MA Liquor Laws

[chmeeee]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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.

 

[JumboBuc]

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.

 

[Justbuildit]

Placing this here, as it's the best place I can find. I've been a huge hater of Commonwealth control of municipal liquor licenses since I learned of the arrangement. It's (at best) an antiquated and artificial driver of scarcity that passes costs on to restaurant owners and consumers, and prevents small and less-well-funded restaurateurs from operating as efficiently as they otherwise might. It also hollows out poorer communities since they'll be outbid by bigger chains. One thing I don't see mentioned though is how this also prevents growth of restaurants and bars even in rich neighborhoods. What happens when Seaport adds another 5 restaurants. What about all the development on top of the Pike? Fenway and Back Bay have new buildings going up; are we adding more liquor licenses to account for this growth? It just enters an upwards price spiral...

All to say it was pretty disappointing when I read in Commonwealth Beacon that Healey scrapped plans to return liquor license controls back to municipalities. I wasn't even aware this was a proposal of hers, but such a shame to see it pulled at the 11th hour (and apparently without informing the Senate President...)

Healey scratches liquor license provision from municipal bill - CommonWealth Beacon

GOV. MAURA HEALEY touched off a bit of political intrigue on Monday when she filed “municipal empowerment” legislation that lacked one of the powers she

commonwealthbeacon.org

What I've heard is that since liquor licenses are so expensive, many businesses end up pledging them to the bank, land owner, etc., as collateral. This means the whole stupid system has created an incumbency class that is adamantly opposed to new licensure. Lobbying commences and now you have elected officials opposing a very common sense reform on specious grounds

Who loses when a liquor license in Boston sells for $600,000?

The high price of liquor licenses in Boston has always been a barrier to entry for restaurateurs.

www.boston.com

“One of the objectives is that we don’t want to adversely affect the value of existing license holders,” said Chan. “We want to ensure that all liquor licenses proposed will actually be utilized.”

Nuke the whole system. Let Boston decide what's best for Boston. So dumb.

 

[chrisbrat]

Agree with your entire post. Well researched, explained, and put.

 

[Justbuildit]

Thanks!

OK, this was bugging me and so I wanted to get to the bottom of it, since I've heard rumors from many corners that Boston is the ONLY city that can't increase their liquor licenses, or that indeed every city is under the same set of regulations, but since Boston's population is larger and it has an influx of visitors, it means they're under-supplied for licenses. Here's the "truth" after doing a little reading (sources at the end).

1. The legislature retains control for managing liquor licenses for each municipality
2. The number of licenses is tied to population of that city, so more people means more licenses, but the number is fixed on a per capita basis (with some tweaks)
2.a. EXCEPT for the city of Boston, which has a fixed absolute number of licenses that hasn't been raised in decades

The language of the statute is actually nuts. It's the closest I could imagine to just straight up prejudice against THE BIGGEST CITY IN THE WHOLE DAMN REGION. Whether it's a punishment to the Irish, as I've heard, or just a finger in the eye of the big city folks, it's stark. Here are some examples:

"The local licensing authorities of any city or town, except the city of Boston, may grant one license under the provisions of section twelve for each population unit of one thousand or additional fraction thereof..."
"In addition to the number of licenses otherwise authorized to be granted by the provisions of this section, the local licensing authorities of any city or town, except the city of Boston..."
"The local licensing authorities of any city or town, except the city of Boston, which has voted to grant licenses for the sale of wines and malt beverages..."

And a new paragraph for Boston alone:

"The licensing board for the city of Boston may grant 665 licenses for the sale of all alcoholic beverages under section 12. The board may grant 250 licenses for the sale of all alcoholic beverages under section 15. The number of licenses for the sale of wines and malt beverages only, or both, in the city shall not exceed 320. The transfer of existing licenses shall be subject to a public hearing in the neighborhood in which the license is to be relocated, properly advertised and at an appropriate time to afford that neighborhood an opportunity to be present."

As a Boston resident and taxpayer this is such absolute bullshit I might actually be moved to write letters and call my representative. I was expecting it to be some annoying little exception as part of statutory interpretation but instead it's "hey, fuck you Boston".

Which makes the Healey story above even more frustrating. You want to talk equity? You want to be inclusive? How about letting the town you've lived in for a long time, the most important city in the region, have a level playing field.

Links below:

Healey's push to allow municipal control over liquor licenses is temporarily shelved

A proposal in the Municipal Empowerment Act that would have given towns control over liquor licenses was removed before the bill was filed.

www.boston.com

General Law - Part I, Title XX, Chapter 138, Section 17

malegislature.gov

 

[Java King]

I'm currently writing this from NYC, and the number of restaurants is just crazy compared to Boston, even factoring in the population difference. Manhattan has some estimated 10,000 restaurants! Using Boston's formula, they would need a population of 10 million. In actuality, it's closer to 2 million for Manhattan only......not New York City as a whole.

 

[HenryAlan]

1. The legislature retains control for managing liquor licenses for each municipality
2. The number of licenses is tied to population of that city, so more people means more licenses, but the number is fixed on a per capita basis (with some tweaks)
2.a. EXCEPT for the city of Boston, which has a fixed absolute number of licenses that hasn't been raised in decades

The particularly infuriating thing about this is that not only should Boston not have a lower per capita number, but arguably, it should have a greater license quota than population alone would demonstrate. The number of people in the city during the day and evening significantly exceeds the number who sleep here. There should be some consideration for the fact that Boston is not just a place with 700,000 residents, but also a place that draws millions of visitors, commuters, and students, all of whom only place more pressure on the limited license supply. Absolute stupidity!

 

[commuter guy]

I can't take credit for the idea, but a long time ago someone on this site (I believe) proposed that the supply of liquor licensed be increased by duplicating the number of licenses. Think of it as a stock split, each owner of a liquor license would each have two after the split, the price for each license would be cut in half but each owner would be able to sell the excess license. That however wouldn't address the issue of a particular license losing value as bank collateral.

 

[DBM]

Whump! The sound of ... (wait for it) ... 3,400 words devoted to the topic by the Globe, just today.

https://www.bostonglobe.com/2024/01...d-liquor-licenses-the-problem-is-getting-one/

 

[Justbuildit]

1. State estimates demand for new licenses under an unlimited scenario
2. Price licenses such that the vast majority would be willing and able to pay (say $10,000)
3. Estimate the total market value of liquor licenses bought and sold in the last 5 years
4. Provide incumbent license holders with a tax deduction equal to (1 x 2) that applies over 5 years
5. Increase price of (2) as needed to cover shortfalls and approach budget neutrality
6. Print cash based on new sales tax revenue from a million new successful businesses

 

[Stlin]

Interestingly enough, while I haven't exactly done a comparative analysis or gone through the legislative history, up until 2015 it was legislatively mandated that the City of Boston would reduce the number of available liquor licences to 650 from 700 or so. The below text was replaced with the current text cited above in 2015, but increases to that 650 number have been individually legislated to get to the current 665.

The licensing board for the city of Boston may grant 702 licenses for the sale of all alcoholic beverages under section 12; provided, however, that no further original licenses under said section 12 shall be granted until the number of licenses outstanding thereunder shall have been reduced to less than 650 by cancellation or revocation or by the failure of holders of such licenses to apply for renewals and, thereafter, not more 650 licenses under said section 12 shall be granted. The board may grant 250 licenses for the sale of all alcoholic beverages under section 15. The number of licenses for the sale of wines and malt beverages only, or both, in the city shall not exceed 320. https://law.justia.com/codes/massachusetts/2015/part-i/title-xx/chapter-138/section-17/