TTB is Cracking Down on “Pay-to-Play” Violations
The Alcohol and Tobacco Tax and Trade Bureau (or “TTB”) recently announced its intent to launch a crackdown of “Pay-to-Play” violations. The phrase “Pay-to-Play” essentially refers to the illegal practice of offering money and other incentives to alcohol retailers in exchange for retail placement, and often at the exclusion of competitors.
Here is what “Pay-to-Play” typically looks like; Distributor has a great relationship with ABC Brewery and sells a lot of their beer to bars, restaurants, and grocery stores. To help keep ABC Beer in high demand at a retail level, Distributor either pays or offers goods (such as Tap Handles) at a less-than-value rate to Tavern, who then agrees to put ABC Beer on tap, and often remove XYZ Beer (a competitor) from their tap.
The federal government prohibits this practice, as it sees it as limiting the consumer’s opportunity to make the final decision of which beers will be on tap (i.e. “Pay-to-Play” is anti-competitive). Additionally, this practice arguably harms smaller independent craft breweries that do not have the resources to pay retailers to stock their product, and who primarily rely on consumers seeing their products on tap at local bars for their advertising.
Opponents of “Play-to-Play” bans argue that alcohol retail should be treated similarly to other food industries - such as soda, where it’s legal and very common for wholesalers to pay retailers for shelf space and promote their products. Regardless of whether the industry or public views “Pay-to-Play” as fair, the TTB announced earlier this week that it will increase its enforcement of these arrangements.
On Wednesday, a Massachusetts distributor named Craft Beer Guild, LLC paid an Offer in Compromise settlement in the amount of $750,000 for alleged violations of “Pay-to-Play” laws. According to the Boston Globe, this was the largest sum the TTB has ever collected from a single company for trade practices violations. You can read the full terms of TTB Offer in Compromise here.
If your business is hit with a “Pay-to-Play” violation or you fear that one might be possible, we recommend consulting with an experienced attorney before engaging in settlement talks with the Alcohol and Tobacco Tax and Trade Bureau. The Offer in Compromise process can be daunting, and it is advantageous to have an advocate throughout.