BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                              Senator Isadore Hall, III
                                        Chair
                                2015 - 2016  Regular 

          Bill No:           AB 1320          Hearing Date:    6/29/2015
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          |Author:    |Maienschein                                          |
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          |Version:   |5/13/2015    Amended                                 |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Arthur Terzakis                                      |
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          SUBJECT: Alcoholic beverages: tied-house restrictions:  
          advertising


           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, or cultural  
          entertainment events solely at the San Diego County Fairgrounds  
          in Del Mar, under specified conditions.

          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  







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            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].

          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)








          AB 1320 (Maienschein)                             Page 3 of ?
          
          

          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 operates and  
               promotes live artistic, musical, sports, or cultural  
               entertainment events only.

             b)   All of the live events are conducted at the San Diego  
               County Fairgrounds, in the City of Del Mar, and the events  
               will typically occur over a period of no more than four  
               consecutive days during which approximately 100 acts will  
               perform before approximately 20,000 or more patrons.

             c)   The live entertainment marketing company shall not  
               conduct more than three of these types of events within a  
               calendar year.

             d)   The live entertainment marketing company is a Delaware  
               limited liability company that is under common ownership,  
               management, or control by a private equity firm that may  
               also have common ownership, management, or control of a  
               licensed California winery, provided the winery represents  
               not more than 25% of the assets under common ownership,  
               management, or control by the private equity firm or its  
               subsidiaries, and the live entertainment marketing company  
               exercises no control over the operations of the winery.

             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 owning, sponsoring, or advertising  
               alcoholic beverage supplier.








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             f)   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 owning, advertising, or  
               sponsoring alcoholic beverage supplier by the live  
               entertainment marketing 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 the 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.

          Background

          Purpose of AB 1320.  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.

          This bill creates a stand-alone tied-house exception applicable  
          to Horsepower Entertainment Company, which is holding the KAABOO  








          AB 1320 (Maienschein)                             Page 5 of ?
          
          
          festival - a three-day event to be held in September 2015 at the  
          San Diego Fairgrounds in Del Mar that will combine a diverse mix  
          of music, culinary offerings, libations, art exhibitions,  
          comedy, dancing and other amenities.  Due to the fact that  
          Horsepower Entertainment's ownership includes an interest in a  
          Napa winery (Jamieson Ranch Vineyards) it cannot sponsor the  
          festival on the grounds of the San Diego County Fair which has  
          an on-sale licensee (caterer) on its premises.  This bill will  
          enable Horsepower Entertainment to enter into a contractual  
          agreement with an alcoholic beverage supplier interested in  
          purchasing advertising at the festival.  This bill subjects  
          Horsepower Entertainment to certain requirements, as specified,  
          and also requires the on-sale licensee operating at the venue  
          where the live events are performed to serve other brands of  
          beer, wine, or distilled spirits distributed by a competing  
          wholesaler in addition to any brand manufactured or distributed  
          by the owning, sponsoring, or advertising alcoholic beverage  
          supplier.

          According to the author's office, "the KAABOO festival is an  
          entertainment experience with world-class music, dancing,  
          incredible cuisine, craft libations, inspiring contemporary art,  
          and more.  In contrast to typical festivals, KAABOO will offer  
          local and regional delicacies, a contemporary art fair, salon  
          and golf simulator in addition to the more than 100 music acts.   
          KAABOO has committed to donate $1 for every ticket sold to San  
          Diego area charitable partners."

          Additionally, the author's office indicates that the festival is  
          expected to have a significant economic impact on the Del Mar  
          region - local restaurants, lodging and other businesses are  
          expected to benefit from the increased tourism that will be  
          generated. 
          
          Prior/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  








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          conditions.  (Pending in Assembly policy committee)

          AB 527 (Dodd, 2015) creates a new tied-house exception that  
          authorizes alcoholic beverage suppliers 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 non-publicly traded live entertainment company  
          that has its principal place of business in Napa County, subject  
          to specified restrictions.  (Pending in this Committee)


          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.  

           AB 663 (Galgiani, Chapter 745, Statutes of 2007) extended an  
          existing tied-house exception pertaining to the general  
          prohibition against advertising arrangements between retail,  








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          wholesale and manufacturer licensees to include an outdoor  
          professional sports facility with a fixed seating capacity of at  
          least 4,200 (Banner Island Ballpark - home of the Stockton Ports  
          Class A baseball team) located in San Joaquin County.  
           
           AB 3046 (Chavez, Chapter 587, Statutes of 2006) extended an  
          existing 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.

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


            SUPPORT:  

          KAABOO Entertainment (sponsor)
          Family Winemakers of California

          OPPOSITION:

          None received

          ARGUMENTS IN SUPPORT:    Writing in support, Family Winemakers  
          of California (FWC) notes that AB 1320 extends existing  
          tied-house exceptions relative to the general prohibition  
          against advertising arrangements between retail, wholesale, and  
          manufacturer licensees to Horsepower Entertainment which is  
          holding the KAABOO Festival 2015.  FWC states, "Traditionally,  
          entertainment venues sell a variety of advertising signage that  
          typically promotes products for sale at the facility or site,  
          including alcoholic beverages.  Advertising restrictions would  
          preclude any signage, paid for by the manufacturer, unless such  
          an exception is created.  Horsepower Entertainment's ownership  
          includes a wine producer necessitating the exception."