Bottoms up 

The high price of liquor licensing in Missoula

There are two competing theories about why the Missoula Ale House is so clean. The first is that the bar is just over a year old, and so hasn’t been around long enough for drunken patrons to punch holes in the walls and spill pitchers of pilsner everywhere yet. The second is that the bar doesn’t sell hard liquor.

“People are just a bit more mellow if there is only beer and wine,” says owner Brian Kilburn. “They’re less likely to get out of hand.”

Kilburn started the Ale House the easy, and lucky, way. A year and a half ago, when three new Missoula beer and wine licenses became available, he was awarded one in a lottery, paid his $800 in application fees, and opened for business.

“They actually have that PowerBall machine over in Helena that they use to decide who wins the [licensing] lottery.”

Most buyers, especially when it comes to all-beverage licenses, have a much more difficult and expensive time of it. Jay LaFlesch of Jay’s won’t reveal how much he’s selling his all-beverage license for until the deal is final, but the license alone—not including the bar—could fetch more than $400,000. Across town at the Blue Heron, Kevin Head is asking over $600,000 for his building and beer and wine license combined.

To understand how liquor licenses became so coveted—and so expensive—you have to go back to the first few years after Prohibition. By 1933, the nation was ready to start legally drinking again, but here in Montana, the Legislature wanted to take it slow.

“In ’33, only beer licenses were made available,” says Jason Wood of the State Department of Revenue’s liquor licensing division. “It wasn’t until ’37 that distilled spirit licenses were made available, and you had to have a beer license before you could get the distilled spirit license.”

In 1947, seeing that the number of licenses being issued each year was increasing, the Montana Legislature instituted a quota system. The number of licenses in any town was to be based on population. The bigger the town, the more bars allowed.

But the proposed quota would have greatly reduced the number of licenses already in circulation—most Montana cities would have had to shut down half their bars to meet it. Not wanting to put taverns out of business, the Legislature grandfathered in every bar issued a license between 1933 and 1947.

In Missoula, the system has created a situation in which only 42 all-beverage licenses should exist based on the city’s population. But thanks to the grandfather clause, Missoula now has 70. Because the number of licenses is so far over quota, there’s no hope of more being issued until the city’s population grows by 20,000 people.

Without the chance of new licenses from the state, would-be bar owners have to go looking on the open market. That’s where it gets expensive.

Real estate agent Bill McQuirk, who specializes in commercial property and liquor licenses, has watched the all-beverage price drive higher and higher as demand increases. The spread of video poker and keno in ’85 only bolstered the value further.

“When gambling came in, the price of licenses went up because you can’t have gambling without a liquor or beer and wine license,” says McQuirk.

Twenty years ago, LaFlesch paid $300,000 for both the Jay’s building and an all-beverage license in a package deal. He says he knew it was a good investment at the time.

“It doesn’t surprise me, when you look at how the housing and other markets have gone up,” he says. “But this did increase a little bit more. With the quota system, I can understand that it’s an item that is sought after.”

While asking prices for all-beverage licenses in Missoula are higher than in most other areas in the state, a license is almost always a valued commodity in Montana cities. In 1998, the Billings population rose to the level where three new all-beverage licenses became available. With only an $800 application and processing fee to pay, more than 100 applicants gathered round the PowerBall machine in Helena in hopes of taking home the prize, says Wood.

But in those towns and cities that have become economically depressed and experienced depopulation, the licenses haven’t appreciated. There are so many all-beverage licenses available in Butte that you can pick one up for less than $15,000, says Wood.

Beer and wine licenses around the state never quite took off like the all-beverage. In Missoula, the number of beer and wine licenses is holding steady at the state-imposed quota.

“The basic reason the beer licenses are right at quota is because everybody rushed to get the all-beverage licenses [in 1947],” says Wood. “And there just wasn’t as big of a demand for the beer licenses after that.”

Every few years, as Missoula grows and the Census Bureau releases population estimates, new beer licenses will become available. That’s why Ale House owner Kilburn hasn’t taken his license to market, he says.

“It’s not as important, because it’s not as hard to get. It’s just not as valuable,” says Kilburn. “It was tough in here the first six months, but I don’t know if that was because we could only sell beer or wine, or because we were new. Either way, I could have never afforded an all-beverage license, so this was my only choice.”

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