Pay-to-Play Scandal Rocks Craft Beer World
A wholesaler created phony companies to hide unfair trade practices.
You know that craft beer you love that's on tap at the local tavern? There are two possible reasons why it's being poured: Either it really impressed the bar owner or someone paid for placement—possibly illegally. Kickbacks recently became such a problem in Massachusetts that the Alcoholic Beverages Control Commission (ABCC) issued a hefty, 90-day suspension of alcohol license to Craft Brewers Guild—a wholesaler that manages sales of 200 craft beer brands in the U.S.—along with a two-year probation.
The soap opera started with a tweet. The owner of Pretty Things Beer & Ale Project (a Boston brewery that's no longer in business) published this alarm in 2014, which calls out specific bars by Twitter handle:
"Can anyone guess why we're not served @bukowskiboston or @LowerDepthsBOS and other(s) from that group? Correct, we won't illegally buy (draught) lines."
That caught the attention of state law enforcement, which investigated the situation and found all kinds of unfair trade practices and pay-to-play shenanigans. Over the past five years, Craft Brewers Guild had spent approximately $120,000 in kickbacks to 12 retail licensees throughout the Boston area, and, according to the report, "went to great lengths to hide its knowingly unlawful conduct."
Executives at Craft had paid off various corporate bar chains anywhere from $20 a keg to $2,000 for an annual dedicated line, and then they disguised these payments using phony companies and faux marketing invoices. Some breweries may not have known that Craft had set up this elaborate con system.
Craft has several options now: plead for a compromise, appeal to Superior Court, pay a fine equal to 50% of its gross profits for the 90-day period, or accept the suspension, which would be disastrous for Craft's business and potentially for some of the brands it represents, like Sixpoint and Grolsch. Complicating matters, breweries cannot simply slip out of distribution contracts quickly or easily, although some contracts include a 30-day exit clause.