Sponsorship Agreements

Moderator:

Carrie Bonnington, Partner, Pillsbury Winthrop Shaw Pittman, LLP

Panelists:

Matthew Botting, General Counsel, California ABC

Susan Johnson, Partner, Stoel Rives LLP

Michael Feldman, General Counsel, Levy Restaurants and Former General Counsel to a Minor League baseball team in Chicago

Another great panel by Carrie Bonnington dealing with sponsorships. Most of the discussion focused on the sponsorship agreements in sports and entertainment venues and the issues that go with them, everything from tied house exceptions for advertising to the violating practices by some manufacturers to induce an exclusive outlet.

General Questions on Sponsorship Agreement

Carrie talked about what sponsorships mean and what they are used for.

The industry would say that sponsorships are a way to connect with consumers and promote products and their name. Not necessarily to promote event.

Carrie asked Michael Feldman what is his perspective coming from a sports background and working for Levy Restaurants, what are his thoughts on the purpose behind the sponsorship agreements.

Michael Feldman discussed how from a team perceptive it is no secret that a huge component of the experience and the revenue from a sporting event is derived from alcohol.

Alcohol manufacturers are one of the biggest sponsors of a team and enhance the experience for many consumers.

And teams have found numerous opportunities to enter into agreements with sponsors to promote their brands. The concept is the manufacturer gets the visibility and promotes the event to connect with their fans, promotional concepts create a relationship with that brand and at the same time, the retailer benefits by reminding fans that they are thirsty through various parts of the game.

Sponsorship Agreement’s what are the boundaries?

Carrie discussed aspects of federal, and state law, such as, when sponsorship agreements are permissible, when do they cross the line, and how do they cross the line, and should they be allowed?

Susan Johnson began the discussion by focusing on two important principles from federal tied-house laws.  1. It is unlawful for a supplier and retailer directly or indirectly to enter into an agreement where the retailer is required to purchase the supplier’s product 2. Unlawful for a manufacturer to provide things “of value” to a retailer that may induce the retailer to purchase more of the manufacturer’s brand to the exclusion of other brands.

Carrie raised the question on the exclusionary piece, can the TTB prove the exclusionary piece even when the inducement is obvious?

Susan discussed that there are 2 TTB circulars, 1975 & 1982, that address stadiums, racetracks, the TTB’s position, it has no problem with sponsorship agreement, as long as it is not requiring the retailer to purchase the suppliers’ products to the exclusion of others. They don’t want a stadium to only have one brand.

Michael brought up the 1984 TTB consent decree which discovered that a brewer was inducing ballparks to carry their product to the exclusion of other brands, in 24 out of 26 parks where they had product.

State Laws

The panel focused on state laws with Matt Boting beginning a discussion of California law.

Matt discussed the general proposition is that you can’t violate “of value” rules. Many times, the stadium has a single licensed premise. The general rule for retailers is all the advertising in premises has to be provided free of charge. In California exceptions are provided for stadiums. Every time there is a new stadium, California will provide a specific exception to the statute. The exceptions don’t provide an explanation of the relationships with the parties.

It is hard to sometimes articulate what parties can do under the exception.

An interesting situation was Deep Eddie Vodka agreement with the Padres, in their press release they indicated that you would be allowed to drink Deep Eddies in the Deep Eddie seats at Petco Park. Doesn’t sound unreasonable, but then they said this was attractive because placement deals in major sports stadiums are hard to come by. So, they characterized the sponsorship deal to place their product in a sports stadium.

They had two issues, 1. Petco park did not have a tied house exception and 2. They want to place their product instead of advertising it.

In California, unless there is a specific statutory exception, even stadiums fall under the general “of value” rules.

Susan discussed how the states have different laws and there are complexities for manufacturers when they negotiate stadium deals.

Where you can sponsor differs from state to state, in California you have to have specific statutory exceptions, Oregon you have to enter an agreement with a facility with a capacity of over 3,000, in Washington it has to be over 5,000, in Utah has to be a facility of 2,000 fix seats.

Matt brought up an interesting point that there are other rules besides statutory exceptions that are unique to stadium deals.

In California the stadium retailer needs to purchase another brand, the law imposes a requirement that a retailer buy another brand from a wholesaler, even though there are California brands that can sell to retailers without a wholesaler.

Michael discussed managing state laws? Levy won’t accept sponsorships because they are a retailer and try to be independent. It is fascinating when there is a sponsorship deal with a craft and that is their whole budget and they can’t understand why the retailer needs to stock other manufacturer’s products. Levy takes great precaution to educate clients on this issue. Because they are not accepting money, they do not get into the dos and don’ts of the statute, they make sure everyone knows Levy is independent.

Why stadiums have sponsorships agreements with manufacturers and small retailers don’t

Carrie posed the question to the panel on why is it okay to have sponsorship agreement with large ballparks but not with small bars.

Matt provided a very plausible explanation for this difference.

He indicated that if the legislature was looking at this from an anti-trust perspective, we see gaps in the line of the sand, when you look at the venues, it is not large or small in California but what is the purpose of the venue.

The big distinction between a stadium and a bar is that in a bar the main purpose for being there is alcohol consumption whereas in a stadium this is an ancillary part of the experience. And the stadium is not operating full time anyways, and if you look at the private-public partnership with the stadiums, these wouldn’t be successful without significant money coming in from the outside.

So, the legislature looks at these factors and makes an exception to have a small amount of crossing between tiers.

Susan indicated that in Utah they articulate these policy reasons in statute, which is very unique.

Can there be exclusivity with a venue

Carrie brought the issue of exclusivity within a venue. For example, can the Coors Light beer garden be allowed to carry only Coors Light, or do they need to stock other brands?

Matt noted that there is no black and white rule that different brands need to be available at every single location. Having a Coors Light beer garden is not creating a tied-house for the whole venue.

Carrie asked Michael look they looked at this issue from a retailer’s perspective.

Michael indicated that from a retailer perspective, there is explicitly nothing impermissible with the retailer capitalizing from advertising in the venue. If there is a Coors Light Beer Garden, we are going to take the position that it is in our interest to serve Coors Light. Because that is what people are expecting to buy there. This is tricky because states treat it differently.

Susan illustrated this tricky situation by stating that Washington absolutely does not allow a branded outlet within a stadium that can have a specific supplier beer or wine. In Washington sports facilities are the only ones with exceptions for advertising with the stadium and then having an exclusive advertising within the venue, goes beyond what Washington would allow.

One Day Events

Next Carrie focused on one day events, she focused on charity events which are truly a one-day license. The charity is a retailer and sponsorships are okay. But what happens when the charity hires a retailer for the event? Now we have a retailer involved, do we have issues? What is the policy?

Matt discussed certain problems that arise when retailers hand an event off to a charity.   Sometimes retailers hand off responsibilities to non-profits, this leads to problems like failing underage checks because the charity does not have the experience of a retailer.

As long as the retailer is anonymous and hired as an agent of the charity and not getting paid advertising funds, I think it is not a bad idea to hire them. They are experienced and have the training to deal with issues of underage drinking.

What are you looking for legally in a sponsorship agreement?

Carrie asked the panel what are they looking for in a sponsorship agreement.

Susan indicated that she looks for federal safe harbor provision that affirmatively states that the sponsorship is not exclusive, the retailer is maintaining independence, and the state overlay that the venue meets the capacity requirements. Further, she needs to see that the venue is offering different brands.

Michael indicated he is looking for in Agreement is, 1. Anything that looks like we are required to serve a certain type of product. Such as mandating certain drink types.

Levy has so much data on what customers want, they know what is going to sell, and that is what they focus on. The sponsorship agreement won’t affect their course of business.

Final Thoughts

Sponsorship Agreement are a tricky aspect of liquor law and a potential minefield.

On their face they provide exceptions to tied house provisions which do not allow a manufacturer to pay a retailer. With manufacturer advertisements all over a stadium, they expect to dominate the venue’s sales. Yet, the law does not allow them this wish.

Like any retailer, a stadium can not exclude the brands of other manufacturers and provide an exclusive outlet for one brand.

However, to make things more confusing, many states allow a venue with the stadium to be a location where a specific brand is sold and where you are probably not going to find other brands.

And to add onto the complexities, the states have different rules governing this issue.

So how will we as an industry navigate these issues?

I think you are starting to see a trend out there now that may determine future operations.

In the sports stadiums in Chicago, the team and the stadium do not hold the liquor license. The liquor license is held by a retailer.

This is a plausible legal arrangement because the venue or team gets paid for the advertising, not having them on the license avoids any undue influence. The retailer will pick brands to stock based on data versus a relationship with the manufacturer.

In the end, sponsorship agreements are tricky. The best way to operate is to ensure that there is no undue influence and that you can provide a plausible explanation to state regulators on how and why the business operates legally.