Pay-to-Play Schemes are No Longer a Risk Worth Taking


Just before the holiday in its November 16, 2016, press release, the TTB announced that Craft Brewers Guild, LLC, a Massachusetts beer distributor, will pay $750,000 to settle trade practice violations stemming from their role in a pay-to-play scheme with local retailers. CBG admitted to paying bars and other retail outlets upwards of $2,000 per tap handle, and as much as $20,000 annually, for the promise of committed lines. This settlement marks the largest sum ever recovered from a single industry member for this type of violation, and underscores the TTB's renewed commitment to cracking down on the pay-to-play practice on a national level. 

Why is this important?

We largely view the beer industry as a microcosm of free market mechanics. Artificial forces affecting price takers, makers, barriers to entry, information flow, etc. are an objective reality of the alcoholic beverage landscape and also worthy of examination because, well, artificial forces are sort of what we deal in. Last week, we spoke to the emerging regulatory enforcement trend for occupational safety within breweries. This update, however, is more directly connected to the welfare of the beer-loving consumer.

Pay-to-play schemes are an inherent disadvantage to small breweries. When tap and shelf space—finite retail resources—are allocated to the highest bidder(s), new and niche brands have to find alternative, more costly paths to market or forgo retail opportunity altogether. The selection and variety available to the beer-buying public thus becomes quite limited over a period of years. (Note: Consider the role of pay-to-play in a young brewery's decision to sell into a big beer portfolio. Interesting, right?!) With the TTB's restated fervor for stamping out widespread pay-to-play schemes, its logical that regulatory enforcement will continue to rise with the tide of the booming craft beer economy. 

If more aggressive enforcement of current TTB regulations will stay the creation of additional regulations, we're all for it. But be advised, from TTB Director, Robert Angelo:

 "This is not something I intend to walk away from. You're going to see further investigations in this area, I don't want industry members to consider getting caught the cost of doing business. I want them to realize there are significant consequences if we catch you."

Indeed, in spite of all the recent chatter, North Carolina's three-tier framework is a less accommodating market for pay-to-play than Massachusetts, where there is a cap on the number of retail permits ("pouring licenses" as they're called) that may be issued based on population. Still, North Carolina retains its fair share of alcoholic beverage 'artificial forces' that often operate as opportunity for those industry members who consider enforcement the cost of doing business. 

As more develops, we'll keep you in the loop. Until next time.