Can a Tennessee event accept money from a liquor company to be the exclusive product served?

Subject

Opinion No. 18-35, Exclusive Sponsorship of Events by Alcohol Industry Members, July 30, 2018

Plain-English summary

Representative Joe Pitts asked whether an alcohol manufacturer or distributor can pay to sponsor an event in exchange for a promise that only the sponsor's product will be served. The AG's answer was a textbook "it depends," but the analysis breaks the question into a few useful pieces.

Tennessee, like the federal government and most states, runs a three-tier system: manufacturers, wholesalers, and retailers each need their own license, and the law generally keeps them separate. The "tied-house" rules in 27 U.S.C. § 205 and Tennessee's parallel regulations from the Alcoholic Beverage Commission (Tenn. Comp. R. & Regs. 0100-06-.02) prohibit "industry members" (manufacturers and wholesalers) from giving anything of value to retailers, prohibit retailers from accepting it, and specifically ban exclusive arrangements where a retailer agrees to carry only one industry member's product in exchange for money or services.

Whether the proposed sponsorship arrangement is legal therefore depends on three things:

1. Are both parties licensed wine-and-spirits players? If so, an exclusive sponsorship in exchange for money or services would generally violate Rule 0100-06-.02(10)(c). The regulations only cover licensed wine and spirits manufacturers, wholesalers, and retailers (and those acting as their representatives, including third-party marketing firms).

2. Is one party outside the licensing scheme? If the event host or sponsor recipient is not a licensed retailer (and not a representative of one), the regulation does not reach the deal. A non-licensed nonprofit running a one-off event may have more flexibility than a licensed bar.

3. Is beer or wine-and-spirits the relevant beverage? The Alcoholic Beverage Commission regulations on tied-house arrangements only define "industry member" and "retailer" by reference to wine and spirits licensees. Beer is regulated separately under Tenn. Code Ann. § 57-5-101, which has its own narrower tied-house prohibitions. A beer-only sponsorship arrangement is governed by different rules and may be permissible depending on local law.

The AG closed by noting that even where exclusive sponsorships are off the table, "[o]ther types of marketing or sponsorship arrangements that do not require exclusivity may also be possible," but cautioned that the broad ban on giving anything of value to a licensed retailer makes such permissible structures rare.

Currency note

This opinion was issued in 2018. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Tennessee's three-tier alcoholic beverage system is built into Tenn. Code Ann. §§ 57-3-202, -203, and -204, which establish separate licensing requirements for manufacturers/distillers, wholesalers, and retailers. The system's purpose, as Tennessee and federal cases have repeatedly framed it, is to keep manufacturer money from compromising retailer independence and to prevent the kind of vertical integration that drove pre-Prohibition saloon abuses. Tied-house bans are the enforcement mechanism (27 U.S.C. § 205(a), (b); Nat'l Distrib. Co. v. U.S. Treasury Dep't, 626 F.2d 997, 1008-10 (D.C. Cir. 1980)).

The state's tied-house regulations sit in Tenn. Comp. R. & Regs. Chapter 0100-06. Two pieces matter for this opinion:

• 0100-06-.02(3) generally prohibits any industry member or its representative from providing anything of value to retailers, and prohibits retailers from accepting anything of value from industry members.
• 0100-06-.02(10)(c) goes further and specifically targets exclusivity: an industry member or its representative "may not require, nor may a retailer request, offer and/or accept an exclusive arrangement wherein the retailer agrees, in exchange for money, services, and/or any other thing of value from the industry member, to offer for sale the industry member's product exclusively to the exclusion of other related products."

The definitions in 0100-06-.01 are jurisdictional. "Industry member" means anyone licensed in Tennessee as a manufacturer, distiller, rectifier, blender, non-resident seller, producer, importer, wholesaler, bottler, or warehousemen/bottler "of distilled spirits, or wine." "Retailer" means anyone licensed in Tennessee for the sale of "distilled spirits, wine, or alcoholic beverages." Read with Tenn. Code Ann. § 57-3-101(a)(1)(A) (definition of "alcoholic beverage") and § 57-5-101(b) (definition of "beer"), these definitions cover only wine and spirits players, not beer manufacturers, wholesalers, and retailers.

Beer has a separate statutory framework under § 57-5-101. § 57-5-101(a)(2) and (3) contain a particular type of tied-house prohibition for the beer industry, but the broader prohibition on industry-member-to-retailer transfers in 0100-06-.02 does not apply.

The opinion's reasoning closely tracks Tenn. Att'y Gen. Op. 14-61 (June 17, 2014) and the older Tenn. Att'y Gen. Op. 82-364 (July 27, 1982), which the AG cited as setting out the same framework.

Common questions

Why does Tennessee even regulate this so tightly?

The three-tier system is the policy descendant of Prohibition repeal. Lawmakers in the 1930s feared a return to manufacturer-controlled saloons (the original "tied houses") and built tied-house bans to keep manufacturers from buying retailer loyalty with cash, equipment, fixtures, or exclusive carriage deals. Tennessee adopted the federal model in its own statutes and ABC regulations.

What counts as "anything of value" passing from a manufacturer or wholesaler to a retailer?

Cash sponsorship payments are the core example. Rule 0100-06-.02(3) is written broadly: it prohibits an industry member or its representative from providing "anything of value" to a retailer and prohibits the retailer from accepting it. The opinion did not enumerate which in-kind benefits fall inside that phrase, so the breadth of "anything of value" is left to the regulation's text and the ABC's enforcement.

What if the event host is a nonprofit that does not hold a retailer license?

Then the rule's licensing trigger is not met, and the exclusive sponsorship analysis turns on whether the host is acting as the "representative or agent" of a licensed retailer. A nonprofit that contracts with a licensed retailer to run the bar may be pulled back into the rule through that representative relationship; a nonprofit that gets a temporary special-event permit may itself be a licensed retailer for the event. The opinion did not resolve every variation, but it explicitly said that if neither party to the agreement is a licensed industry member or licensed retailer, the regulations do not apply.

Is a beer-only exclusive sponsorship treated the same way?

No. The AG flagged this as a separate analysis. The 0100-06 regulations cover only wine and spirits players. Beer has its own regime in Tenn. Code Ann. § 57-5-101 plus local beer-board rules. § 57-5-101(a)(2) and (a)(3) prohibit certain specific tied-house arrangements in the beer industry, but those are narrower than the wine-and-spirits prohibitions. A beer-only exclusive sponsorship may be permissible depending on the parties and the local rules.

Are non-exclusive sponsorships allowed?

The AG suggested they may be possible but described them as "extremely rare." The reason is that the broad rule prohibits anything of value from an industry member to a retailer, exclusive or not, with limited exceptions. A pure brand-marketing relationship that does not flow money to a retailer (for example, a consumer-facing ad campaign) sits outside the rule. A sponsorship that puts money into a retailer's pocket usually does not.

Does this opinion bind the ABC or the courts?

No. The opinion is persuasive authority. The Tennessee Alcoholic Beverage Commission enforces these rules and may have its own interpretive guidance; courts reviewing ABC enforcement actions are free to reach their own conclusions on rule scope and definitions.

Citations

Statutes

• Tenn. Code Ann. § 57-3-101 (definition of alcoholic beverage)
• Tenn. Code Ann. § 57-3-202 (manufacturer/distiller licensing)
• Tenn. Code Ann. § 57-3-203 (wholesaler licensing)
• Tenn. Code Ann. § 57-3-204 (retailer licensing)
• Tenn. Code Ann. § 57-5-101 (beer definitions and tied-house provisions)
• 27 U.S.C. § 205 (federal tied-house prohibitions)

Regulations

• Tenn. Comp. R. & Regs. 0100-06-.01 (definitions of industry member, retailer)
• Tenn. Comp. R. & Regs. 0100-06-.02(3) (general prohibition on giving anything of value)
• Tenn. Comp. R. & Regs. 0100-06-.02(10)(c) (exclusive arrangement prohibition)

Cases

• Nat'l Distrib. Co. v. U.S. Treasury Dep't, 626 F.2d 997 (D.C. Cir. 1980)

Prior AG opinions

• Tenn. Att'y Gen. Op. 14-61 (June 17, 2014)
• Tenn. Att'y Gen. Op. 82-364 (July 27, 1982)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2018/op18-35.pdf

Original opinion text

Exclusive Sponsorship of Events by Alcohol Industry Members

Question

Under regulations issued by the Tennessee Alcoholic Beverage Commission, may an alcoholic beverage manufacturer or other industry member pay to sponsor an event in exchange for an agreement that the sponsor's product will be served exclusively at the event?

Opinion

The legality of any such exclusive sponsorship agreement would depend on the specific facts of the agreement and the status of the parties to the agreement, including whether the parties are licensed wholesalers or retailers and whether the agreement involves alcoholic beverages or beer.

ANALYSIS

Tennessee has adopted a three-tiered system to regulate the manufacture, distribution, and sale of alcoholic beverages. See Tenn. Code Ann. §§ 57-3-202, -203, and -204 (establishing licensing requirements for manufacturers or distillers, wholesalers, and retailers, respectively); Tenn. Att'y Gen. Op. 14-61 (June 17, 2014). To maintain separation among those three tiers, Tennessee, like the federal government and many states, prohibits so-called "tied-house" arrangements pursuant to which manufacturers have a financial interest in retailers, or retailers enter into exclusive agreements with manufacturers or wholesalers. See Tenn. Att'y Gen. Op. 82-364 (July 27, 1982); see also 27 U.S.C. § 205(a), (b); see also Nat'l Distrib. Co. v. U.S. Treasury Dep't, 626 F.2d 997, 1008-10 (D.C. Cir. 1980) (describing the legislative history of the federal law banning tied-house arrangements).

Tennessee Comp. R. & Regs. 0100-06-.02(3), issued by the Tennessee Alcoholic Beverage Commission, generally prohibits any alcoholic beverage "industry member," which includes manufacturers and wholesalers, or its representative from providing anything of value to retailers, and prohibits retailers, in turn, from accepting anything of value from industry members or their representatives. In addition, Tenn. Comp. R. & Regs. 0100-06-.02(10)(c) prohibits exclusive relationships between industry members or their representatives and retailers:

An industry member, or any representative thereof - e.g. third-party marketing entities [-] may not require, nor may a retailer request, offer and/or accept an exclusive arrangement wherein the retailer agrees, in exchange for money, services, and/or any other thing of value from the industry member, to offer for sale the industry member's product exclusively to the exclusion of other related products.

For the purposes of these regulations, "industry member" means "any person engaged in business as a manufacturer, distiller, rectifier, blender, non-resident seller, or other producer, or as an importer, or wholesaler, of distilled spirits, or wine, or as a bottler, or warehousemen and bottler, of distilled spirits, licensed in the state of Tennessee." Tenn. Comp. R. & Regs. 0100-06-.01(5). And "retailer" means "any person engaged in the sale of distilled spirits, wine, or alcoholic beverages to consumers, licensed in the state of Tennessee, whether such sales are made for consumption on or off the premises where sold." Tenn. Comp. R. & Regs. 0100-06-.01(8). These definitions, as well as the general definition of "alcoholic beverage," encompass manufacturers, wholesalers, and retailers only of wine and spirits, not beer. See Tenn. Code Ann. § 57-3-101(a)(1)(A) (defining "alcoholic beverage"); id. § 57-5-101(b) (defining "beer").

The validity of any exclusive sponsorship agreement thus depends on the specific facts of the agreement, including the nature of the parties to it. An exclusive sponsorship agreement between an industry member or its representative and a retailer would violate the regulations unless it fits within an applicable exception. If, however, one party to the agreement was not a licensed industry member or a licensed retailer, or a representative or agent of either, then the regulations would not prohibit the arrangement. In addition, such arrangements may be permissible when beer, as opposed to wine and spirits, is the only beverage at issue, depending on other applicable state and local laws and regulations governing beer distribution and sale. See, e.g., Tenn. Code Ann. § 57-5-101(a)(2), (3) (prohibiting a particular type of tied-house arrangement in the beer industry). Other types of marketing or sponsorship arrangements that do not require exclusivity may also be possible as long as they comply with the applicable statutes and regulations. However, due to the limitations on industry members' or their representatives' providing anything of value to retailers, such permissible arrangements would be extremely rare.

In short, the validity of any exclusive sponsorship arrangement under the applicable laws and regulations would depend on the specific facts of the agreement, including the nature of the entities that are party to the agreement and the specific beverages at issue.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

JONATHAN DAVID SHAUB
Assistant Solicitor General

Requested by:
The Honorable Joe Pitts
State Representative
670 Cordell Hull Building
Nashville, TN 37243