Sponsorships continue to be one of the alcohol beverage industry’s primary methods of promoting brands to drinkers. In professional sports alone, alcohol beverage brands contributed $480 million in sponsorship revenue across the four major professional sports leagues during the 2022–2023 season, according to a SponsorUnited study. As suppliers look to better target audiences via sponsorships, it’s important for industry members looking to enter into a sponsorship relationship, as well as those hoping to engage an alcohol beverage brand as a sponsor, to understand how the regulation of the alcohol industry impacts these relationships and the contracts that solidify them.
The Federal Alcohol Administration (FAA) Act prohibits an industry member (a supplier or wholesaler of alcohol beverages) from inducing a retailer to purchase a particular product to the exclusion of competitive products. See 27 U.S.C. § 205. An “inducement” may include a partial ownership stake in a retailer, money, free goods or other “things of value” provided to a retailer. The “exclusion” element requires the Alcohol and Tobacco Tax and Trade Bureau to show a potential real-world impact (i.e., the inducement results in a retailer purchasing less of a competing product than it otherwise would have, and the inducement places or threatens to place a retailer’s independence at risk) before a violation is found.
Sponsorships in other industries often involve a commitment that the brand paying sponsorship dollars will be the exclusive offering of a team, venue or event, or at a minimum, require that a particular brand be offered or available to consumers as part of the sponsor benefits. In the alcohol space, an industry member paying a retailer in exchange for the retailer’s commitment to serve the supplier’s brand(s) of alcohol beverages, often called “pouring rights,” typically satisfies both elements necessary to find a violation of the FAA Act: that the sponsorship fee is a thing of value, and it leads to the exclusion of competitive products.
Sponsor benefits should not include a commitment that a retailer purchase or not purchase a particular brand or brands of alcoholic beverages. Because of restrictions on the flow of money from suppliers to retailers, most sponsorship agreements involving an alcohol brand are between an industry member and a third-party unlicensed entity, not the entity holding the license to sell or serve alcohol at an event or within a venue. However, conduct that is prohibited for an industry member to engage in directly is also prohibited if undertaken indirectly using a third party as a pass-through entity. Accordingly, the entity selling sponsorship rights should represent and warrant the following:
- It does not hold a license to sell alcohol at retail.
- The funds paid under the terms of the agreement will not be passed on to a retailer.
- Nothing contained in the agreement is intended to require or prohibit any retailer or concessionaire from purchasing or not purchasing a particular brand or brands of alcoholic beverages.
As we support clients in negotiating sponsorship agreements and understanding the scope of sponsor [...]