Beer distributor to pay $2.6 million fine in pay-to-play case
The largest distributor of craft beers in Massachusetts will pay a fine of millions of dollars to avoid a 90-day suspension of its liquor license, a record-setting penalty imposed after the company was caught paying Boston bars to stock its brews, state regulators said Tuesday.
An investigation by the Massachusetts Alcoholic Beverages Control Commission, or ABCC, found that the distributor, Craft Brewers Guild of Everett, for years ran a so-called “pay-to-play” scheme in violation of state alcohol rules. Its sales representatives and managers routinely gave bars and restaurant companies in Boston thousands of dollars in exchange for stocking beers from Craft Brewers Guild and freezing out products from competing wholesalers.
As punishment, the ABCC in February slapped Craft Brewers Guild with an unprecedented 90-day license suspension. The company had the option of paying a fine instead, and a spokeswoman confirmed Tuesday that the ABCC had quickly accepted a fine Craft Brewers Guild proposed in a so-called “letter of compromise” submitted to the state earlier in the day.
A person familiar with Craft Brewers Guild’s operations said the fine totaled around $2.6 million.
Tom Schreibel, the company’s vice president of industry, community, and government affairs, said in an interview that Craft Brewers Guild decided to pay the fine to avoid disruptions to its employees and its approximately 4,000 retail customers.
“This is an unfortunate circumstance we’re in, but this was the way to move forward,” Schreibel said. “We want to give our customers, our brewer partners, and ultimately the consumers of the greater Boston area the great beer we deliver.”
Schreibel added that Craft Brewers Guild cooperated fully with the ABCC and insisted the company no longer offered inducements to retailers. He said the company would pay the fine within seven days.
Importantly for the ABCC, Craft Brewers Guild will not appeal the suspension in state court, avoiding what could have been a protracted legal battle over longstanding but largely untested alcohol laws.
Generally, the ABCC allows companies whose licenses have been suspended to avoid shutting down by paying a fine equal to about half the profits they would have made during their suspensions. Officials declined to confirm the exact amount of the fine but agreed it would total millions of dollars — easily the largest ever collected by the ABCC.
The pay-to-play scheme was discovered by ABCC investigators after a brewer whose beer is distributed by Craft Brewers Guild complained about the practice on Twitter in 2014. Using subpoenas, they soon obtained financial records showing the distributor had paid at least $120,000 to Boston bars and shell “marketing” companies set up by Boston restaurant groups for the purpose of accepting the money.
Craft Brewers Guild is owned by the Sheehan Family Companies, which is based in Massachusetts and operates 19 beer distributors in 13 states. The company is one of the nation’s largest beer wholesalers, according to the trade publication Beer Business Daily.
The company’s lawyer complained at an ABCC hearing last year that pay-to-play was common at Craft Brewers’ Guild’s competitors and that the state’s beer industry had “run amok.” The ABCC now says it’s investigating several other allegations of pay-to-play.
Paying for product placement is common in other retail sectors, such as grocery stores, where big manufacturers and distributors compete for prime shelf space. But the practice was banned in the alcohol industry by most states decades ago, to keep large national brands from dominating local markets.
Critics have long complained the practice is rampant in the US beer industry but seldom punished. The ABCC’s harsh penalty for Craft Brewers Guild is its first-ever enforcement of the pay-to-play ban, and seemed intended to send a message to the industry.
“The members of the alcoholic beverages industry in Massachusetts are hereby admonished that if, for any reason [they] engage in similar conduct that creates a systemic illegality, this commission shall take similar, severe enforcement action,” the commission wrote in its decision in February. The commission also pointedly noted that Craft Brewers Guild “went to great lengths to hide its knowingly unlawful conduct.”
The message apparently reverberated throughout the industry: Beer trade publication Brewbound reported last week that Reyes Beverage Group, which owns beer distributors in several states, sent a letter after the ABCC decision telling its employees and suppliers not to offer illegal incentives to customers, while acknowledging pay-to-play was likely “prevalent in many of our territories.”
The ABCC has also charged five bars with violating pay-to-play regulations for improperly accepting payments from Craft Brewers Guild. The bars had been due to argue their case before the ABCC commissioners in February but successfully petitioned to delay the hearings until May. Possible punishments include fines or the suspension or revocation of their licenses.
No brewers have yet been cited in the investigation.