Feds Vow to Crack Down on Pay-to-Play in Light of Massachusetts Scandal

Austin Ray

THE GIST
The Massachusetts pay-to-play scandal that has been roiling the state’s beer industry for two years now just went national. The Alcohol and Tobacco Tax and Trade Bureau (TTB) announced today that it has accepted a $750,000 offer from Craft Beer Guild, LLC to settle its investigation into the prominent wholesaler’s illicit habit of paying Boston area bars to carry its brands rather than those of its competitors—inducements otherwise known as “slotting fees.” The TTB said the amount constitutes the largest sum it has ever “recovered from a single industry member for trade practice violations.” More importantly, though, the TTB also vowed to crackdown on the practice at the national level. 
 
“This is not something I intend to walk away from. You’re going to see further investigations in this area,” Robert Angelo, director of the TTB’s Trade Investigations division, told the Boston Globe. “I would hope that industry members take notice of this, and take notice of the fact that this is a very significant [settlement]. I don’t want industry members to consider getting caught the cost of doing business. I want them to realize there are significant consequences if we catch you committing slotting fee violations.”

WHY IT MATTERS
This is huge for a number of reasons. Let’s dive into a few: 
 
1) This issue isn’t at all unique to Massachusetts. A 2010 investigation by Crain’s Chicago found that “big brewers and their wholesalers” had, at the time, been illegally battling smaller, independent competition by “offering cash, new tap systems, free beer and other incentives to tavern owners and retailers in exchange for taps or shelf space for mainstream brands.” Indeed, we even hung out with a beer buyer recently who spoke of the blurry lines surrounding pay-to-play. You can safely bet that if it had been happening in Chicago and Boston (two healthy, competitive craft beer markets), then it sure as hell has been and continues to happen elsewhere. Indeed, a few months after the light was shone on the matter in Massachusetts, Forbes referred to pay-to-play as “probably the biggest open secret in the beer business.” 
 
2) About that… If it were indeed the biggest open secret, then how’d it take so long for regulators to catch wind of it? It took a scorned brewer with a Twitter account for anyone outside the industry to get wise in Massachusetts. (That brewer was Dann Paquette, proprietor of the now-defunct Pretty Things Beer and Ale Project, who unleashed a late night screed on the issue, naming names with the #DirtyLines hashtag.) At the time, some brewers alleged the state lacked the resources and man power to enforce the rules (the state for its part denied the charge, assuring it was well equipped to do the job just fine). At the federal level, too, the Globe reports today that Angelo at the TTB conceded the agency “had not vigorously enforced the federal prohibition against so-called ‘slotting fees.’” Either way, and regardless of what may or may not have perpetuated the culture of oversight, the TTB’s message today is crystal clear: the days of regulatory ignorance are over.

3) In the end, it all boils down to a very basic sentiment Paquette at Pretty Things laid out when I interviewed him a few weeks after he unleashed on the world his whistle blowing Twitter rant: “I hope the local beer industry can become merit and quality based,” he told me then. “In the 22 years that I’ve been working, it hasn’t been.”

—Dave Eisenberg
 
READ MORE
Feds settle with beer wholesaler over ‘pay-to-play,’ signal national crackdown [Boston Globe]
TTB Accepts $750,000 from Craft Beer Guild, LLC to Settle Trade Practice Violations [TTB]