The scariest thing about the TTB / Anheuser-Busch offer in compromise and suspension agreement over sponsorship and advertising practices is what wasn’t written… assertions of verbal agreements require vigorous enforcement.

For a week or two now #beerlaw twitter has been writing about the record breaking offer in compromise between Anheuser-Busch and the Alcohol and Tobacco Tax and Trade Bureau. A $5,000,000 payment for the charged violations (the allegations) of violating the trade practice laws set forth in 27 U.S.C. § 205 by: 

• entering into sponsorship agreements with various entities in the sports and entertainment industries requiring concessionaires and other retailers to purchase A-B’s malt beverages and prohibiting them from purchasing specific competitor brands; 
• inducing sports industry concessionaires to purchase A-B’s malt beverages by furnishing fixtures, equipment, and services; 
• reimbursing, through credit card swipes, retailers for the cost of installing malt beverage draft dispensing systems, thereby inducing them to purchase A-B’s malt beverages; 
• requiring retailers to purchase A-B’s malt beverages in return for such retailers’ use of equipment A-B furnished them free of charge or below market value; 
• using third parties (business entities and payment services) to provide money or things of value to retailers in exchange for placement of A-B’s malt beverages; and 
• paying retailers purportedly for items such as consumer samplings, when, in fact, the retailers did not receive the goods or services purportedly purchased, and such payments were actually for A-B product placement.

A long list that’s taken directly from the offer in compromise document between the brewer and the TTB setting out how the TTB and A-B plan on dealing with the TTB allegations. The larger story found in the Stipulated Suspension Agreement containing the initial decisions, assertion and findings an conclusions details the allegations against A-B and its agreement to a two-day suspension of some of its Colorado permits. Those allegations regarding the “exclusive outlet” claims discuss how a written exclusive marketing agreement that A-B entered into contained a representation that the agreement was not conditioned on the purchase of A-B beverages, but that in reality:

However, A-B’s employees allegedly enforced an unwritten expectation that [Redacted] retail concessionaire (“Retailer”) purchase and provide “favorable placement” of A-B’s malt beverages in support of the agreement.

A-B allegedly required Retailer to sell A-B’s malt beverage products to support the sponsorship agreement and allegedly instructed Retailer where to sell such products to the exclusion of A-B’s competitors’ products, which are sold or offered for sale in interstate or foreign commerce.

And that in violation of the tied-house laws:

A-B allegedly furnished Retailer with equipment and fixtures worth hundreds of thousands of dollars at significantly less than the fair market value of such items. In return, A-B allegedly received 75 percent of malt beverage placement.

The allegations regarding another contract include assertions that after entering into a sponsorship agreement with a retailer that included a similar “no inducements” clause also included oral / verbal agreements including:

An alleged verbal agreement that A-B’s malt beverages were to be a certain minimum for the sponsorship agreement to continue; and

An alleged verbal agreement for Retailer to exclude specific A-B competitor brands from Retailer’s retail locations.

These allegations and, quite frankly, the TTB’s finding that they were substantiated, present an honest and open problem that many craft brewers and craft spirits makers face in finding placement and in dealing with big beer and competition in the marketplace. An unwritten quid-pro-quo, a tit-for-tat, the sly wink and a nudge that resulted in a sponsorship from some brand and the peculiarity that only their beverages are available for purchase at the event. The idea that sponsorships for alcohol don’t work like sponsorships by car dealers where you’re paying for advertising exclusivity – the exclusivity of being the only brand of that product advertised at the event – is a tricky one here because for all other products that might get sold at the big game or the concert, exclusivity is allowed.

That’s right, selling only Coke or Pepsi, only having one brand of ice cream, Beyond burgers vs. Impossible burgers – that’s all up for grabs in major sponsorships, but given restrictions on sales and marketing practices in alcohol, the substance stands apart in this respect and brewers, distillers, and vintners are entitled to expect some type of fair play and access unlike the manufacturers of other commodities. They are not allowed to pay the venue to only sell their products.

But that’s not being enforced at nearly the rate and punitive amount necessary to police the trade. An open acknowledgment in these filings that verbal understandings that completely contradicted the written assertions of “no inducement” needs to be coupled with regulatory zeal and, quite frankly, constant enforcement, to make an impact in the bottom line of large producers violating tied-house laws. A $5,000,000 fine and a two-day suspension in one state is not a deterrence for a company with an annual $51,000,000,000 revenue and global operations. And, since it takes two to tango, the lack of enforcement and fines against the retailers capitulating and accepting the handouts and becoming exclusive dealers is a necessary component of open and honest enforcement.

Additionally, finding the smoking gun of an employee or other person with knowledge and the willingness to say a verbal agreement existed is also a far cry from the standards and evidence allowed under the law for proving matters. The TTB and state regulators concerned about these practices should adopt an impact analysis that focuses on the number of options available through retail outlets. Here, the mention of the 75% figure listed in the allegations is an interesting notation and almost hints at some form of statistical benchmark for understanding and determining the type of foul play exclusive outlet and tied-house prohibitions are meant to stop.

A regulator looking to bring charges against a manufacturer (and quite frankly the complicit retail operations) sponsoring a concert or sporting event or other public outing – after discovering that only one manufacturer’s products are available or that a majority of beer comes from a single producer or wholesaler and that producer or wholesaler happens to be a sponsor – shouldn’t feel they need an informant when competitors’ sales aren’t happening or vast majorities of liquor come from sponsors.

If state and federal regulators won’t act, state and federal unfair competition laws may offer a recourse to those willing to push back against these sharp practices, but few small manufacturers have the appetite or deep pockets necessary to fund such campaigns against large operators.

It’s time for the TTB to increase enforcement and for state regulators to take up the charge and not rely solely on the TTB for this form of policing industry requirements; to add their weight and enforcement power to ensuring state laws regarding tied-house and exclusive outlet prohibitions are enforced. Only rigorous application of these laws will amount to retailers, wholesalers, and manufacturers becoming adherent to legislated mandates meant to protect small producers and consumers from unfair practices.