BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1320| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1320 Author: Maienschein (R) Amended: 9/4/15 in Senate Vote: 27 - Urgency 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 beverages: tied-house restrictions: advertising SOURCE: KAABOO Entertainment DIGEST: This bill creates a new tied-house exception in the Alcoholic Beverage Control (ABC) Act that authorizes certain alcoholic beverage licensees to sponsor 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 on the premises of a permanent retail licensee located at the San Diego County Fairgrounds in the City of Del Mar, under specified conditions. Senate Floor Amendments of 9/4/15 are largely a technical redraft to address concerns raised by the Department of ABC relative to implementation and enforcement of this bill. AB 1320 Page 2 Senate Floor Amendments of 8/18/15 include "rectifier" to the list of licensees that can purchase advertising; modify certain license terms so that they conform to existing ABC Act language; and, add an urgency clause. 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 AB 1320 Page 3 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) This bill: 1)Provides that an authorized licensee, as defined, may sponsor events promoted by, and may purchase advertising space and time from, or on behalf of, a live entertainment marketing company in connection with events organized and conducted by the live entertainment company on the premises of a permanent retail licensee located at the San Diego County Fairgrounds, in the City of Del Mar, subject to the following conditions: a) The live entertainment marketing company operates and promotes live artistic, musical, sports, or cultural entertainment events only. b) The events will take place over a period of no more than four consecutive days during which approximately 100 acts will perform before approximately 20,000 or more patrons. AB 1320 Page 4 c) 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. d) Any authorized licensee sponsoring an event or purchasing advertising space or time, pursuant to this section, must obtain written verification of compliance with this subdivision prior to such sponsorship or the purchase of advertising space or time. e) Any on-sale licensee operating at the San Diego County Fairgrounds must serve other brands of beer, wine, or distilled spirits distributed by a competing wholesaler in addition to any brand manufactured, distributed, or owned by the authorized licensee sponsoring an event or purchasing advertising space or time pursuant to this section. f) An agreement pursuant to this section shall not be conditioned directly or indirectly on the purchase, sale, or distribution of any alcoholic beverage manufactured or distributed by any authorized licensee sponsoring or purchasing advertising space or time pursuant to this section. 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 authorized licensee and the live entertainment marketing company. 3)Makes it a misdemeanor for any authorized licensee 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 authorized licensee to license suspension or revocation. AB 1320 Page 5 4)Makes it a misdemeanor for any on-sale retail licensee to solicit or coerce, directly or indirectly, a licensed wholesaler to solicit an authorized licensee 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)Defines "authorized licensee" to mean the following licensees: beer manufacturer, out-of-state beer manufacturer's certificate, winegrower, winegrower's agent, importer, rectifier, distilled spirits manufacturer, distilled spirits rectifier general, distilled spirits manufacturer's agent. Also, specifies, except for a licensee that holds only a beer and wine importer general license or a distilled spirits importer general license, "importer" does not include the holder of any importer license that does not also hold at least one other license specified as an authorized licensee. 7)Contains an urgency clause, to take effect immediately. 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 festival - a three-day event to be held in September 2015 at the San Diego County 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 AB 1320 Page 6 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 alcoholic beverage licensee on its premises. This bill will enable Horsepower Entertainment to enter into a contractual agreement with any authorized alcoholic beverage licensee interested in purchasing advertising time or space at the festival. This bill subjects Horsepower Entertainment to certain requirements, as specified, and also requires the on-sale licensee operating at the San Diego County Fairgrounds to serve other brands of beer, wine, or distilled spirits distributed by a competing wholesaler in addition to any brand manufactured, distributed, or owned by the authorized licensee sponsoring an event or purchasing advertising space or time. 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. 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 AB 1320 Page 7 conditions. (Enrolled and presented to the Governor on 9/3/15) 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 on the Senate Floor) FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT: (Verified 9/8/15) KAABOO Entertainment (source) Family Winemakers of California OPPOSITION: (Verified 9/8/15) None received 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 15:00:06 AB 1320 Page 8 **** END ****