BILL ANALYSIS Ó
AB 527
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Adam Gray, Chair
AB 527
(Dodd) - As Introduced February 23, 2015
SUBJECT: Alcoholic beverage control: tied-house restrictions:
advertising
SUMMARY: Provides a Tied-house exception allowing specific
alcohol manufacturers and distributors to sponsor events or
purchase advertising space and time from, or on behalf of, a
live entertainment marketing company that is a wholly owned
subsidiary of a live entertainment company that has its
principal place of business in the County of Napa, under
specified conditions. Specifically, this bill:
1) Authorizes a beer manufacturer, holder of a winegrower's
license, winegrower's agent, holder of an importer's general
license, distilled spirits manufacturer, holder of a distilled
spirits rectifiers general license, or a distilled spirits
manufacturer's agent to sponsor events promoted by or purchase
advertising space and time from, or on behalf of, a live
entertainment marketing company that is a wholly owned
subsidiary of a live entertainment company that has its
principal place of business in the County of Napa, under
specified conditions.
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2) Provides that any on-sale licensee operating at a venue
where live artistic, musical, sports, food, beverage, culinary,
lifestyle, or other cultural entertainment events are performed
pursuant to a sponsorship or where advertising is purchased, as
described, shall serve other brands of beer, distilled spirits,
and wine in addition to any brand manufactured or distributed by
the sponsoring or advertising beer manufacturer, holder of a
winegrower's license, winegrower's agent, holder of an
importer's general license, distilled spirits manufacturer,
holder of a distilled spirits rectifiers general license, or a
distilled spirits manufacturer's agent. If, however, there is
brand diversity by virtue of the existence of multiple sponsors
within the same sponsorship category, this requirement shall not
apply.
3) Provides any on-sale retail licensee owned by the live
entertainment company, as described, shall serve other brands of
beer, distilled spirits, and wine in addition to any brand
manufactured or distributed by the sponsoring or advertising
beer manufacturer, holder of a winegrower's license,
winegrower's agent, holder of an importer's general license,
distilled spirits manufacturer, holder of a distilled spirits
rectifiers general license, or a distilled spirits
manufacturer's agent. If, however, there is brand diversity by
virtue of the existence of multiple sponsors within the same
sponsorship category, this subparagraph shall not apply.
4) Provides advertising space or time purchased pursuant to
this bill shall not be placed in any on-sale licensed premises
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where the on-sale retail licensee is owned by the live
entertainment company, or any of its subsidiaries, as described.
5) Provides sponsorship provided pursuant to this bill shall
not be allowed if the event or activity is held at or in any
on-sale licensed premises where the on-sale retail licensee is
owned by the live entertainment company, or any of its
subsidiaries, as described.
6) Contains language to address coercion or other illegal
means, relating to the purchase of advertising time or space
pursuant to this bill.
EXISTING LAW:
1) 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. 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) Existing law, known as the "tied-house" law or "three-tier"
system, separates the alcoholic beverage industry into three
component parts of manufacturer (the first tier), wholesaler
(the second tier), and retailer (the third tier). The original
policy rationale for this body of law was to prohibit the
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vertical integration of the alcohol industry and to protect the
public from predatory marketing practices.
3) Tied-house laws generally prohibit suppliers and retailers
from sharing common owners and legally restrict alcohol beverage
suppliers' ability to gain control over retailers through
indirect means. 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.
4) The Act 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.
5) 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 (e.g., Sleep Train Arena in Sacramento,
Oakland Coliseum in Oakland, Arrowhead Pond Arena in Anaheim,
Kern County Arena in Bakersfield, the National Orange Show Event
Center in San Bernardino, California Speedway in Fontana,
Grizzly Stadium in downtown Fresno, Raley Field in West
Sacramento, HP Pavilion in San Jose, the Home Depot Center in
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the City of Carson and other venues).
6) Provides a Tied-house exception allowing certain alcohol
manufacturers and distributors to sponsor events or purchase
advertising space from a live entertainment company that has its
principal place of business in the County of Los Angeles, as
defined.
7)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).
FISCAL EFFECT: Unknown
COMMENTS:
Purpose of the bill : According to the author's office, this
bill provides for an additional "Tied-house" exception, allowing
Napa County based live entertainment marketing companies to
receive advertising and sponsorship monies directly from alcohol
manufacturers, to the economic benefit of the Napa region and
the State of California. This bill is needed because current
law prevents an alcohol manufacturer from paying a retailer
directly or indirectly for advertising or sponsorship
opportunities.
The author believes focusing the Tied-house exemption authorized
by AB 527 on entertainment events taking place in Napa County is
important because those events promote the Napa Valley Wine
industry, which is the heart of California's wine businesses.
Napa Valley wines account for a significant proportion of the
state's $61.5 billion in wine related economic activity. Wine
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is not only a major state export, but also California wine
accounts for more than 90% of the nation's wine exports.
The author states that the Napa Valley Appellation is legally
protected and it is world renown, and when people think of
California wine, they think of the Napa Valley. Entertainment
events that showcase this industry, in Napa, will help to
promote this important California industry. In addition, it
would help to support local wineries and other businesses that
are major contributors to the local economy in rural regions of
the county.
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.
In addition, the bill does not change previous Tied-house
exceptions that other brands of beer, wine or distilled spirts,
distributed by competing wholesaler entities, be served at the
venue in addition to the brand that is advertised. This
requirement creates some equity for competing brands and
wholesalers.
Background : Latitude 38 Entertainment, headquartered in Napa
County, is a live entertainment company and producer of the
BottleRock Napa Valley Festival (Festival). To produce the
annual event, the entertainment company budgets approximately $2
million for costs associated with renting the Napa County
fairgrounds, hiring Napa County based employees and contractors,
City of Napa fees, security, parking rentals and other added
expenses. More than 95,000 Festival attendees spend an
estimated $14 million on tourism, including hotel
accommodations, food, beverage and retail purchases. In
addition, the Festival generates approximately $35 million of
added economic activity in the City and County of Napa.
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Tied-house law : Tied-House Law refers to the statutory scheme
restricting any cross-ownership among the three independent
tiers of the alcohol industry: a) manufacturers; b)
distributors/wholesalers; and, c) retailers. The term
"Tied-House" refers to a practice which was common in this
country prior to prohibition, and is still occurring in England
today, where a bar or "public house" is tied to the products of
a particular manufacturer.
The original rationale for Tied-house restrictions are in place
to promote the state's interest in maintaining an orderly
market, to prohibit the vertical integration of the alcohol
industry, to protect the public from predatory marketing
practices, and to prevent the intemperate consumption of
alcoholic beverages. In order to further these policy goals,
the Legislature has generally prohibited forms of
cross-ownership between manufacturers and retailers, and
discouraged manufacturers from providing anything of value to
distributors or retailers, be it free goods, services or
advertising.
Numerous exceptions to these restrictions have been enacted
through the years in those specific instances where the
Legislature determined that the public's interests were
protected. Generally, the business community is interested in
removing unnecessary business regulations and creating
conditions that facilitate investment and expansion
opportunities for companies that have some degree of ownership
in multiple segments of the industry. However, the Legislature
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traditionally does not grant exemptions that favors the products
of the entity seeking the exemption, or exemptions that unfairly
compromise the role of the distributors.
Possible amendments by the author : The author is considering
the following amendments for committee: 1) Limit the exemption
to events held within the County of Napa; 2) Limit the
exemption to events where the expected attendance is at least
5,000 people per day; 3) No more than 3 of these events may be
held in Napa County each year; 4) Add a finding and declaration
to not undermine the general prohibition; 5) Remove beer
wholesalers from requirements of the bill; 6) On page 3, line
22 , after agent ... strike 22-25; 7) On page 3, line 33 ,
after agent ... strike lines 33-36; and; 8) On page 3, line 39,
after owned ... add "directly or indirectly."
Prior legislation : SB 600 (Bonta), Chapter 139, Statutes of
2014. Extended a "Tied-house" exception in the ABC Act
pertaining to the general prohibition against advertising
arrangements between retail, wholesale and manufacturer
licensees to include an outdoor stadium (Levi's Stadium) with a
fixed seating capacity of at least 68,000 seats located in the
City of Santa Clara.
SB 324 (Wright), Chapter 164, Statutes of 2013. Provided a
"Tied-house" exception to the ABC Act pertaining to the general
prohibition against advertising arrangements between retail,
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wholesale and manufacturer licensees and the Los Angeles Forum
in the City of Inglewood.
AB 813 (John A. Perez), Chapter 647, Statutes of 2009. Created
a "Tied-house" exception by allowing 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.
SB 520 (Senate Governmental Organization Committee), Chapter
349, Statutes of 2007. Provided a "Tied-house" exception
allowing certain alcohol manufacturers and distributors to
sponsor events or purchase advertising space from a live
entertainment company that has its principal place of business
in the County of Los Angeles.
AB 776 (Aghazarian) Chapter 221, Statutes of 2007. Created a
"Tied-house" exception by authorizing a beer manufacturer to
sponsor or purchase advertising space and time from, or on
behalf of, an off-sale retail licensee that is an owner or
co-owner of a professional sports team (California Cougars
indoor soccer team) that plays its home games, in an arena with
a fixed seating capacity of 10,000 seats (Stockton Arena)
located in San Joaquin County.
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AB 663 (Galgiani) Chapter 745, Statutes of 2007. Extended a
"Tied-house" exception pertaining to the general prohibition
against advertising arrangements between retail, wholesale and
manufacturer licensees to include an outdoor professional sports
facility with a fixed seating capacity of at least 4,200 (Banner
Island Ballpark) located in San Joaquin County.
AB 3046 (Chavez) Chapter 587, Statutes of 2006. Extended a
"Tied-house" exception pertaining to the general prohibition
against advertising arrangements between retail, wholesale and
manufacturer licensees to the HP Pavilion in Santa Clara County.
AB 1442 (Horton) Chapter 617, Statutes of 2005. Extended a
"Tied-house" exception pertaining to the general prohibition
against advertising arrangements between retail, wholesale and
manufacturer licensees to the Home Depot Center, a sports and
athletic complex within the City of Carson in Los Angeles and
the Nokia Theater, located within the Los Angeles Sports and
Entertainment District, adjacent to Staples Center.
AB 3085 (Governmental Organization Committee), Chapter 437,
Statutes of 2004. Provided the Los Angeles County Fair with an
exemption from "Tied-house" laws so that so that alcohol
manufacturers may purchase advertising from, or on behalf of,
the on-sale licensees at this venue.
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SB 1647 (Perata) Chapter 275, Statutes of 2004. Extended a
"Tied-house" exception pertaining to the general prohibition
against advertising arrangements between retail, wholesale and
manufacturer licenses to the Oakland Coliseum in Alameda County.
SB 1189 (Costa) Chapter 47, Statutes of 2002. Extended a
"Tied-house" exception pertaining to the general prohibition
against advertising arrangements between retail, wholesale and
manufacturer licenses to the Visalia Oaks Stadium in Visalia and
the California Speedway in Fontana.
REGISTERED SUPPORT / OPPOSITION:
Support
California Travel Association (CalTravel)
Family Winemakers of California
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Opposition
Alcohol Justice
Analysis Prepared by:Eric Johnson / G.O. / (916) 319-2531