This is No Way to Handle Liquor Licensing

Photo curtesy of the City Paper.

The Washington City Paper reported earlier this week on the scene you see above: people camping out trying to snag a liquor license for Georgetown. As Perry Stein writes:

Yeroushalmie, a developer in D.C., is camping outside the government building in hope of snagging a coveted Georgetown liquor license. The Alcoholic Beverage Regulation Administration announced last month that it would be accepting applications this Thursday at 8:30 a.m. for a tavern and three restaurant liquor licenses. This is only the second time in almost 20 years, according to ABRA spokeswoman Jessie Cornelius, that a tavern license has become available in Georgetown.

Yeroushalmie pitched his $39 Walmart tent on Tuesday around 8 p.m. He needs a license for a high-end sushi restaurant he’s planning to open in a building he already owns along Wisconsin Avenue

GM predicted this last month when the city announced the release of the licenses. GM analogized to a gold rush, but it appears the more apt metaphor would be Led Zeppelin tickets.

This ridiculous first-come-first-served policy has the potential to lead to the exact same failure the last series of license releases led to: nothing. As GM wrote earlier, of the seven new licenses issued last time, five ended up going to establishments that either never opened or have since closed (or simply stopped using their license).

GM suggested already that one answer is to simply remove the moratorium just on M St. It appears that the economics might rule out new restaurants on M St. right now, but the moratorium certainly isn’t helping to keep restaurants opening on M St.

Another option would be to say licenses can’t be held in safe keeping for more than 12 months. This is a huge third rail for some restaurants who have sat on licenses for years and years. GM’s answer to that is “tough cookies”. The only reason those licenses have any value at all is due to the continuation of the moratorium. If the moratorium were ended, it doesn’t matter how much money they sank into the license because they’d be worth no more than the nominal registration fees. The idea that some restaurants feel they have an inviolate property right to a liquor license they refuse to use is laughable.

As long as we’re stuck with the moratorium, ideally some sort of a qualitative review could be performed on a batch of applicants, not just the first one through the door. Then the best candidate would be rewarded the license. Unfortunately, GM can’t think of any practical way that could be accomplished.

He just wishes that as the very least, ABRA would insist on a clearer business plan before granting the license. Right now, all you really need is an address. It doesn’t even need to be a space that holds a restaurant space. Hu’s Wear got a license using their retail store’s address. Years later and no restaurant ever opened. Yet they still get to keep the license they never used.

There’s got to be a better way.

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4 Comments

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4 responses to “This is No Way to Handle Liquor Licensing

  1. There are three, and only three ways to ration scarce commodities: Price, Lottery, and Queue*. Most scarce commodities are distributed through a combination of these elements.

    The most equitable method is queue since everyone has an opportunity to wait in line, followed by lottery. Price is the least equitable, but is the most efficient (which is why true markets function with solely price). If the asset is trade-able, as in the case of liquor licenses or concert tickets, both queue and lottery methods will ultimately give way to price on a secondary market, but with the added elements of speculation and arbitrage messing up the efficiency of it all.

    The cleanest way for ABRA to do this would be by price through a public auction, and the proceeds of the sale could be used for some salient public benefit to counter the potential harms (Alcohol Treatment Facilities?).

    The Google IPO strikes me as a great example of what to do when there are multiple licenses at stake, a blind Dutch auction format would clear all the licenses at the lowest price to the applicants, but the highest price at which all licenses would be sold.

    *My good friend David Alpert says there is a fourth: Cronyism, but I’ll chalk that one up to Price, Lottery or Queue since having friends that can employ cronyism in your favor is a matter of paying for them, winning elections, or waiting around long enough.

  2. If the moratorium won’t be lifted, there should certainly be a time limit. Use or lose

  3. Pingback: So long to the neighborhood school?

  4. Pingback: Here are the Prospectors | The Georgetown Metropolitan

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