What is your Liquor License Really Worth?

When you have a big, popular web site you get a lot of emails from a lot of difference sources. Mostly sad PR companies trying to pitch some garbage that nobody cares about. It's amazing that dopey businesses still pay someone more than advertising would cost to try to get them free advertising. Every once in a while I get one for someone who is selling a liquor license. The other day I got one with an asking price of $152,000. Five years ago, the "going rate" was $140K. Given the way things have changed in the last couple of years, I wondered who we be stupid enough to pay even MORE than they tried to get in 2010?

I had a conversation a while back with a liquor license broker that almost made my head explode; some dude on the west coast of Florida who had no idea what was going on in Broward County. It made me think about how the whole thing worked; there isn't a lot of info available on the specifics. This will be more info than you can get in any one place in Broward County on liquor licenses.

First, some background:

All About Liquor Licenses

Most people know about the basic licenses that most restaurants and bars have, because that's where we spend a lot of our time. We all know people who work in or own restaurants and bars. There are actually over 50 types of licenses, as absurd as that sounds. We don't care about caterers or convenience stores, so we'll stick to the major ones:

4COP Quota

This is the license you need to sell alcohol in a bar. "COP" means "Consume on Premises". This allows you to serve drinks. Liquor stores can sell sealed containers, but it can't be consumed on premise. They're called Quota licenses because the State limits the number they'll issue to 1 for every 7500 residents. When the population goes up by 7500, they have a lottery and auction one off. As if selling alcohol is some sort of prize. What's absurd is that you don't even have to own a bar or restaurant or plan to open one. You can just win a license and sell it to a broker. The big thing with a Quota license is that you own the license. You can sell it to someone else. You can move it to another venue within the county. If your bar goes out of business, you have 2 years to open a new one or sell the license to someone else.

Quota licenses explain many things about government; the quota system was conceived a billion years ago when the government thought it was their job to save us from ourselves by forcing there to be fewer bars. Quota licenses have become a joke (and a burden on small businesses), mainly because of government meddling. More on this later.

SFS Licenses

Many years ago, the State realized that the Quota system wasn't allowing commerce to grow sufficiently, so instead of abolishing the stupid Quota laws, they created new law. They created the SRX license. The SRX license was a way to allow large restaurants to sell alcohol. You remember all of the big restaurants: Flanigans, Quarterdeck, Roadhouse. More government corruption; you had to have 200 seats to get an SRX, and only rich people and big chains could afford to build big restaurants.

Last year, the State changed the SRX license designation to SFS, for Special Food Service. I'm not sure why.

SFS licenses, also called "Restaurant Only" licenses, were "designed" to be inferior to Quota licenses. They are licensed to a specific location. When a restaurant goes out of business, the license can be transferred to a new restaurant that takes over the space, but it can't be transferred to another location. So there is no real market value. You can't "put the screws" to the transferee, because they can just apply for their own. There's a transfer fee, which makes it worth even less.

SFS licenses also have "restrictions", at least in theory. An SFS license requires that a restaurant's food sales be more than 50% of total sales, so you can't just pretend to be a restaurant. You're also not allowed, in theory, to serve alcohol after you stop serving food. The law says that alcohol can be sold when "full meals" are available for sale. You also must maintain the required seating 100% of the time that you sell alcohol. So if you clear the dining room for a band or a dance floor, you have to maintain the SFS requirement.

Wine and Beer

2COP Licenses

Just about every restaurant that doesn't have a 4COP license has a 2COP license, which is more commonly known as a "Wine and Beer" license. Virtually anyone can get a license to sell wine and beer in Florida; they sell wine at the Exxon Station. Smaller venues who don't want to lay out $140-150K have to settle for serving Wine and Beer, because the State has decided that they're not important enough to compete with larger venues.

Restaurants with 2COP licenses cannot sell any distilled alcohol, and may only sell fermented beverages with below 24% alcohol content. Typically thats Wine, Beer and fake fermented liquors.

The State will allow any size venue to purchase a Quota license, but they won't let you get an SFS license at any price. It's pure corruption. Favoritism to lobbyists.

Other Licenses

As I mentioned, there are about 50 licenses, but several others can be mentioned to cure some curiosities. There's a special license for Hotels; I think just about any hotel can get a liquor license. Big hotels may have several restaurants and bars, so this makes it easy for them to get licenses for all of them.

There are also special licenses for bowling alleys, Social Clubs, Beach Clubs, Golf Clubs, Performing Arts Centers, party Boats and Airports. Are you getting how absurd and cumbersome this stuff is?

Additional Government Stupidity

There are also laws on the books that say that you can't open a venue with a 4COP license within a certain number of feet of another establishment (typically 250 to 1000 depending on zoning), so 2 bars next to each other on Las Olas require a variance permit in order to be able to operate. There are also laws about distances from a school or church. Usually the variance is issued, but it costs money and represents yet another outdated hoop to jump through to do business.

Quota vs SFS

The big problem is that many of the restrictive aspects of the SRX license parameters aren't enforced. Would you be surprised to know that YOLO, Grille 401 and Big City Tavern all operate with SFS licenses, while the Royal Pig Pub has a Quota license? Do you notice any difference in the way that those venues conduct their alcohol business? The only restaurants downtown on Las Olas that have a Quota license are the Royal Pig Pub, American Social, Bao, Sweet Nectar, and Grill Republic. Yet virtually all restaurants that sell liquor have identical policies and hours.

So the premise here is that a Quota license and an SFS license are essentially the same in practice. If you can get an SFS license, there's really no reason to get a quota license. There aren't strong restrictions on prices, so you can discount liquor to get your numbers in line. They don't enforce the requirement to serve full meals at all times (just about all SFS restaurants close the kitchen and continue to sell alcohol. I'm not sure if it's because the ABT doesn't care, or because a restaurant could get around it by simply serving Turkey sandwiches until 2AM so the law really is quite silly. The bottom line is that from an operational standpoint, restaurants with SFS licenses operate as if they had a Quota license.

There's also some potential funny business going on with SRX licenses; something that no-one is willing to talk about. The Drunken Taco has an SFS but is listed as only having 135 seats, and they obtained it when the requirement was 200 seats. Christina Wan's also has an SRX license and is only listed as having 100 seats; they also got it when the requirement was 200 seats.

Even more absurd was KAOS ultralounge (which will now be called The Pelican's Nest under new ownership). They don't pretend to be a restaurant; the place was clearly a night club, and they didn't serve a full menu. They only had 100 seats. But they had an SRX license. How is that possible?

Recently, the Law Changed

The reason that the value of a Quota license should have gone way down is that they changed the requirements to obtain an SRX license last year; previously you needed to have 4000 sq ft with at least 200 seats; this was changed to 2500 sq ft and 150 seats. Why 150 and not 100 or 80 seats? Who knows? But the change in the law did 2 things:

1) Venues with between 150 and 200 seats could now get an SFS license, and others could just find ways to add some seats to get up to 150 seats. Suviche is a good example; Mancini's had a Quota license because it was only 80 seats. Suviche put in an awning (seats outside have to be covered) and stacked the place with tables so they could qualify. Billy's Tavern added an awning to their outside space to get up to 150 seats.

2) It made it less expensive and more plausible to expand your venue (or take space next door) than to buy a liquor license. Now a place with 80 seats can add a medium sized room, stick 70 seats into it, and qualify for an SFS license. Angelo Elia's Pizza added an extension.

Additionally, there were about 40 venues who had Quota licenses that no longer needed them because they had over 150 seats. Rocco's Tacos recently sold their Quota license and got an SRX, probably pocketing $140K. Virtually all of the venues previously with 150+ seats and a Quota ilcense can sell their license for hard cash.

The Law of Supply and Demand

There are currently about 15 venues that *could* sell their Quota license if they need some money, and a bunch of venues have been swapping out their Quota licenses for an SFS, so the supply of licenses available is up substantially. So not only is it easier to get an SFS license (dispensing the need to be extorted into paying $150K), but the supply of licenses to obtain is higher than it's ever been. So the supply of licenses is up, and the demand is down. Economics 101 says that the price MUST go down accordingly.

If you need to obtain a quota license for a new bar, why not just go to Maguire's HIll or Grill Republic and offer them $100K in cash? Someone will probably take it; no broker fee. (both of those venues have closed since the article was written).

Conclusion

My view is that the quota system is badly antiquated and should simply be abolished. They should charge more for Liquor licenses and let the market dictate how many venues sell alcohol. You don't have to drive more than 100 yards to find liquor, so what difference does it make if there are 10 venues or 2 that sell it per block? Additionally, you can get just as drunk on wine and beer as you can on hard liquor. The whole thing just shows how brain dead and counterproductive government regulation is.

Who gives more contributions to politicians; people with 150+ seat restaurants, or people with 50 seat restaurants? Are you gathering why these laws exist as they do?

Given that I can't unilaterally abolish the Quota system, I do question that the value of a liquor license is close to $150K in todays environment. There are tons of restaurants for sale with more than 150 seats. And bars are very 1990 in most towns; most restaurants have bars, and most bars serve food. So limiting the number of bars is almost unnecessary. Opening a bar that doesn't sell food just isn't a good business practice in today's world.

Let everyone get a liquor license for $10K a year, and level the playing field. It will make it more feasible to open a small restaurant, and give the rich guys less of an advantage. It's good for the Economy to have more competition. The current system serves no useful purpose. Of course those who paid $150K for a liquor license would object to such a change, but nobody forced them to pay that much. What we have now is a contrived black market; a black market created by government meddling.