Business

State investigates brewers, others on pay-to-play allegations

Janet Knott/Globe Staff/File

Massachusetts regulators have launched an investigation into whether beer distributors, brewers, and retailers are violating state law by agreeing to promote certain beers at bars and liquor stores in exchange for payments that freeze out competitors.

Investigators for the state Alcoholic Beverages Control Commission said they have issued subpoenas to a number of breweries, beer distributors, and retailers for records to determine whether they are paying for, or demanding payments for, access to bar taps in pubs and restaurants and shelf space at stores.

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The practice, known as pay-to-play, is illegal under state and federal liquor control laws, primarily to keep large national breweries from dominating beer markets. Though dating to the end of Prohibition, small breweries say the laws are especially relevant today because the surging popularity of craft beer has little and big companies alike competing for limited space at retailers.

“We’re looking at any and all forms of inducements,” said Frederick Mahoney, chief investigator for the Massachusetts agency. “This is ongoing, and this may not stop here.” He declined to identify which companies were under investigation.

Pay-to-play can take different forms: Breweries or distributors may pay retailers to stock their beers and not competitors, or retailers can demand concessions from brewers. Free beer, gift cards, and expensive equipment such as draft systems are also commonly used as inducements. The sums involved can vary, from a $20-per-keg charge, to the donation of thousands of dollars of bar or store equipment.

A spokesman for Treasurer Steven Grossman, who oversees the ABCC, warned the agency was prepared to take “strong corrective measures” against any company that violates the state’s liquor control laws. Punishment for these types of violations could range from warnings to suspension of a company’s liquor license or even revocation.

A copy of one subpoena to a craft beer brewer obtained by The Boston Globe requested copies of documents such as invoices, credit memorandums, and contracts related to promotional items and events or the installation of equipment such as tap lines.

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The brewer who received that subpoena, Chris Tkach, co-owner of Idle Hands Craft Ales, LLC in Everett, said ABCC investigators mostly asked him general questions about pay-to-play, and did not indicate why he received a subpoenea.

Tkach said his company has never paid to have his beer stocked, or was asked to. However, Tkach recounted an incident this year where a bar manager in Waltham said he had no room to stock Idle Hands because a distributor of competing beers had provided free keg equipment in exchange for reserving more tap handles.

“I asked if we could continue to be on tap, and the bar manager said, ‘No, this distributor bought all new [equipment] for us, and we have to dedicate those lines to them,’” said Tkach, who declined to name the bar.

The Beer Distributors of Massachusetts acknowledged some of its members have received records requests from the ABCC.

Those members “cooperated with the ABCC investigators, provided this information and will . . . continue to cooperate and respond in a timely manner,” Bill Kelley, president of the group, said in a statement.

The association represents companies that distribute many of the major beer brands and craft brews in Massachusetts.

The ABCC has also sought documents from several major beer makers and small craft breweries, according to interviews with a number of companies in the beer business in Massachusetts.

‘The fact that there haven’t been any busts seems to suggest there isn’t a problem, but everyone knows it’s going on.’

Greg Koch, Stone Brewing Co., of California 
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Harpoon Brewery of Boston and Yuengling Brewery of Pennsylvania said they provided the ABCC with requested information. Both breweries said they did not engage in pay-to-play practices, but declined to comment further.

Night Shift Brewing, a craft brewery in Everett, said it received a subpoena and a visit from ABCC investigators.

“It was a friendly chat,” said Night Shift cofounder Michael Oxton. “They said they were trying to talk to as many breweries as possible.”

In an interview, Oxton said he provided investigators with records of promotions and pricing. He added that his company had never paid to have its beer installed at retailers. He said investigators did not indicate they had specific concerns about Night Shift’s business practices.

The two largest breweries in the country, Budweiser parent Anheuser-Busch InBev and MillerCoors, said they had not received requests from ABCC. In a statement Anheuser-Busch InBev said it had “strict policies” against such activities, and that it contacted the ABCC on its own in October “to assure them of our position and offer our assistance.”

Many in the beer industry contend pay-to-play is widespread and complain regulators have done little to stop it. Some added that they are unsure what is and is not allowed under Massachusetts law.

Bryan Greenhagen, owner of Mystic Brewery in Chelsea, said he suspects pay-to-play practices were behind his beer being pulled from several local bars where it had sold well; other times, Mystic Brewery was turned away from bars because competitors had locked up available taps.

“We go to a bar and they say, ‘Oh, our lines are committed. Somebody gave us a draft system and you can’t get on here,’ ” Greenhagen said.

The ABCC investigation picked up steam last month after Dann Paquette, who co-owns Pretty Things Beer and Ale Project Inc. in Somerville, took to Twitter to accuse two Boston bars owned by the Wilcox Group of refusing to carry his beer because others had paid the company for its tap lines.

In a response published online in October, owner Gordon Wilcox angrily denounced Paquette, called Pretty Things beer an “inferior product,” and said he didn’t stock it because it was too expensive.

The ABCC has said it is investigating Paquette’s accusations. An attorney for the Wilcox Group declined to comment. Paquette said Pretty Things was cooperating with investigators.

Massachusetts has not sanctioned an alcohol business for illegal pay-to-play activities in at least 18 years, possibly longer; ABCC officials said they do not have records of earlier enforcement.

“The fact that there haven’t been any busts seems to suggest there isn’t a problem, but everyone knows it’s going on,” said Greg Koch, whose California-based Stone Brewing Co. has been sold in Massachusetts for more than a decade. “It’s like if they only ever caught people for drunk driving after they wrecked their car. It’s got to be a disaster before they pay attention.”

Mahoney, the ABCC chief investigator, said his agency focuses limited resources on retailers who sell alcohol to minors or that allow patrons to become too intoxicated, violations he said can be deadly.

Mahoney said the agency has received few complaints about pay-to-play during his 18-year tenure, and could not substantiate any for lack of evidence.

The agency has just 14 inspectors — down from around 40 in the 1980s — to oversee thousands of businesses, and only two are assigned to investigating pay-to-play allegations — on a part-time basis.

Globe correspondent Gary Dzen contributed to this report. Dan Adams can be reached at dadams@globe.com. Follow him on Twitter @DanielAdams86.
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