Nate Eldridge and Sean Sewell knew there would be startup costs involved with opening a bar on the ground level of Victorian Square, just as there are with any new business. But with Fayette County at its limit for liquor licenses, their startup costs could involve a choice between coming up with tens of thousands of dollars in cash or limiting their business.
"It's just been a constant vicious circle of hoops to go through," said Sewell. "When we first got the idea to do it, just being naÔve to the whole process, we literally thought it was: go down there, sign some papers, pay a permit and start building. It was going to be so easy."
But Sewell and Eldridge are facing the same predicament confronted by entrepreneurs in metro areas around the country, according to Jon C. Mejia, national sales manager for American Liquor License Exchange, a company that specializes in helping with the sale and purchase of liquor licenses in areas where they are in high demand.
"This is a dilemma that people face in states like California, Florida, New JerseyÖ in our experience, and we've been doing this for over 25 years. It penalizes the small guy because if you have to go out on the open market (to obtain a liquor license), it is the chains that can afford the higher prices," said Mejia.
Mejia said he is currently seeing prices climbing to $500,000 in the Florida Keys and $300,000 in Napa Valley for the private transfer of public licenses that, when obtained through the state, would cost a business a few thousand dollars in administrative costs.
Fayette County has been right at its limit for liquor-by-the-drink licenses for the last few years, according to Virginia Davis , analyst with the Kentucky Office of Alcohol Beverage Control. When an area reaches its limit, a market for transferred licenses follows.
"I've been here a long time, and I've certainly seen that for years and years and years. It's not uncommon; that's how it used to be done for years," Davis said about the process of a bar owner being paid to transfer their liquor license to another applicant, who still has to go through the approval process with ABC. Though it may not seem right to pay many times the $1,000 in fees owed to the state to apply for a liquor license, Davis said whatever is done to get someone to agree to transfer their license is out of the jurisdiction of beverage control. "We don't get involved in anything that happens on the streetÖ whatever happens on the street is none of our business," she said.
Costs used to be higher to obtain one of the coveted liquor-by-the-drink licenses, according to Lexington attorney Jim Amato. "I remember it going for $60,000, $65,000Ö when the chain restaurants started moving in here and they didn't care what it cost. They're used to paying more than that in other states. That's what it used to be." But those times have changed, Amato said, because restaurants that seat more than 100 and receive 50 percent of their revenue from food sales no longer have to apply for one of the licenses that count against the county's allotment. Some restaurants, however, do have to obtain licenses that count against the quota. Three of the Fayette County's 110 possible licenses are being used by the local Chipotle franchises - fast food eateries that don't have full-service bars but do offer margaritas on the menu. Since the restaurants aren't large enough to seat 100 people, they have to obtain the same liquor license a full-service bar needs.
State ABC statutes, determined according to population, allow Lexington one liquor-by-the-drink license per every 2,500 residents and one package sale license per every 2,300 residents, while the more populous Louisville is alloted one license per every 1,500 residents.
"None of our liquor laws make sense because they were all based on wrong-headed ideas," said Amato, who has been representing businesses in their attempts to buy existing licenses around the state. "They got it mixed up with church and religion and that's never a basis to do anything."
Amato, both a former mayor and ABC commissioner, said classification by size of city is just one of the oddities within the state liquor code. "You can sell liquor and wine in a drug store and they sell groceries - all of them have groceries now," but grocery stores are not even allowed to sell wine. "We're regressive as hell, we're knocking (small parts of the law) off one at a time, but they ought to have an omnibus ABC bill next time (the legislature meets) to try to get a whole bunch of those old hangover deals from the bible-belt and stuff like that cleaned up."
That's a sentiment that is echoed by many people in the business.
"The whole quota systemÖ is a remnant of prohibition. It's antiquated and problematic for a lot of people in a lot of places," American Liquor License Exchange's Mejia said. As a part of his job, Mejia has to deal with different rules in each state, including one that some believe occurs in Kentucky where people can obtain licenses with no plans to use them, only to sell them at higher prices.
While license flipping occurs in Florida, it is not a possibility here in Kentucky, according to ABC's Davis, as a license must be tied to an operating business unless it is in "dormancy." And the state has provisions in place to prevent a dormant license from being shopped around. "We're not going to let you hold it forever. You have to move to a new location, you have to remodel, you've got to do something," Davis said. "We're going to eventually make you take issue with that license, because there is somebody else that wishes to activate it if you don't. We're going to give you a deadline period."
According to Davis, a license can go dormant for "Acts of God," cases, for example, in which the building housing the bar is damaged or destroyed; the bar loses its lease; an owner falls ill; or business is too slow to remain profitable and the owner needs to find a new location.
But that doesn't prevent active licenses going to the highest bidder. "If it was a hotel, they're used to paying big prices around the country; that doesn't scare them," Amato said. "But we're talking about local people, that does scare them. What I'd do, if I represented any of those people, I'd just check everyday in Frankfort, or have someone down there check for me everyday."
Sewell and Eldridge don't anticipate enough nightly business to justify paying an excessive sum to purchase the transfer of a liquor-by-the-drink license. And the location they want - but haven't leased while it remains unclear if they can open the business they envision - can't support a restaurant.
"Everyone we talk to has said, 'Well, are you going to serve food? Sell food and we can get you one,'" Sewell said. "If you're just a traditional pub experience, you're not going to get it until you do something about the liquor laws."
So the business partners are examining their options. "Right now we're looking at actually preceding and going with a beer-only license, and that's pretty much where we stand right at the moment," Eldridge said. "We figure we've come this far, I'm not one to give up, so I'd like to give it a shot."
"I don't want to quit," he added, "I've been doing promotions now for almost 10 years. I know what I'm doing. I know what I want to do. I've got a lot of different options of what I can do, but I'd like to have that base, that bar, that thing that we've wanted for a while, some place that is ours, if we can do it."