Liquor License Quotas: Supply, Demand, and Value

Liquor License Supply and DemandThe concept of limiting liquor licenses with a quota system resulted from the repeal of Prohibition and governing bodies’ desire to continue exerting some control over the process. (For more on Prohibition, see “Understanding Alcohol Regulation” and “Alcohol Deregulation Problems.”) Currently, 17 states still issue liquor licenses based on a quota system.

These states include Alaska, Arizona, California, Florida, Idaho, Kentucky, Massachusetts, Michigan, Minnesota, Montana, New Jersey, New Mexico, Ohio, Pennsylvania, South Dakota, Utah, and Washington.

Supply and Demand Economics

The quota system drives supply and demand economics, not unlike the housing market. When there are only so many liquor licenses to go around, those that exist increase in value. That increase obviously benefits the license holder who may use it as collateral or even consider it part of a retirement package.

Liquor license quota systems, in the states that have them, are typically driven by population: One license is allotted for every “x thousand” residents of a county or municipality. Utah has one of the strictest quota systems with one full-service restaurant license for every 4,925 people, according to The Salt Lake Tribune’s Liquor quotas.”

Conversely, in Washington, the quota is based on a population count of only 1,200 for combined licenses of beer, wine and spirits for both nightclubs and restaurants, and that quota has never been reached. (See “Summary Highlights of State Imposed Alcoholic Beverage License Quota Systems, Utah and the Western States.”) The fact that private clubs in that state have no liquor license quota may play a part in regular liquor license availability despite a quota system.

Varying Liquor License Values

As we noted in an earlier blog (“Liquor License Impact on Existing Restaurants”), an all-alcohol license in Boston averages between $285,000 and $300,000. Since that time, we’ve seen values escalate to $400,000 or more. While that may seem outrageous when compared to non-quota states in which a liquor license can be obtained for far less, it could be a bargain when compared to some outrageous prices paid for a liquor license.

Philly.comLiquor licenses a hot commodity in Philadelphia” cites an instance in which the owners of Swanky Bubbles paid $1.6 million for a license. That establishment is now out of business, and its license sold at bankruptcy auction for $500,000 – less than a third of its original value but still a hefty fee.

Because liquor license laws vary so greatly from state to state, national chains or franchises that operate in various states are wise to use consultants who understand the quota implications (in states with liquor license quotas) and other local and state liquor laws.