BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       AB 1320|
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                                   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.









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          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  








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            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.








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             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.








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          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  








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          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  








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          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










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