AB 527
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Adam Gray, Chair
AB 527 (Dodd) – As Introduced February 23, 2015
SUBJECT: Alcoholic beverage control: tied-house restrictions: advertising
SUMMARY: Provides a Tied-house exception allowing specific 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. 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 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.
2) Provides that any on-sale licensee operating at a venue where live artistic, musical, sports,
food, beverage, culinary, lifestyle, or other cultural entertainment events are performed pursuant
to a sponsorship or where advertising is purchased, as described, shall serve other brands of beer,
distilled spirits, and wine in addition to any brand manufactured or distributed by the sponsoring
or advertising 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. If, however, there is brand
diversity by virtue of the existence of multiple sponsors within the same sponsorship category,
this requirement shall not apply.
3) Provides any on-sale retail licensee owned by the live entertainment company, as described,
shall serve other brands of beer, distilled spirits, and wine in addition to any brand manufactured
or distributed by the sponsoring or advertising 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. If, however, there is brand diversity by virtue of the existence of multiple
sponsors within the same sponsorship category, this subparagraph shall not apply.
4) Provides advertising space or time purchased pursuant to this bill shall not be placed in any
on-sale licensed premises where the on-sale retail licensee is owned by the live entertainment
company, or any of its subsidiaries, as described.
5) Provides sponsorship provided pursuant to this bill shall not be allowed if the event or
activity is held at or in any on-sale licensed premises where the on-sale retail licensee is owned
by the live entertainment company, or any of its subsidiaries, as described.
6) Contains language to address coercion or other illegal means, relating to the purchase of
advertising time or space pursuant to this bill.
AB 527
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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 or
occupation taxes for this purpose.
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) Tied-house laws generally prohibit 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) The Act prohibits an alcoholic beverage supplier from paying money, or giving or furnishing
anything of value, for the privilege of placing or painting a sign or advertisement, or window
display, on or in premises selling alcoholic beverages at retail.
5) 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 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 and other
venues).
6) Provides a Tied-house exception allowing certain alcohol manufacturers and distributors to
sponsor events or purchase advertising space from a live entertainment company that has its
principal place of business in the County of Los Angeles, as defined.
7) Defines an “On-sale” license as authorizing the sale of all types of alcoholic beverages
namely, beer, wine and distilled spirits, for consumption on the premises (such as at a restaurant
or bar).
FISCAL EFFECT: Unknown
COMMENTS:
Purpose of the bill: According to the author's office, this bill provides for an additional “Tiedhouse” exception, allowing Napa County based live entertainment marketing companies to
receive advertising and sponsorship monies directly from alcohol manufacturers, to the economic
benefit of the Napa region and the State of California. This bill is needed because current law
prevents an alcohol manufacturer from paying a retailer directly or indirectly for advertising or
sponsorship opportunities.
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The author believes focusing the Tied-house exemption authorized by AB 527 on entertainment
events taking place in Napa County is important because those events promote the Napa Valley
Wine industry, which is the heart of California’s wine businesses. Napa Valley wines account
for a significant proportion of the state’s $61.5 billion in wine related economic activity. Wine is
not only a major state export, but also California wine accounts for more than 90% of the
nation's wine exports.
The author states that the Napa Valley Appellation is legally protected and it is world renown,
and when people think of California wine, they think of the Napa Valley. Entertainment events
that showcase this industry, in Napa, will help to promote this important California industry. In
addition, it would help to support local wineries and other businesses that are major contributors
to the local economy in rural regions of the county.
This bill, among other things, requires the on-sale licensee to serve other brands of beer, wine,
and distilled spirits distributed by a competing beer, wine or distilled spirits wholesaler in
addition to the brands manufactured or marketed by the advertising beer, wine or distilled spirits
manufacturer. In addition, the bill does not change previous Tied-house exceptions that other
brands of beer, wine or distilled spirts, distributed by competing wholesaler entities, be served at
the venue in addition to the brand that is advertised. This requirement creates some equity for
competing brands and wholesalers.
Background: Latitude 38 Entertainment, headquartered in Napa County, is a live entertainment
company and producer of the BottleRock Napa Valley Festival (Festival). To produce the
annual event, the entertainment company budgets approximately $2 million for costs associated
with renting the Napa County fairgrounds, hiring Napa County based employees and contractors,
City of Napa fees, security, parking rentals and other added expenses. More than 95,000 Festival
attendees spend an estimated $14 million on tourism, including hotel accommodations, food,
beverage and retail purchases. In addition, the Festival generates approximately $35 million of
added economic activity in the City and County of Napa.
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
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does not grant exemptions that favors the products of the entity seeking the exemption, or
exemptions that unfairly compromise the role of the distributors.
Possible amendments by the author: The author is considering the following amendments for
committee: 1) Limit the exemption to events held within the County of Napa; 2) Limit the
exemption to events where the expected attendance is at least 5,000 people per day; 3) No more
than 3 of these events may be held in Napa County each year; 4) Add a finding and declaration
to not undermine the general prohibition; 5) Remove beer wholesalers from requirements of the
bill; 6) On page 3, line 22 , after agent ... strike 22-25; 7) On page 3, line 33 , after agent ...
strike lines 33-36; and; 8) On page 3, line 39, after owned ... add “directly or indirectly."
Prior legislation: SB 600 (Bonta), Chapter 139, Statutes of 2014. Extended a “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 (Levi’s
Stadium) with a fixed seating capacity of at least 68,000 seats located in the City of Santa Clara.
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 813 (John A. Perez), Chapter 647, Statutes of 2009. Created a "Tied-house" exception by
allowing 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 onsale licensee’s premises.
SB 520 (Senate Governmental Organization Committee), Chapter 349, Statutes of 2007.
Provided a "Tied-house" exception allowing certain alcohol manufacturers and distributors to
sponsor events or purchase advertising space from a live entertainment company that has its
principal place of business in the County of Los Angeles.
AB 776 (Aghazarian) Chapter 221, Statutes of 2007. Created a "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 a “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 3046 (Chavez) Chapter 587, Statutes of 2006. Extended a “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.
AB 1442 (Horton) Chapter 617, Statutes of 2005. Extended a “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
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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 a "Tied-house" exception pertaining
to the general prohibition against advertising arrangements between retail, wholesale and
manufacturer licenses to the Oakland Coliseum in Alameda County.
SB 1189 (Costa) Chapter 47, Statutes of 2002. Extended a "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
California Travel Association (CalTravel)
Family Winemakers of California
Opposition
Alcohol Justice
Analysis Prepared by: Eric Johnson / G.O. / (916) 319-2531