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Pennsylvania Liquor Control Board Announces First License Auction

An interesting part of Pennsylvania’s Act 39 of 2016 (“Act 39”) has finally started to come to fruition.  On September 13, 2016, the Pennsylvania Liquor Control Board (“PLCB”) issued a Press Release regarding the long anticipated auction of the 1,200 restaurant licenses (“R-licenses”) that have expired since 2000, which was enacted into law as part of Act 39 on August 8, 2016.  Initially, 40 of these licenses, which people in the industry have referred to as “zombie licenses,” will be auctioned off to the highest bidder.  Of the 40 zombie licenses, there are four licenses each in Philadelphia and Allegheny County, two licenses each in Butler, Cameron, Chester, Dauphin, Delaware, Erie, Indiana, Lancaster, Lehigh, Montgomery, Somerset, Westmoreland, and York counties, and one license each in Adams, Blair, Bucks, Centre, Cumberland, and Washington counties.  Notably, the single zombie licenses available in Adams, Butler, Cameron and Cumberland counties are the only zombie licenses that will be available for auction in those counties.  As a result, this auction will not affect license prices in those counties.

Bids for the 40 zombie licenses are due to the PLCB by October 27, 2016.  The minimum bid for each license will be $25,000, which must be accompanied by an additional $5,000 “bid surety intended to avoid frivolous and underfunded bids.”  After the deadline passes on October 27, 2016, the bids will be unsealed and the winners will be determined the week of October 31, 2016.  The highest bid will win each respective zombie license, which will allow the winning bidder to submit an application for the license to the PLCB.  The full payment of the bid price must be received by the PLCB within two weeks of the auction award announcement, or the second highest bidder will be deemed the winner and have the opportunity to submit an application to the PLCB and pay its bid price.  All bid payments will be held in escrow by the PLCB pending approval of the license application.

The remaining zombie licenses, approximately 1,160 in total, will be auctioned off over the upcoming months and years.  The PLCB has not released the exact details of future auctions.  This is merely a test-run for the PLCB to make sure this process will run smoothly, because, as the PLCB stated, “this is the first time since Prohibition that a new population of licenses exceeding the existing quota has been made available in Pennsylvania.”  The remaining auctions, and the methods and timeframes for them, will be determined after the completion of this initial auction.

This is a very dynamic time for licensees in Pennsylvania, as this auction could give interested parties the ability to enter markets that were previously closed due to a lack of available licenses.  Unfortunately, only time will tell how these auctions will affect the marketplace.  Further, there are important details that have been omitted from this Press Release; for example, the zombie license cannot be used in a municipality in which the license last operated.  This could have dramatic effect on a bid, particularly in a place like Centre County, where the zombie license’s value could be cut in half if it was operated in the Borough of State College and, therefore, cannot return to the Borough of State College after being purchased through this auction.

If you have any questions about how to enter the bidding process for the 40 initial zombie licenses being auctioned by the PLCB, feel free to contact Matthew Andersen, Esquire, at mbandersen@nmmlaw.com or our offices at (610) 391-1800.  For information regarding federal and Pennsylvania liquor law matters or general manufacturing and distribution advice, please contact Liquor Law Department Chair Theodore J. Zeller III, Esquire, at tzeller@nmmlaw.com or at our offices at 610-391-1800.