BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 527| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 527 Author: Dodd (D) Amended: 5/4/15 in Assembly Vote: 21 SENATE GOVERNMENTAL ORG. COMMITTEE: 12-0, 6/29/15 AYES: Hall, Berryhill, Block, Gaines, Glazer, Hernandez, Hill, Hueso, Lara, McGuire, Runner, Vidak NO VOTE RECORDED: Galgiani SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 76-0, 5/26/15 (Consent) - See last page for vote SUBJECT: Alcoholic beverage control: tied-house restrictions: advertising SOURCE: Author DIGEST: This bill creates a new tied-house exception in the Alcoholic Beverage Control (ABC) Act that authorizes certain alcoholic beverage licensees to sponsor a limited number of events promoted by or to purchase advertising space and time from, or on behalf of, a live entertainment marketing company that conducts live artistic, musical, sports, food, beverage, culinary, or other cultural entertainment events at venues located solely in the County of Napa, under specified conditions. ANALYSIS: AB 527 Page 2 Existing law: 1)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 for this purpose. 2)Separates the alcoholic beverage industry into three component parts, or tiers (referred to as the "tied-house" law or "three-tier" system), of manufacturer (including breweries, wineries and distilleries), wholesaler, and retailer (both on-sale and off-sale). 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 market place; (c) prohibit commercial bribery and to 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. 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. 4)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 (formerly known as ARCO 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 the City of Carson, Levi's Stadium in the City of Santa Clara, and other venues]. AB 527 Page 3 5)Provides a narrow tied-house exception that expressly authorizes, under specified conditions, a beer manufacturer, 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 to purchase advertising space or time from a fully enclosed venue (ClubNokia) with box office sales and attendance by the public on a ticket basis only, with a patronage capacity in excess of 2,000, but not more than 3,000, located in Los Angeles County within the area subject to the Los Angeles Sports and Entertainment District Specific Plan adopted by the City on September 6, 2001, where the owner of the venue is not the on-sale retail licensee. (Business & Professions Code Section 25503.42) This bill: 1)Authorizes a beer manufacturer, holder of a winegrower's license, winegrower's agent, holder of an importer's general license that does not also hold a wholesale or retail license as an additional license, 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 sponsor events promoted by or to purchase advertising space and time from, or on behalf of, a live entertainment marketing company subject to the following conditions: a) The live entertainment marketing company is a wholly owned subsidiary of a live entertainment company that is not publicly traded, has its principal place of business in Napa County, and may also own interests, directly or indirectly, in retail licenses or winegrower licenses. b) The venue of the event is located within the County of Napa with expected attendance of at least 5,000 people per day, with no more than three such events to be held in the County each year. c) The sponsorship and the advertising space or time is purchased only in connection with the promotion of live artistic, musical, sports, food, beverage, culinary, AB 527 Page 4 lifestyle, or other cultural entertainment events at facilities, parks, fairgrounds, auditoriums, arenas or venues that are designed for, or set up to be, lawfully used for such events. d) Any on-sale licensee operating at a venue where live events are performed pursuant to a sponsorship or where advertising is purchased must serve other brands of beer, wine, or distilled spirits distributed by a competing wholesaler in addition to any brand manufactured or distributed by the sponsoring or advertising alcoholic beverage supplier. e) Any on-sale retail licensee "owned by the live entertainment company" must serve other brands of beer, distilled spirits, and wine distributed by a competing wholesaler in addition to any brand manufactured or distributed by the sponsoring or advertising alcoholic beverage supplier. f) Advertising space or time purchased shall not be placed in any on-sale licensed premises where the on-sale retail licensee is owned directly or indirectly by the live entertainment company, or any of its subsidiaries. g) Sponsorship shall not be allowed if the event 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. h) An agreement for the sponsorship of or for the purchase of advertising space and time during a live event 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 or sponsoring alcoholic beverage supplier by the live entertainment company. 2)Provides that any sponsorship of events or purchase of advertising space or time must be conducted pursuant to a written contract entered into by the alcoholic beverage supplier and the live entertainment marketing company. 3)Makes it a misdemeanor for an alcoholic beverage supplier to AB 527 Page 5 coerce or induce, directly or indirectly, a licensed wholesaler to fulfill the contractual obligations entered into pursuant to the above provisions. Also, subjects the alcoholic beverage supplier (licensee) to license suspension or revocation. 4)Makes it a misdemeanor for any on-sale retail licensee to solicit or coerce, directly or indirectly, an alcoholic beverage supplier to purchase advertising time or space and subjects the on-sale retail licensee to license suspension or revocation. 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 in the production and distribution of alcoholic beverages. 6)Finds and declares that the earthquake that struck Napa on August 24, 2014, was a catastrophic event that resulted in economic hardship and that the tied-house exception provided by this bill is in the best interests of the citizens of Napa County. Background Purpose of AB 527. As noted above, existing tied-house laws prohibit an alcoholic beverage supplier, or any officer, director or agent of an alcoholic beverage supplier, from providing anything of value to an on-sale retailer licensee, be it free goods, money, services or advertising. Over the years, numerous exceptions to this prohibition have been added to the ABC Act encompassing various venues throughout the state. According to the author's office, Latitude 38 Entertainment, headquartered in Napa County, produces the annual BottleRock festival and 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, and beverage and retail purchases. In addition, the festival generates approximately $35 million of economic activity in the City and AB 527 Page 6 County of Napa. This bill creates a stand-alone tied-house exception applicable to Latitude 38 Entertainment Company (or any other such live entertainment marketing company based in Napa County) which promotes and produces the BottleRock Napa Valley Festival - a three-day event held in late May that features a diverse mix of live music, culinary offerings, libations and other amenities. This bill is necessary due to the fact that Latitude 38 Entertainment's ownership group includes a wine producer. This bill will enable alcoholic beverage suppliers to purchase advertising space and time at the festival from Latitude 38 Entertainment, as well as other live entertainment marketing companies in Napa County who fall under the same circumstances. This bill subjects Latitude 38 Entertainment to certain requirements, as specified, and also requires that other brands of beer, wine, or distilled spirits distributed by a competing wholesaler be served at the venue in addition to any brand manufactured or distributed by the sponsoring or advertising alcoholic beverage supplier. Furthermore, this bill makes it explicit that no more than three such events may be held in Napa County each year. Related/Prior Legislation SB 462 (Wolk, 2015) extends an existing tied-house exception in the ABC Act pertaining to the general prohibition against advertising arrangements between retail, wholesale and manufacturer licensees to include a specified entertainment complex, known as the Green Music Center, located on the campus of Sonoma State University. Additionally, this bill adds a new section of law to the ABC Act that allows alcoholic beverage licensees, as specified, to make monetary or alcoholic beverage contributions to the Green Music Center under certain conditions. (Pending in Assembly Appropriations Committee) AB 1320 (Maienschein, 2015) creates a new tied-house exception in the ABC Act that authorizes certain alcoholic beverage licensees to sponsor a limited number of events promoted by or to purchase advertising space and time from, or on behalf of, a live entertainment marketing company that conducts live artistic, musical, sports, or cultural entertainment events solely at the San Diego County Fairgrounds in Del Mar, under specified conditions. (Pending on Senate Floor) AB 527 Page 7 AB 600 (Bonta, Chapter 139, Statutes of 2014) extended an existing 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 with a fixed seating capacity of at least 68,000 seats located in the City of Santa Clara (Levi's Stadium - new home of the San Francisco 49ers). SB 324 (Wright, Chapter 164, Statutes of 2013) extended an existing tied-house exception pertaining to the general prohibition against advertising arrangements between retail, wholesale and manufacturer licensees to include a fully enclosed arena with a fixed seating capacity in excess of 13,000 seats (the Forum) in the City of Inglewood. AB 813 (John A. Perez, Chapter 647, Statutes of 2009) created a new tied-house exception that authorized 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, subject to specified conditions. AB 776 (Aghazarian, Chapter 221, Statutes of 2007) created a new 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. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT: (Verified 8/7/15) California Travel Association City of Napa Family Winemakers of California Napa County Board of Supervisors Napa Valley Vintners AB 527 Page 8 OPPOSITION: (Verified 8/7/15) None received ARGUMENTS IN SUPPORT: Proponents contend that AB 527 will provide Napa County based companies the ability to receive advertising and sponsorship monies directly from alcoholic beverage manufacturers to the benefit of the region and the State of California. Additionally, proponents claim that AB 527 will help facilitate sponsorship agreements between vintners and sponsors of certain community events which in turn will help promote travel and tourism throughout the Napa region. ASSEMBLY FLOOR: 76-0, 5/26/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Bloom, Chávez, Harper, Mathis Prepared by:Arthur Terzakis / G.O. / (916) 651-1530 8/20/15 16:25:59 **** END ****