BILL ANALYSIS Ó AB 1320 Page 1 Date of Hearing: April 27, 2015 ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION Adam Gray, Chair AB 1320 (Maienschein) - As Amended March 26, 2015 SUBJECT: Alcoholic beverages: tied-house restrictions: fairgrounds SUMMARY: Extends an existing "Tied-house" exception in the Alcoholic Beverage Control Act (ABC Act) pertaining to the general prohibition against advertising arrangements between retail, wholesale and manufacturer licensees to include a state or county-owned fairgrounds, 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 own, sponsor, conduct, or purchase advertising space and time from, or on behalf of, an on-sale retail licensee that is the owner, manager, agent of the owner, assignee of the owner's advertising rights, or major tenant of a state or county-owned fairground, under specified conditions. AB 1320 Page 2 2) Makes 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 who, through coercion or other illegal means, induces the holder of a wholesaler's license to fulfill those contractual obligations entered into pursuant to these provisions guilty of a misdemeanor. 3) Makes an on-sale retail licensee, as described, who solicits or coerces a holder of a wholesaler's license to solicit 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 purchase advertising time or space pursuant to these provisions guilty of a misdemeanor. 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 for this purpose. AB 1320 Page 3 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 vertical integration of the alcohol industry and to protect the public from predatory marketing practices. 3) Generally prohibits 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) 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 5) Grants a Tied-house exception to any holder of a beer manufacturer's or winegrower's license authorizing the purchase of advertising from, or on behalf of, an on-sale licensee if the on-sale licensee is the owner, manager, agent of the owner, assignee of the owner's advertising rights, or the major tenant of the owner of any of the following: AB 1320 Page 4 a) An outdoor stadium or a fully enclosed arena with a fixed seating capacity in excess of 10,000 seats located in Sacramento County or Alameda County; b) A fully enclosed arena with a fixed seating capacity in excess of 18,000 seats located in Orange County or Los Angeles County; c) An outdoor stadium or fully enclosed arena with a fixed seating capacity in excess of 8,500 seats located in Kern County; d) An exposition park of not less than 50 acres that includes an outdoor stadium with a fixed seating capacity in excess of 8,000 seats and a fully enclosed arena with an attendance capacity in excess of 4,500 people, located in San Bernardino County; e) An outdoor stadium with a fixed seating capacity in excess of 10,000 seats located in Yolo AB 1320 Page 5 County; f) An outdoor stadium and a fully enclosed arena with fixed seating capacities in excess of 10,000 seats located in Fresno County; g) An athletic and entertainment complex of not less than 50 acres that includes within its boundaries an outdoor stadium with a fixed seating capacity of at least 8,000 seats and a second outdoor stadium with a fixed seating capacity of at least 3,500 seats located within Riverside County; h) An outdoor stadium with a fixed seating capacity in excess of 1,500 seats located in Tulare County; i) A motorsports entertainment complex of not less than 50 acres that includes within its boundaries an outdoor speedway with a fixed seating capacity of at least 50,000 seats, located within San Bernardino County; AB 1320 Page 6 j) An exposition park, owned or operated by a bona fide nonprofit organization, of not less than 400 acres with facilities including a grandstand with a seating capacity of at least 8,000 people, at least one exhibition hall greater than 100,000 square feet, and at least four exhibition halls, each greater than 30,000 square feet, located in the City of Pomona or the City of La Verne in Los Angeles County; k) An outdoor soccer stadium with a fixed seating capacity of at least 25,000 seats, an outdoor tennis stadium with a fixed capacity of at least 7,000 seats, an outdoor track and field facility with a fixed seating capacity of at least 7,000 seats, and an indoor velodrome with a fixed seating capacity of at least 2,000 seats, all located within a sports and athletic complex built before January 1, 2005, within the City of Carson in Los Angeles County; l) An outdoor professional sports facility with a fixed seating capacity of at least 4,200 seats located within San Joaquin County; AB 1320 Page 7 m) A fully enclosed arena with a fixed seating capacity in excess of 13,000 seats in the City of Inglewood; and n) An outdoor stadium with a fixed seating capacity of at least 68,000 seats located in the City of Santa Clara. 6) Defines a state-supported fair organization as any fair that conducts an annual fair and submits an annual statement of operations to the CDFA. The generic term of "fairs" refers to District Agricultural Associations (DAA's), county fairs, citrus fairs, and the California State Fair. FISCAL EFFECT: Unknown COMMENTS: Purpose of the bill : According to the author's office, this bill amends ABC "Tied-house" provisions to include state-or county-owned fairgrounds on the list of exemptions in the law, thereby allowing these fairs to develop certain alcoholic beverage sponsorships with various manufacturers and distributors. The author's office points out that existing law precludes any signage paid for by an alcoholic beverage manufacturer or AB 1320 Page 8 distributor unless such an exception is created. The author's office emphasizes that such an exemption which would put the network of California fairs on an even playing field with other entertainment business in California and help support the industry's efforts to make fairs more economically sustainable. This Tied-house exemption is narrowly crafted and similar to those granted to the Los Angeles Forum in the City of Inglewood, the Los Angeles County Fair in Los Angeles County, the National Orange Show in San Bernardino, a theme or amusement park located in Orange County (Disneyland), the California Speedway in Fontana, the Indian Wells Tennis Club in Riverside County, non-profit theatre organizations, and maritime museums, among others. Background : The network of California fairs includes 77 fair organizations divided into four categories: 52 DAA's - state government entities, 22 county fairs - County government or not-for-profit organizations, 2 citrus fruit fairs - not-for-profit organizations and the California Exposition and State Fair (Cal Expo) - a state agency. California's 77 fairs are located throughout the Golden State and host fairs from early spring to the fall of each year. The California Department of Food & Agriculture (CDFA) is responsible for the oversight of California's agricultural industry, including the network of California fairs. The Division of Fairs and Expositions (F&E), provides fiscal and policy oversight of the network of California fairs and ensures the best use of available funding and services. AB 1320 Page 9 An annual fair is just one of many year-round activities for fair organizations in California. They must facilitate use of the fairgrounds for interim events sponsored by community groups and private entities as well as manage ongoing maintenance and capital improvement projects. As a result, the fair network creates the opportunity for small-to medium-sized businesses and nonprofit community groups to make money from these year-round activities. These interim events further boost jobs, incomes and tax revenues in every county throughout the state. While the California fair network makes it possible for this economic activity to occur, fair organizations are public, not-for-profit entities that exist to promote industries of the state and provide a community gathering place. They do not receive state general fund monies in support of these efforts. 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 AB 1320 Page 10 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 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. Related legislation : AB 527 (Dodd) of 2015. Would allow 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. (Pending in Assembly Appropriations Committee) AB 1320 Page 11 Prior legislation : SB 600 (Bonta), Chapter 139, Statutes of 2014. 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 an outdoor stadium with a fixed seating capacity of at least 68,000 seats located in the City of Santa Clara (Levi's Stadium - San Francisco 49ers new stadium). 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, wholesale and manufacturer licensees and the Los Angeles Forum in the City of Inglewood. 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. AB 663 (Galgiani) Chapter 745, Statutes of 2007. Extended an AB 1320 Page 12 existing "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 1442 (Horton) Chapter 617, Statutes of 2005. Extended an existing "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. SB 1647 (Perata) Chapter 275, Statutes of 2004. Extended an existing "Tied-house" exception pertaining to the general prohibition against advertising arrangements between retail, wholesale and manufacturer licenses to the Oakland Coliseum in Alameda County. AB 1320 Page 13 SB 1189 (Costa) Chapter 47, Statutes of 2002. Extended an existing "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 KAABOO Entertainment Opposition None on file Analysis Prepared by:Eric Johnson / G.O. / (916) 319-2531 AB 1320 Page 14