MA Liquor Laws

chmeeee

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and the liberalization of liquor licenses would be a key step in helping that become a reality.
Does the city provide data on the status of liquor licenses? I'm wondering if the unfortunate shuttering of multiple restaurants and bars that were unable to weather the pandemic was enough to create a surplus of licenses. That would devalue the remaining active licenses from hundreds of thousands of dollars to zero. If that is indeed the case - it would be a good time to strike on opening up license availability in a permanent way to prevent this from ever happening again.

The current system is a huge barrier to new restaurant openings that aren't funded by large moneyed corporations, and is a big part of why most other cities have a more interesting dining scene than Boston.
 

JumboBuc

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Does the city provide data on the status of liquor licenses? I'm wondering if the unfortunate shuttering of multiple restaurants and bars that were unable to weather the pandemic was enough to create a surplus of licenses. That would devalue the remaining active licenses from hundreds of thousands of dollars to zero. If that is indeed the case - it would be a good time to strike on opening up license availability in a permanent way to prevent this from ever happening again.

The current system is a huge barrier to new restaurant openings that aren't funded by large moneyed corporations, and is a big part of why most other cities have a more interesting dining scene than Boston.
One would expect the price of liquor licenses to decrease during times like this, but not fall to zero. They're not worth as much but they're still very valuable assets! Anecdotally, that's what I've heard is happening. Licenses are changing hands for way less than they used to, but they're still going for hundreds of thousands.

This should probably go in a different thread, but my idea that I'll keep shouting about from the rooftops is a liquor license split, just like a stock split. Just turn each existing liquor license into two liquor licenses, and let the market work from there. Everyone who has a license will now have two, one of which they can sell to recoup costs, and everybody who wants a license will be able to get one at a much cheaper than before price. This will require legislative and regulatory changes, but as far as I can see it is the simplest and fairest way around the issue.
 

chmeeee

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One would expect the price of liquor licenses to decrease during times like this, but not fall to zero.
But if the demand for licenses fell below the total number available from the City, wouldn't the value plummet to the cost of the application fee?

i.e. I imagine (made up numbers here) that the number of available licenses was 500. Unconstrained demand for free licenses would be, say 650. So that pushed the price for one on the private market to $400k. If 50 restaurants go under, that lowers the market price. But if 200 restaurants go under, then the city has licenses available for free. When that becomes true, then the private market goes poof.

I of course have no idea what any of these numbers actually are, but the one piece of potentially accessible data would be how many unused licenses does the city have right now? If that is more than zero citywide licenses, then...
 

JumboBuc

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But if the demand for licenses fell below the total number available from the City, wouldn't the value plummet to the cost of the application fee?

i.e. I imagine (made up numbers here) that the number of available licenses was 500. Unconstrained demand for free licenses would be, say 650. So that pushed the price for one on the private market to $400k. If 50 restaurants go under, that lowers the market price. But if 200 restaurants go under, then the city has licenses available for free. When that becomes true, then the private market goes poof.

I of course have no idea what any of these numbers actually are, but the one piece of potentially accessible data would be how many unused licenses does the city have right now? If that is more than zero citywide licenses, then...
Hypothetically, sure, the value could fall to zero if the number of licenses available were greater than the total number of parties interested in ever selling alcohol again in the City of Boston, but we are nowhere near that.

For rough numbers, there are about 1,000 alcohol licenses in Boston (including beer+wine licenses), about 750 of which are full liquor licenses. There are significantly more than 1,000 parties interested in selling alcohol in the City, as this includes all existing bars / restaurants / cafes / hotels / entertainment venues / event spaces / packies / grocery stores / bodegas / etc, plus all prospective establishments that haven't historically existed but would if liquor licenses were easier to come by. And even if the number of licenses is greater than the number of currently open establishments, there's still enormous value in owning a license because it gives the holder the ability to sell alcohol in the future. Imagine, for example, if Marty Walsh announced tomorrow that, because of COVID, every liquor selling establishment in the City had to shut down for the first six months of 2021. There would still be huge value in owning a license this winter and spring because everyone would know that those licenses are about to become very valuable just in time for the 4th of July. The market thinks in the long-term, so short-term issues can bring prices down a little but won't totally knock them out.
 

Blackbird

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This should probably go in a different thread, but my idea that I'll keep shouting about from the rooftops is a liquor license split, just like a stock split. Just turn each existing liquor license into two liquor licenses, and let the market work from there. Everyone who has a license will now have two, one of which they can sell to recoup costs, and everybody who wants a license will be able to get one at a much cheaper than before price. This will require legislative and regulatory changes, but as far as I can see it is the simplest and fairest way around the issue.
What would happen, hypothetically, if you turned each license into three or four licenses instead of two?
 

HenryAlan

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But if the demand for licenses fell below the total number available from the City, wouldn't the value plummet to the cost of the application fee?

i.e. I imagine (made up numbers here) that the number of available licenses was 500. Unconstrained demand for free licenses would be, say 650. So that pushed the price for one on the private market to $400k. If 50 restaurants go under, that lowers the market price. But if 200 restaurants go under, then the city has licenses available for free. When that becomes true, then the private market goes poof.

I of course have no idea what any of these numbers actually are, but the one piece of potentially accessible data would be how many unused licenses does the city have right now? If that is more than zero citywide licenses, then...
A study is needed, but if it were determined that your scenario is correct, then the current owners would receive a 30% license share in a pool of 150 new licenses (using your numbers) that would then be sold at auction. It's not hard to make this work.
 

JumboBuc

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What would happen, hypothetically, if you turned each license into three or four licenses instead of two?
The more licenses available the lower the price of each license will be, but while we know the direction of price change we can't know without detailed study what exactly the relationship between quantity and price would be. That exact relationship between change in quantity and change in price depends on the elasticity of demand for licenses. It's possible that doubling quantity would cut price by 50% (unit elastic demand), or more than 50% (elastic demand), or less than 50% (inelastic demand).

Going from doubling to tripling or quadrupling is much more likely to push us into the bounds of elastic demand, so the more you increase Q the faster P falls. But again, we can't know exactly what those %s would be without more study.
 

bakgwailo

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The more licenses available the lower the price of each license will be, but while we know the direction of price change we can't know without detailed study what exactly the relationship between quantity and price would be. That exact relationship between change in quantity and change in price depends on the elasticity of demand for licenses. It's possible that doubling quantity would cut price by 50% (unit elastic demand), or more than 50% (elastic demand), or less than 50% (inelastic demand).

Going from doubling to tripling or quadrupling is much more likely to push us into the bounds of elastic demand, so the more you increase Q the faster P falls. But again, we can't know exactly what those %s would be without more study.
Let's also not rule out speculation. I could see people/groups buying up licenses once the price drops to sit on them expecting their value to surge again post-COVID when restaurants and bars open back up.
 

theSil

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My idea that I'll keep shouting about from the rooftops is a liquor license split, just like a stock split. Just turn each existing liquor license into two liquor licenses, and let the market work from there. Everyone who has a license will now have two, one of which they can sell to recoup costs, and everybody who wants a license will be able to get one at a much cheaper than before price. This will require legislative and regulatory changes, but as far as I can see it is the simplest and fairest way around the issue.
Couldn’t love this more @JumboBuc. Nothing get’s me excited like an extremely straightforward market-based solution which balances fixing the underlying problem and fairness to existing stakeholders. So much better than City Council’s proposals of picking winners and losers on a neighborhood basis.


Let's also not rule out speculation. I could see people/groups buying up licenses once the price drops to sit on them expecting their value to surge again post-COVID when restaurants and bars open back up.
I strongly hope that licenses have a use-it-or-lose-it mechanism built into them so that the city isn’t just manufacturing half a million dollar assets to speculate on.
 

fattony

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How about combining the split idea with a lottery? Choose 1/3 of license holders at random and grant them a split. If the demand was inelastic, the winners each get a small windfall and we have a strong signal to repeat the process. Nobody should be too angry at this point. The second lottery excludes the winners of the first lottery and the licenses generated by the split. This time you draw half of the remaining original licenses (i.e. another 1/3 of the original pool) and monitor the sale prices. If the sale prices remain high, do the final 1/3. If at any point the sale price drop so low that the split is deemed punitive, then stop or take a break for a couple years until there is a “new normal” that has stabilized at the lower price.

At some point, maybe even from the very start, all license holders will oppose the added competition of the new licenses generated. But as long as the split is guaranteed to generate some value for the original license holders it could be deemed fair and in the public interest by policy makers. That might be necessary to stave off lawsuits. Perhaps there is some other offset that can be offered to license holders such as a tax credit or something.
 
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JumboBuc

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How about combining the split idea with a lottery? Choose 1/3 of license holders at random and grant them a split. If the demand was inelastic, the winners each get a small windfall and we have a strong signal to repeat the process. Nobody should be too angry at this point. The second lottery excludes the winners of the first lottery and the licenses generated by the split. This time you draw half of the remaining original licenses (i.e. another 1/3 of the original pool) and monitor the sale prices. If the sale prices remain high, do the final 1/3. If at any point the sale price drop so low that the split is deemed punitive, then stop or take a break for a couple years until there is a “new normal” that has stabilized at the lower price.

At some point, maybe even from the very start, all license holders will oppose the added competition of the new licenses generated. But as long as the split is guaranteed to generate some value for the original license holders it could be deemed fair and in the public interest by policy makers. That might be necessary to stave off lawsuits. Perhaps there is some other offset that can be offered to license holders such as a tax credit or something.
Alternatively, instead of choosing a fraction of existing holders to grant a full split, you could grant all holders a fractional split. So instead of 1/3 of existing holders getting a full license split to sell, all existing holders could get 1/3 of a license split to sell. This is more fair because there's no winners and losers of a lottery, but a bit more complicated to execute in that you need the additional step of combining shares before they can be brought to market. The "market maker" here who would combine the fractions into whole licenses to sell would most likely be a third-party broker working on behalf of the existing establishments. And since people are generally risk averse, you'd probably find that existing license holders would prefer a guaranteed value of one-third of x to a 1/3 chance of the full value of x. (You might even see an insurance market pop up in the event of a lottery, where existing holders could hedge their risk and sell their 33.33% lottery ticket for a guaranteed return of <33.33%, with the insurance provider netting the delta).

Or the City could just create new licenses and auction them off, then distribute that revenue evenly to all existing holders. As an example: the NBA currently has 30 teams, and is considering expanding to possibly 32. The way this would work is that the league itself would create two teams to sell to (pretty much) the highest bidders, and then that sale price revenue from those new teams would be divided among the existing 30 teams. So if the NBA allows for two expansion teams and sells the rights to them for $2 billion each, then each of the existing 30 owners will get ($4 bill / 30 teams) = $133 million each from it. If I'm an existing owner I like that upfront cash (especially during a pandemic) and I like that the expansion teams will grow the league across the country (bringing in additional fans and money from cities that don't currently have an NBA team such as possibly Seattle and Las Vegas). But if I'm an existing owner I also don't like that the expansion will dilute the market value of my team by increasing the supply of teams, and I don't like that that pooled NBA revenue that is granted to the teams (like national TV deal and sponsorship dollars) will now be split 32 ways instead of 30. Sound familiar?

The problem with a City-sponsored auction is that I don't think it would play well politically. The pure market mechanics of it would surely be objected to and muddled with on equity grounds, and you'd end up with some sort of multi-criteria analysis that adds other factors to the scale for license distribution and ends up decreasing the return for existing holders. That's why I think a pure split is the cleanest and easiest way to implement it, and best way to achieving the end goal of increasing the supply of licenses while reimbursing existing license holders.

Any one of these schemes would require a change to State law, because the number of transferable liquor licenses in the City of Boston is capped by the Commonwealth, not by the City itself. And if any of these schemes were to implemented, I'd think it'd have to go along with sunsetting the recent allocations of non-transferrable neighborhood-specific licenses that do not fall under the State-imposed cap. Those were always a work-around of the State cap, and with a change in State law such a work-around would no longer be necessary.
 

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