BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 557


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          SENATE THIRD READING


          SB  
          557 (Hall)


          As Amended  June 29, 2015


          Majority vote


          SENATE VOTE:  39-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Governmental    |19-0 |Gray, Linder,         |                    |
          |Organization    |     |Achadjian, Alejo,     |                    |
          |                |     |Bigelow, Campos,      |                    |
          |                |     |Cooley, Cooper, Daly, |                    |
          |                |     |Cristina Garcia,      |                    |
          |                |     |Eduardo Garcia,       |                    |
          |                |     |Jones-Sawyer, Levine, |                    |
          |                |     |Mayes, Perea, Salas,  |                    |
          |                |     |Steinorth, Waldron,   |                    |
          |                |     |Wilk                  |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |17-0 |Gomez, Bigelow,       |                    |
          |                |     |Bloom, Bonta,         |                    |
          |                |     |Calderon, Chang,      |                    |
          |                |     |Daly, Eggman,         |                    |
          |                |     |Gallagher,            |                    |








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          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Eduardo Garcia,       |                    |
          |                |     |Holden, Jones, Quirk, |                    |
          |                |     |Rendon, Wagner,       |                    |
          |                |     |Weber, Wood           |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
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          SUMMARY:  Extends an existing tied-house exception in the  
          Alcoholic Beverage Control Act (Act) pertaining to the general  
          prohibition against advertising arrangements between retail,  
          wholesale and manufacturer licensees to include a fairgrounds  
          with a horse racetrack and equestrian and sports facilities (Del  
          Mar Fairgrounds) in San Diego County.  Specifically, this bill:


          1)Allows a beer manufacturer, the holder of a winegrower's  
            license, a distilled spirits rectifier, a distilled spirits  
            manufacturer, or distilled spirits manufacturer's agent may  
            purchase advertising space and time from, or on behalf of, an  
            on-sale retail licensee at a fairgrounds (22nd District  
            Agricultural Association) with a horse racetrack and  
            equestrian and sports facilities located in San Diego County,  
            subject to specified conditions.


          2)Make legislative findings and declarations as to the necessity  
            of a special statute for the County of San Diego.


          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  








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            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)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.


          3)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].   



          4)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  








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            Plan adopted by the City of Los Angeles on September 6, 2001,  
            where the owner of the venue is not the on-sale retail  
            licensee.  (Business and Professions Code Section 25503.42)


          5)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:  According to the Assembly Appropriations  
          Committee, minor and absorbable enforcement costs to ABC.


          COMMENTS: 


          Purpose of the bill:  The author's office notes that this  
          measure would amend ABC tied-house provisions to include the Del  
          Mar Fairgrounds on the list of exemptions in the law, thereby  
          allowing the fairgrounds 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  
          distributor unless such an exception is created.  The author's  
          office emphasizes that such an exemption would put the  
          fairgrounds and the racetrack on an even playing field with  
          other arenas and stadiums in California and help support efforts  
          to make horse racing and other events economically viable.  


          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,  








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          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 and 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.


          An annual fair is just one of many year-round activities for  
          fair organizations in California.  Fair officials 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.










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          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  
          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 the current legislative  
          session.  Creates a new tied-house exception in the 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,  








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          food, beverage, culinary, or other cultural entertainment events  
          at venues located solely in the County of Napa, under specified  
          conditions.   (Pending on Senate Floor)


          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  
          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.  









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          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. 




          Analysis Prepared by:                                             
                          Eric Johnson / G.O. / (916) 319-2531  FN:  
          0001586