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Massachusetts to hit Craft Brewers Guild with 90-day license suspension for "pay to play" deals

Discussion in 'New England' started by Jason, Feb 12, 2016.

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  1. robo55

    robo55 Initiate (131) Oct 29, 2015 Massachusetts
    Beer Trader

    Right. Someone started this trend and I'd put my money on the distributor.
     
    Pahn likes this.
  2. braineater

    braineater Initiate (158) Dec 24, 2005 Massachusetts

  3. pehodges

    pehodges Initiate (161) May 25, 2013 Massachusetts
    Beer Trader

    Agreed wholeheartedly. But not the distributors at the level of Craft Brewers Guild. For them to expose their costs associated with playing along with the status quo pay-to-play system should be rewarded not punished.
    And not to put blame on all bars for expecting perks and payments. Note the ABCC actions don't name any individual, local, owner-operated bars, but name Glynn Hospitality Group, Cronin Group, Wilcox Group, and Briar Group. Oh, and Game On Fenway (RIP).
     
  4. mainebeerman16

    mainebeerman16 Initiate (0) Oct 2, 2008 Maine

    The fact is this is wrong on all levels but its just so happens craft got caught.I don't feel bad for them at all.I hope small breweries stop signing with this bully of a company. Boo hoo hoo.There are a few distributors in maine that could use a good kick in the pants to.
     
    beergrrl likes this.
  5. braineater

    braineater Initiate (158) Dec 24, 2005 Massachusetts

    Please explain how this company is a "bully."
     
  6. mainebeerman16

    mainebeerman16 Initiate (0) Oct 2, 2008 Maine

    They go into a small breweries they want to sign .sign them for one state and tell the brewery you with go with us in the 12 other states we do business in or you go to the bottom of our priority list when it comes to selling your products.That's being a bully .everyone knows it in the industry that's how they operate.
     
    Cascade77 likes this.
  7. Jbrews

    Jbrews Disciple (313) Aug 6, 2013 New Hampshire

    "bully" ha
     
  8. PaulB

    PaulB Initiate (0) Sep 3, 2002 Massachusetts

    braineater and UncleJimbo like this.
  9. DaveAnderson

    DaveAnderson Devotee (479) Jan 11, 2011 Minnesota

    If I read the article correctly, CBG was billing the breweries for this, and calling it "marketing". That is nothing like charging less per keg.
     
  10. Jason

    Jason Founder (8,113) Aug 23, 1996 Massachusetts
    Staff Subscriber

    None of this is black and white, I wonder if the rest of the breweries were sent invoices for "product placement" from Craft and were told they did not have to pay the invoice?
     
    PaulB likes this.
  11. PaulB

    PaulB Initiate (0) Sep 3, 2002 Massachusetts

    I understand your point but a legal decision by the state agency charged with enforcing state law is the definition of "black and white". Thanks for providing a forum for discussion of the different issues raised.
     
    braineater likes this.
  12. Jason

    Jason Founder (8,113) Aug 23, 1996 Massachusetts
    Staff Subscriber

    I get it that ... though there are too many other rabbit holes for them to investigate, Low hanging fruit is best. I just wonder if any of the brewers named received invoices, knew what they were and paid them. Doubtful IMO, you'd think they would question what was going on at some point in time or did they just turn a blind eye to it?
     
    braineater likes this.
  13. PaulB

    PaulB Initiate (0) Sep 3, 2002 Massachusetts

    Scare resources leads to high impact enforcement: not enough staff to investigate every rabbit hole. You don't think Yuengling knew what these line items were?
     
    braineater likes this.
  14. Jason

    Jason Founder (8,113) Aug 23, 1996 Massachusetts
    Staff Subscriber

    Not sure but I do notice oddly placed neon signs around the Boston area. ;-)

    Where was the state when Inbev (Pre-AB Buyout) was installing tap towers all over Boston and lining bars with free kegs on the spot for agreeing to taking over bar space?

    Why didn't Dan go on to call out his own distributor during those late-night tweets?

    I don't expect any of my questions to be answered.
     
    braineater and F2brewers like this.
  15. HuskyHawk

    HuskyHawk Devotee (465) Jun 5, 2014 Massachusetts

    It's about punishing the right parties here. It appears that many of the brewers are victims, so removing distribution of their product from the market for 90 days is hardly appropriate and does way too much collateral damage to innocent parties. Forcing them to distribute the beers, and allowing them no profits, is actually a more fitting punishment.
     
  16. emannths

    emannths Initiate (193) Sep 21, 2007 Massachusetts

    Probably because he got invoiced for illegal payment supposedly made on his behalf. He may also not have realized that his distributor acquiescing to Wilcox's demands for illegal payments would be seen as equally illegal by the ABCC.
     
  17. emannths

    emannths Initiate (193) Sep 21, 2007 Massachusetts

    While the concept of pay-to-play may be "shenanigans," the level of deception went well beyond the playfulness of that term. The creation of fake companies, blank invoices, and all the other levels of obfuscation demonstrates a clear understanding of a) the illegality of the activity and b) the potential consequences if caught. Normally I'd be at least sympathetic to the argument that there should be some leniency due to lack of prior enforcement, but the preemptive coverup and demonstrable economic consequences completely negate that inclination.
     
  18. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    Hey everyone, sorry I'm late to the discussion. I wrote this story, AMA!
     
    meefmoff, beergrrl and HuskyHawk like this.
  19. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    They're both subsidiaries of Sheehan Family Companies, which is based in Mass. and controls 19 wholesalers in 13 states.
     
  20. noob

    noob Initiate (0) Jan 23, 2004 Massachusetts

    @BostonJourno Do you know why the ABCC has not gone after other distributers? It seems like they could "follow the breadcrumbs" and look at the restaurant groups that got caught selling lines... to find that others were involved.
     
    BostonJourno likes this.
  21. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    Good question. We learned just last week that there are several ongoing pay-to-play investigations unrelated to CBG or the retailers that accepted/demanded payments from CBG. I am not privy to the details of these investigations, but one could assume that any pay-to-play scheme automatically includes a distributor. Which companies, I honestly don't know.

    The question is whether the ABCC can substantiate those allegations. The CBG case was unusual in that the evidence was quite clear. There were numerous invoices with barely-disguised code words ("menu programming" etc). Some of the restaurant groups set up shell "marketing" companies that lacked alcohol licenses, employees, or payrolls, and yet were accepting checks from beer distributors. And the involved parties quickly admitted the practice under questioning. But in other cases, it could be difficult to prove quid pro quo -- in other words, sure, Distributor X gave cash or a tower to Bar Z, but can you show definitively that Bar Z took the cash with the understanding that in return it had to carry a certain beer sold by Distributor X?

    I asked the same question (why not look at the other distributors?) of the ABCC last fall, because the Sheehans' attorney stood up at the hearing and basically said, everyone is doing it, why is my client being singled out?

    At the time, the ABCC's answer was, a. There isn't any hard evidence that would prompt us to open another investigation; and b., we're hopeful that the CBG case will function as a warning shot and spare us from having to assign more investigators to enforcing trade rules.

    Remember, the ABCC has 14 or 15 guys ostensibly policing more than 30,000 licensees in Mass. Politically and publicly, they are under more pressure to keep a lid on underage drinking/over-serving/DUI/violence at bars than to enforce the relatively obscure trade rules that ban pay-to-play. Also, these guys aren't forensic accountants. Proving pay-to-play requires a whole different skill set from walking into a bar, turning off the music, and carding everyone. They don't want to have to keep doing this over and over. The ABCC just doesn't have the resources (or a clear political directive) to consistently police pay to play. They want to send a message and get everyone to knock it off. The risk, of course, is that things will go back to how they were after this case blows over.

    Given all that, I was a bit surprised to learn about those other ongoing investigations. I'll be sure to keep you all up to date as I learn more about them.
     
    cappy201, fistfight, meefmoff and 2 others like this.
  22. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    Shoot me a PM? Interested in what's going on in Maine.
     
  23. emannths

    emannths Initiate (193) Sep 21, 2007 Massachusetts

    If they get a $25M+ fine from CBG that could pay for a dedicated pay-to-play investigator AND forensic accountant for a decade... (but of course that money just goes to the general fund) IIRC, when this episode first started, many in the government set up a hypothetical catch-22, where funding ABCC of pay-to-play would only happen if this investigation found evidence of pay-to-play.

    Wouldn't that be a product of an investigation?
     
    BostonJourno likes this.
  24. EnronCFO

    EnronCFO Devotee (497) Mar 29, 2007 Massachusetts
    Beer Trader

    Dude, you swiped my avatar and now every time I see one of your posts I'm like "I didn't write that, did I?"
     
    PaulB likes this.
  25. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    A great point, which I made emphatically to the ABCC at the time.

    Like the federal TTB and other state alcohol agencies, the ABCC has largely operated on a reactionary, complaint-based system. The problem is that the businesses complicit in or aware of pay-to-play arrangements have no incentive to snitch on each other, because they fear inviting scrutiny of their own practices.
     
  26. Auror

    Auror Defender (636) Jan 1, 2010 Massachusetts
    Beer Trader

    Isn't publicizing this counter-productive on its face?
     
  27. WkndatBernardus

    WkndatBernardus Initiate (0) Feb 7, 2009 Massachusetts
    Beer Trader

    Why aren't suppliers/breweries being targeted in this investigation as well? I'm guessing this whole system wouldn't exist if they didn't pay their share of the "bill back". Also, was it ever substantiated that Paquette actually paid his share for the tap handles or was he just presented with bills and refused to pay them?
     
  28. emannths

    emannths Initiate (193) Sep 21, 2007 Massachusetts

    BostonJourno likes this.
  29. beergrrl

    beergrrl Initiate (0) Dec 9, 2003 New Hampshire

    The ruling was for a fifteen month suspension, with twelve months held in abeyance, so it would seem to be 15 months of revenue that is the buyout.
     
  30. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    As far as I can tell, the brewers were subpoenaed so investigators could obtain records that incriminated CBG. There's no indication that breweries have been targets of the investigation themselves. If a brewery got a vague bill from its distributor ("trade spend") and paid it without asking questions, could the ABCC really prove that that brewery was knowingly complicit in the pay-to-play arrangement? Whether or not the breweries knew, there's a layer of plausible deniability there.
     
  31. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    I suppose so. But obviously the ABCC decided to expand the investigation now, so it's a moot point.

    Also, even if the ABCC wasn't proactively investigating pay-to-play on an ongoing basis, they've set a precedent with the CBG decision. No one can claim ignorance anymore. If another brewery complains about its wholesaler, the ABCC can investigate and really bring the hammer down on that company. In other words, the ABCC has now established that engaging in pay-to-play is extremely risky. The next distributor to get caught might not enjoy the option of paying a fine in lieu of suspension. Would you risk your entire business over a few tap handles? That's the idea, I think.
     
    Auror likes this.
  32. beergrrl

    beergrrl Initiate (0) Dec 9, 2003 New Hampshire

    Sorry, not revenue, gross profits

    A licensee or holder of certificate of compliance may petition the commission to accept such an offer in compromise within twenty days following notice of such suspension. The fine in lieu of suspension, when an offer in compromise is accepted, shall be calculated in accordance with the following formula: Fifty per cent of the per diem gross profit multiplied by the number of license suspension days, gross profit to be determined as gross receipts on alcoholic beverage sales less the invoiced cost of goods sold per diem. No such fine, in any event, shall be less than forty dollars a day. Any sums of money so collected by the commission shall be paid forthwith into the general fund of the state treasury.

    https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXX/Chapter138/Section23
     
    BostonJourno likes this.
  33. emannths

    emannths Initiate (193) Sep 21, 2007 Massachusetts

    Heh, I went to look up the same thing. Also note that it's 50% of the gross profits.

    It's weird that the formula doesn't define the basis more clearly. Is it per diem sales during the proposed suspension? If so, when are sales booked? I'm not an accountant, so maybe this is obvious to someone in the trade.
     
    BostonJourno likes this.
  34. BostonJourno

    BostonJourno Initiate (123) Nov 14, 2014 Massachusetts

    One more reason CBG is far more likely to pay the fine than serve the time -- ASSUMING they don't get the whole penalty tossed out in court.
     
  35. errantnight

    errantnight Meyvn (1,081) Jul 7, 2005 Iowa
    Subscriber Beer Trader

    Depends what you mean. A restaurant I worked at in Jamaica Plain almost 10 years ago had their 4 tap draft system installed by Harpoon. Additionally, they agreed to maintain that system (they never did). In exchange for all this, we had to keep two taps Harpoon at all times.
     
  36. errantnight

    errantnight Meyvn (1,081) Jul 7, 2005 Iowa
    Subscriber Beer Trader

    There's also a more macro level issue that the ABCC had to know this was going on long before it came to light in the press, and it is only that press that is making them act, now. And instead of taking action to potentially level the playing field or roll back "illegal" practices, they're making a "statement" fine that serves as a warning. Of course, CBG (and other, yet to be fined businesses engaged in this practice) were only acting like this because THAT IS HOW BUSINESS WAS DONE, and it was done at least partially in part because the ABCC was happy to turn a blind eye until newspaper articles started getting written.

    I'm not condoning pay to play, but this whack-a-mole is a best an inefficient response to the situation they helped create.
     
    beergrrl and BostonJourno like this.
  37. errantnight

    errantnight Meyvn (1,081) Jul 7, 2005 Iowa
    Subscriber Beer Trader

    and just to note, this wasn't terrible. They had just started their 100 barrel series and there was always locals looking for Harpoon IPA or UFO, but this definitely impacted us from buying kegs from other breweries (which we would have done had it not been for this).
     
    BostonJourno likes this.
  38. Shyla987

    Shyla987 Aspirant (244) Jul 18, 2013 Connecticut
    Subscriber

    So they are using this case as a deterrent to others. "Don't do this [you might get caught if someone Tweets about it] it's illegal!"

    I guess. Just seems like it will still be done, but less obviously. Everyone knew this was happening when Yuengling entered the market.

    OTOH, I do understand using their resources against underage drinking and DUI. No one - really no one! - outside of beer geeks care about this. It's too complicated and pretty much everyone thinks it happens all the time anyway, legally. The average consumer could not care less.

    @BostonJourno Thanks much for the info!
     
    BostonJourno likes this.
  39. Seacoastbrewer

    Seacoastbrewer Aspirant (212) Jun 5, 2012 New Hampshire

    Inefficiency is the name of the game. Government agencies like this RELY on complaints to investigate situations like this. It would not be feasible to police this kind of back-room activity any other way, is there? I cannot imagine the ramifications of the ABCC sending their case workers/investigators out to investigate every brewery, distributor, importer, retailer, etc on a proactive cadence, can you? Not to mention the burden this puts on businesses that actually play by the rules.
     
    BostonJourno likes this.
  40. GreaserGreg

    GreaserGreg Initiate (136) Feb 27, 2015 New York
    Beer Trader

    Would've loved to have seen this article written in BA magazine.
     
    Cascade77 likes this.
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