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:  9/4/15 in Senate
          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, until January 1, 2019, 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.

          Senate Floor Amendments of 9/4/15 add clarity relative to the  
          type of licensees that can participate, add a three-year sunset  








                                                                     AB 527  
                                                                    Page  2


          clause, and add language requiring the live entertainment  
          company promoting the event to affirmatively represent and  
          warrant in writing to any retail licensee operating as the  
          retail licensee for such an event that it has fulfilled the  
          requirements and restrictions proscribed by law. 

          ANALYSIS:
          
          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  







                                                                     AB 527  
                                                                    Page  3


            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].   


          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 any importer's license  
            that does not also hold a wholesale or retail license as an  
            additional license, unless the holder of the importer's  
            license holds one of the other authorized licenses specified  
            in this section, holder of any rectifier's 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  







                                                                     AB 527  
                                                                    Page  4


               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 live entertainment company promoting the event shall  
               affirmatively represent and warrant in writing to any  
               retail licensee operating as the retail licensee for such  
               an event that the live entertainment company promoting the  
               event, including the subject event, has not exceeded the  
               permissible limit of three events and the expected  
               attendance for the event is in excess of 5,000 people per  
               day.  In addition, requires the retail licensee to provide  
               the written representation and warranty of the live  
               entertainment company to the Department of ABC and  
               affirmatively state when obtaining the authorization for  
               the event from ABC that the event is being held pursuant to  
               the conditions proscribed in this bill.

             d)   The sponsorship and the advertising space or time is  
               purchased only in connection with the promotion of live  
               artistic, musical, sports, food, beverage, culinary,  
               lifestyle, or other cultural entertainment events at  
               facilities, parks, fairgrounds, auditoriums, arenas or  
               venues that are designed for, or set up to be, and lawfully  
               permitted to be used for such events.

             e)   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.  

             f)   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.








                                                                     AB 527  
                                                                    Page  5


             g)   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.

             h)   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.

             i)   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  
            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  







                                                                     AB 527  
                                                                    Page  6


            economic hardship and that the tied-house exception provided  
            by this bill is in the best interests of the citizens of Napa  
            County. 

          7)Contains a January 1, 2019 sunset provision.

          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  
          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  







                                                                     AB 527  
                                                                    Page  7


          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 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.  (Enrolled and presented to the Governor on 9/3/15)

          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 the Senate Floor)

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          Yes


          SUPPORT:  (Verified 9/8/15)

          California Travel Association
          City of Napa 
          Family Winemakers of California
          Napa County Board of Supervisors
          Napa Valley Vintners

          OPPOSITION:  (Verified 9/8/15)

          None received

          ARGUMENTS IN SUPPORT:   Proponents contend that AB 527 will  







                                                                     AB 527  
                                                                    Page  8


          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
          9/8/15 14:38:35


                                   ****  END  ****