AB InBev has been fined $150,000 for running an illegal exclusivity deal with Seattle’s Showbox Sodo.

Showbox SoDo

According the Washington State Liquor Control Board report the officers performed an undercover operation and determined that all the products on site were AB only. They asked if they could purchase a keg of Coors Light for the event they were “organizing.” The owners of the establishment said that would not be possible because they had an “exclusive” deal with AB InBev. They continued that they were only able to provide for sale only products solely provided by their Budweiser distributor.

Exclusivity deals with distributors and breweries are considered a violation of the “Undue Influence” clause, as stipulated in RCW 66.28.285. This type of tied house deal has been illegal in both Washington State and across the US since the end of Prohibition era. In 1933 three-tiered systems were instituted to minimize monopolies from forming in distribution, production and retail of liquor and beer. Washington State eliminated the three-tier system in 2012 when it voted to privatize liquor sales. Some believe the three tier system helps protect against these types of “pay to play” violations.

Here’s a breakdown of the actual fines and violations levied against AB InBev

  • Violation: Undue Influence/Providing Money or Money’s Worth: Goods or Services Over $1,500.
  • Penalty: $150,000 & three-day suspension, or $150,000 plus $1,000 in lieu of suspension.

The WSLCB released the full agreement that AB InBev made with AEG Live, who owns ad operates the Showbox. The agreement included explicit wording of “exclusivity”; directed the number of events each venue was to hold per year; how to advertise; how merchandise and sponsorships were to be handled and much more.

AB InBev has been expanding it’s influence on distribution across the US from Kentucky to Colorado, which only heightens the severity of this case for many.

The most high profile instance of “pay to play” occurred in Massachusetts last year. A distribution company was turned in for paying cash to keep their kegs on tap. The case was settled for $2.6million this year.

Silent CrisisWe’ve written extensively on the pay to play issue. Some feel there is a lack of monitoring by the LCB that allows these types of relationships to prosper. But this is mainly a factor of lack of personnel. Since the LCB began overseeing cannabis emphasis is put elsewhere and the WSLCB relies on the community to report violations. As the Liquor Control Board told Tap Trail,

Most of these types of violations are difficult to find without the help of the industry. Any complaint would have to come from them, as the general public would not know this.

Pay to play issues are often seen as impacting smaller breweries. Bellingham’s Chad Kuehl, brewer/owner of Wander Brewing observed for a past article on the issue,

Not that we know officially, but there seems to be more and more bars that have beer menus that are aligned to a single distributor. We try not to read between the lines too much. Our focus is on our brewery and not on other’s sales practices. We are not trying to grow as big and as fast as possible, so if we lose a line at an account then we simply move on and continue to sell our beer elsewhere. Simple as that!

But according to Aaron Matson, owner of Bellingham’s Copper Hog, this should’t be an issue.

Is it against the law? Yes. Should it be? No so sure. Every distributor does this, to some extent. If a business wants to sell out to AB then so be it. There is an option not to drink beer at the Showbox or just simply don’t go.

There seems to be a growing concern from craft brewers about the expanding grip of Big Beer. But is it founded, or is it hysteria? If you are in the industry, what have you seen and what do you hope to see? Does the fine of AB InBev in Seattle a good thing? Where do you see the craft beer market in the next 10-20 years?

Hat tip to the Washington State Beer Blog for their great reporting on the issue.