Fifth Generation, Inc., the company which produces Tito's Vodka in Austin, TX, has settled compliance violations with the Alcohol and Tobacco Tax and Trade Bureau ("TTB") with an Offer in Compromise in the amount of $305,000.
The Offer in Compromise, which was made publicly available, but was scant with details, indicated that the Tito's Vodka producer allegedly violated Trade Practice laws under the Federal Alcohol Administration Act (27 U.S. Code § 205).
Specifically, the Offer in Compromise document stated that the permit holder entered into "sponsorship agreements with various sports and entertainment venues, through which the venues' retail concessionaires were induced to purchase ... distilled spirits to the exclusion of ... competitors' products."
The alleged violations occurred over a time period spanning from 2016 to 2021.
What does this mean for the industry? Sponsorship agreements are nothing new to the industry, however it is worth noting that this is the second Offer in Compromise published by TTB this month, as TTB also announced an accepted Offer in Compromise with Iowa-based Doll Distributing LLC, concerning sponsorship agreements with a local university's basketball arena.
Sponsorship agreements can be fraught with issues, even if drafted to specifically state that the retail permit holder will not violate trade practice laws as part of the agreement. It is important to note that TTB and applicable state ABC agencies generally focus more on the conduct of the parties, rather than what the agreement says, in determining whether a trade practice violation occurs. This, as one can imagine, is far more subjective and less clear-cut than might be considered when drafting these agreements.
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