Friday, October 27, 2006

Lack of liquor license dries up sales at restaurants :: USA Today

In Boston, the only way to get a license is to buy another establishment's, and prices have shot up. A liquor license can cost more than $275,000; a beer and wine license goes for $50,000 to $100,000.

That's more than many smaller places can afford. "In a state where you can't legally scalp a Red Sox ticket, you can sell a license granted by the city of Boston for a hundred times face value," fumes Chris Spaguolo, Sullivan's partner.

A century ago Boston's allotment of alcohol licenses was capped by state law. In other Massachusetts communities the number of licenses is tied to population growth; Boston's cap can be changed only by the Legislature.

It's a relic of a time in Boston political history when Irish politicians, such as President Kennedy's grandfather John F. "Honey Fitz" Fitzgerald, and James Michael Curley seized power from the Yankee Brahmin establishment.

But the Brahmins retained control of state government and imposed measures to keep tabs on the city's spending, policing and drinking.

Only the controls on the latter survive. The governor still appoints the members of the city's Licensing Board, and the Legislature still controls how many alcohol licenses the board can issue. Currently there are 320 licenses for beer and wine only, and 650 for all alcohol.
. . .
Finbar Griffin is opening a restaurant in South Boston. He paid $200,000 to buy a defunct bar's liquor license (he says it's already worth $250,000) and doesn't want to compete with a place that paid a tenth of that for its license.

"I'm OK with new licenses," he says, "if I get $200,000 back in tax relief."
Boston Globe:
Prices on liquor licenses in Boston have more than doubled a year after the city ran up against a state limit on the number of licenses it can issue.

With a growing pool of would-be restaurateurs and club owners trying to outbid one another for the few licenses coming available as establishments go out of business, the amounts being fetched have soared into the hundreds of thousands of dollars.
. . .
Elsewhere in the state, the number of licenses is tied to population growth, triggering automatic increases.

Boston reached its 970-license limit in the spring of 2005. Before then, people seeking licenses could apply to the Boston Licensing Board for a new license, paying a $200 application fee and annual renewal fees of about $1,500-$2,000 .

Some acquired licenses by purchasing licensed restaurants, especially in neighborhoods such as the North End, where the city rarely or never granted new licenses. In those cases, beer and wine licenses typically made up $10,000-$50,000 of the cost of a restaurant, and all-alcohol licenses made up about $150,000-$200,000, industry observers said.

Now, the going rates for existing licenses are about $40,000 to $125,000 for a beer-and-wine license, depending on location, and about $225,000 to $325,000 for an all-alcohol license.
. . .
The legislator, Senator Michael W. Morrissey, is openly critical of City Hall as it argues for permission to increase the number of licenses it can issue from 970 to 1,025.
. . .
He said he is looking out for the interests of current liquor license holders who paid hundreds of thousands of dollars for licenses in the recently inflated market. Such businesses include Legal Sea Foods, which recently purchased a license from Jimmy's Harborside restaurant for its new Legal Test Kitchen in South Boston. If the city rolled out new licenses, potential competitors could move in after spending a tiny fraction of that.

``Don't you think Legal Sea Foods would be a little [angry]?" Morrissey said. ``They played by the rules and what did it get them? $240,000 in start-up costs."
. . .
``The only thing that this is accomplishing is keeping good businesses from opening and perhaps causing open businesses to close," said City Councilor Michael Ross , who says he fields calls every week about the issue. ``The only people who are benefitting are those who can afford to pay the premium prices that have been driven up by the cap. This is not fair."
The interests of those who bought at high prices are the same as all other restaurants that hold licenses. They benefit from the limit on the number of licenses because it limits entry and thereby holds prices and profits above competitive levels.


Anonymous Anonymous said...

If new licenses were introduced the city could auction them off and capture most of the value of the licenses now trading with minimal disreuption to that market.

4:31 AM  
Blogger Acad Ronin said...

The current holders of the licenses didn't create the situation from which they are benefitting, but they will be hurt if the price of the licenses go to zero. The problem is for the winners, ie everyone that patronizes restaurants with a license, to compensate the losers so that they don't try to block the process. Auctioning off new licenses and distributing the proceeds equally among the current holders would go part of the way to solving the problem. The problem would be figuring out the optimal rate of auctioning new licenses.

4:29 AM  
Blogger Mike said...

Who CARES about hurting people who SPECULATE on liquor licenses? If you want to make money by buying an asset or commodity (whether it's a share of company stock, or a liquor license) and then re-selling it, and its price ends up DROPPING - guess what? You took the gamble, you lost, and it's no one's fault but your own. C'est la vie.

It sucks that some businesses overpaid for a license, due to a ridiculous blue-law, but that's still not a good enough reason to keep it on the books.

2:06 AM  

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