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Theodore J. Zeller III
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Pennsylvania Liquor Control Board’s Seventh Restaurant License Auction: Winners and Losers

Pennsylvania Liquor Control Board’s Seventh Restaurant Liquor License Auction

As the top bidders were announced for the Pennsylvania Liquor Control Board (Pa.L.C.B.) Seventh Restaurant License Auction, anybody who has paid attention to the results of the previous auctions can notice a trend.  The last few auctions have had more no-bids and the high-bids have gone down substantially.  There may be a few reasons for this, such as the big chain convenience stores and grocery stores having their fill of licenses, but it is an interesting phenomenon regardless.  There are clear winners and losers in the latest auctions.

Let’s take a look at the numbers.  In this most recent auction, eight available licenses did not receive a single bid, or qualifying bid if the bid did not meet the requirements to be selected.  Keep in mind that a qualifying bid must be at least $25,000.  That is more than the 5 no-bids in the sixth auction, and four no-bids in the fifth auction.  Even more interesting in this auction were the high-bid amounts that won the available licenses.  The highest winning bid was $176,001 for a Philadelphia County license, a county that is well below other markets.  In comparison, the highest winning bid in the sixth auction was $351,001 for a Bucks County license, which is much more in line with the pricing on the open market.  However, the Bucks County license available in this auction went for the low price of $33,344.  The last two sales our office handled in Bucks County were over $375,000.  Clearly, that bidder was a big winner.

Throughout the history of these auctions, there have been some steals versus the cost of licenses on the open market.  However, this auction was held less than one month after the sixth auction was completed.  The previous auctions were all a minimum of three to four months from the time the bids were opened to the time the next auction’s Invitation for Bids was issued.

It is anybody’s guess if this trend will continue.  My assumption is that the Pa.L.C.B. will wait a few months before announcing another auction since these results were less than favorable for them.  The Pa.L.C.B. stated in the press release for the results of this auction that it has collected $23 million from the auctions, with another $4.4 million held in escrow pending approval of the transfer applications for the winning bidders.  Clearly, the state enacted this program as a way to generate revenue, but it is essentially giving away licenses in some counties for the amount of the winning bids.  Ultimately, the owners of restaurant licenses purchased for full price on the open market cannot be happy with winning bids amounts devaluing their licenses and, moreover, that their competition is facing a much lower financial burden to enter the restaurant business.  We think that unfortunately, taxpayers and other license holders are the losers here.

As a firm that is engaged in the sale and purchase of liquor licenses on a daily basis, we are troubled to see the pricing starting to lower on these auctions.  First, it is having an effect on the open-market pricing, with multiple bids over the last few auctions coming in a few hundred thousand dollars below the fair market value, and the auction results are the only public record of the cost of a liquor license in Pennsylvania.  Second, our clients who have significant amounts of money invested in their liquor licenses are starting to see much lower offers for their licenses than they have in the past.  Finally, with some of the big chain stores slowing down their participation in the auctions, it is hard to believe that the trend of lower winning bids will change, because those stores usually would bid high to make sure they won the licenses.

It will be interesting to see how the next auction, and the remaining auctions, either buck this trend or let it continue.  Regardless, many future and current restaurant licensees, and other industry stakeholders will be paying close attention.  Who will win?  Who will lose?  Only time (and the next auction) will tell.

For information regarding national and state liquor law matters or general manufacturing and distribution advice, please contact our Liquor Law, Licensing, Manufacturing, and Distribution Practice Group: Liquor Law Department Chair Theodore J. Zeller III, Esquire (tzeller@norris-law.com); David C. Berger, Esquire (dberger@norris-law.com) for Pennsylvania and New Jersey retail and manufacturing licensing; or contact our offices at 610-391-1800.

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Theodore J. Zeller III
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