Groupon is a deal-of-the-day website that provides discounts on goods and services in local markets. If a certain number of people sign up for the deal, it becomes valid. If the minimum is not met, then one gets that day’s deal. Groupon is now a billion-dollar business, and its growing popularity is particularly attractive to restaurants. Other third-party providers are following suit, including Living Social.

In these systems, a third-party provider (such as Groupon or Living Social) provides a coupon for an establishment that is licensed to sell alcoholic beverages for consumption on the premises. The coupon is offered for purchase at one price (say, $10) and can be redeemed for food and beverages at a higher amount (say, $30).  The third-party provider receives a fee for each coupon sold that is based on the price the customer pays for the coupon.

The system was put into question for NYS liquor license holders in 2011 (Declaratory Ruling 2011-03001). There were two issues at hand: illegal availing of the license and prohibited unlimited drinks offering. First, Alcohol Beverage Control Law Section 111 (ABCL §111) prohibits a license holder from allowing another person to use the license without SLA permission. Additionally, ABCL §110(1)(g) requires that SLA be notified of anyone who has an economic interest in a licensed establishment. If a third-party provider receives a fee from the sale of coupons and the coupons are used to purchase alcoholic beverages, does the arrangement violate these two sections of ABC law? In the 2011 case, the SLA found that because the percentage of income received from purchasing alcoholic beverages using the coupon would be relatively insignificant, and the third-party provider would not have any interest in the ownership, management or business operations of the licensed establishments, the relationships would not be in violation of these sections of the law.

The second issue concerns the prohibited offering of unlimited drinks. ABCL §117-a states that license holders are not allowed to offer any type of unlimited drink specials to patrons during a set period for a fixed price. For example, a patron cannot pay $5 and receive unlimited drinks from 5pm to 7pm. Licensees are also not allowed to advertise or promote in any way that tries to get around this law, which includes allowing a third party to offer or advertise illegal drink promotions. The SLA has adopted an informal standard that drinks offered at less than half the business’s regular price is in violation of this law. In the 2011 case, coupons offer no more than a fifty percent discount, so the SLA held that the system does not violate ABCL §117-a.

The SLA deemed that the Groupon- or Living Social-type system did not violate ABCL provisions per se. However, that is not to say that licensed establishments can offer any online promotion by a third-party provider. The SLA’s ruling was based on the particulars of that case. If you are interested in using a similar system, take note of the following aspects of the system on which the SLA based its approval:

• The third-party provider does not have a liquor license;
• The third-party provider does not have any interest in the ownership, management or business operations of any of the licensed establishments;
• The coupons cannot be used exclusively to obtain alcoholic beverages;
• The coupons offer no more than a 50% discount off regular prices;
• The promotion is offered no more than four times per calendar year and no more than two times within one quarter; and
• The promotion lasts no more than two weeks (the coupon can still be redeemed after promotion ends).

To ensure a likelihood of SLA approval, it is important to adhere to these same particulars, which formed the basis of SLA approval. Any deviation would risk disapproval – and possible penalties for violating ABC law. It is important that you consult with an attorney experienced in SLA proceedings and ABC law before entering a contract with any third-party provider.