Beer distributor broke state law multiple times before illegal dealings at the Iowa State Fair, records show
Lee Rood
Investigators found multiple violations of state laws in recent years by one of Iowa's largest beer distributors — including unfair trade practices and commercial bribery tied to its dealings at the Iowa State Fair.
But the state never took licensing action against the company, Iowa Beverage Systems Inc. of Des Moines, state records show.
"There are many factors that go into the determination of the penalty for a violation including severity, prior violation history, precedent, etc. In this case, it was determined that the appropriate penalty was what is listed in (state) documents," said Jake Homes, a spokesman for the Iowa Alcoholic Beverages Division that oversees alcohol sales and regulation of licensees.
The state levied three fines against Iowa Beverage in 2017 and 2018 before the Iowa Alcoholic Beverage Division negotiated a substantial one — $15,700 — with the Des Moines company in 2020. An arm of the U.S. Department of the Treasury fined Iowa Beverage $325,000 this month because of multiple violations of federal law, all tied to the company's dealings at the State Fair.
According to records kept by the Iowa Alcoholic Beverages Division, other incidents involving Iowa Beverage and state fines included:
- In 2017, Iowa Beverage was found to have sold alcohol to someone who didn't have a liquor license or beer permit and fined $1,000. (The complaint did not identity who, but selling alcohol without a license or permit is considered bootlegging.)
- In 2018, over four different days, the company was found to have sold beer "on consignment" by taking beer back from a retailer that didn't sell. It was fined $4,000.
- That same year, Iowa Beverage furnished a refrigerated truck to store a retail licensee’s beer and sold beer to a retailer on consignment again, both in violation of state law. It also gave a "retailer or retailers" sporting event tickets, violating an Iowa law that prohibits industry members from offering or giving free trips, bonuses or prizes based on sales of its alcoholic beverages. The fine: $4,000.
Mike Brewington, president of the Iowa Beverage Systems, said Friday morning he would respond to Watchdog's questions related to the violations via email. However, he did not respond to those questions by 5 p.m. Friday.
The findings of unfair trade practices and bribery against Iowa Beverage triggered numerous questions this week from readers, who wanted to know more about how the company got a leg up on competitors at the state's largest event. Food and alcohol sales by vendors at the fair can tally more than $20 million annually.
State laws enacted after Prohibition attempt to stop large companies from dominating local markets through "tied-house" arrangements among the three separate tiers in the alcohol market: manufacturers, wholesalers and retailers. When it comes to beer distributors, especially large ones, the laws aim to stop them from exercising undo influence over retailers.
Fair officials were tight-lipped this week about their role in negotiating a $100,000 sponsorship with Iowa Beverage that led to the unusually large federal fine.
In addition to free marketing, advertising and concert tickets, the sponsorship agreement drafted in 2019 gave Iowa Beverage all but two beer taps at the Grandstand, where concerts are held nightly. (A copy of that agreement provided by the fair showed that provision of the contract was scratched out by fair officials at some point, but it's unclear when.)
The U.S. Treasury's Alcohol and Tobacco Tax and Trade Bureau said Iowa Beverage negotiated the sponsorship in early 2019 where, in exchange for paying $100,000, the company obtained the beer taps at the Grandstand from which its beer would be sold.
Iowa Beverage also made illegal payments to another retailer that sold beer at different locations at the fairgrounds in 2017, 2018 and 2019, the federal bureau’s complaint said.
Peter Cownie, the head of the Iowa State Fair Blue Ribbon Foundation, the fair's nonprofit arm that handles sponsorships, did not return a phone call seeking comment. Fair Manager Gary Slater has not responded to repeated requests for interviews.
However, spokeswoman Mindy Williamson said Friday that he "has been tied up with family obligations including a funeral and an out of town wedding."
In brief written responses to some specific questions on Thursday, Williamson said fair officials were first notified of the concerns raised about Iowa Beverage Systems at the fair by the Iowa Alcoholic Beverages Division.
But Williamson declined to shed light on the three-year sponsorship agreement reached between Iowa Beverage and Meg Courter, the head of sponsorships at the Blue Ribbon Foundation.
Vendors at the Iowa State Fair who sell food and alcohol at the state's largest attraction are required to give 22% of their proceeds back to the fair. In 2019, the fair made $4.7 million in fees from food and alcohol sales from vendors, Williamson said.
Giving all but two beer taps to Iowa Beverage at the Grandstand that year would have secured substantial beer sales for the company. But Williamson said only that the distributor had the same number of taps as it had in years past.
“There are 50-60 different tappers from 3-4 wholesalers in the Grandstand and they are changed out daily based on logistics of what is available and crowd size,” she said.
She said the remainder of the three-year contract was nullified after the fair became aware of the investigations.
Williamson also couldn't identify which of the 13 vendors who sell beer at the fair were paid in cash or prizes by Iowa Beverage, saying those agreements are between the vendor and the wholesaler.
Lee Rood's Reader's Watchdog column helps Iowans get answers and accountability from public officials, the justice system, businesses and nonprofits. Reach her at lrood@registermedia.com, at 515-284-8549, on Twitter at @leerood or on Facebook at Facebook.com/readerswatchdog.