (Burton) Chapter 544, Statutes of 1997.   Among other 
          things, provided that no rule of the Department of ABC may 
          impose a dollar limit for consumer advertising specialties 
          furnished by a distilled spirits supplier to a retailer or 
          to the general public of less than $5 per unit original 
          cost to the supplier who purchased it.  Also, authorized a 
          licensed distilled spirits manufacturer to conduct tastings 
          of distilled spirits on the licensed premises under 
          specified conditions.  
           
          SUPPORT:   As of January 6, 2012:

          Wine Institute (co-sponsor)
          The Family Winemakers of California (co-sponsor)
          Diageo
           
          OPPOSE:   As of January 6, 2012:




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          California Council on Alcohol Problems

           FISCAL COMMITTEE:   Senate Appropriations Committee

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