Being the middleman for bulk liquor sales at Harrah’s not as lucrative as it seems

Harrah’s Cherokee casino bought nearly half a million dollars of liquor over the past year, netting almost $50,000 in profits each for the ABC stores in Sylva and Bryson City — which had the privileges of being the casino’s suppliers.

But despite the numbers on paper, it is hasn’t proved quite the windfall the two towns hoped.

“It was nothing like they said it was going to be,” said Monty Clampitt, chairman of the Bryson City ABC board.

“People thought there would be a world of money flowing in all of a sudden if we did this,” said Kevin Pennington, chairman of the Sylva ABC board. “I think it was a little surprising that there was not near as much money coming in.”

The casino began serving alcohol to customers last year. The Cherokee reservation was — and still mostly is — dry. The tribe made an exception for the casino, but lacked an ABC store of its own. So it turned to the ABC stores in neighboring Sylva and Bryson City to buy from.

Since the reservation lies partly in Jackson and partly in Swain counties, figuring out which store had dibs on being the casino’s alcohol supplier got complicated. Ultimately, the stores in Bryson and Sylva launched a joint venture with the sole mission of filling bulk liquor orders for Harrah’s and decided to split any profits 50-50.

Both towns hoped it would be a lucrative deal for them, since profits from the ABC stores go straight to town coffers.

But neither town has seen a penny yet, despite being more than a year into the operation.

“We haven’t gotten any of it yet. None,” said Pennington.

The joint venture has cleared $100,000 in profit so far, so at first blush it’s not clear why that money hasn’t been meted out to the towns along with the regular ABC dividends.

But Clampitt and Pennington said the profits to date have been used to build up working capital and inventory.

Roughly half the profits are tied up in inventory — $50,000 in liquor is stacked on pallets and shelves in the back storeroom of the Bryson City ABC store, ready and waiting to fill the weekly orders coming from Harrah’s.

Another $50,000 is sitting in the checking account, a cushion to ensure smooth cash flow, Clampitt said.

Since the state warehouse will only ship to local ABC stores once a month, they have to buy the liquor up front.

Harrah’s makes out a shopping list of what it will probably need, but its actual order may vary, so it could be weeks before the inventory moves off the shelves.

“You can’t tell a customer what to buy,” Clampitt said.

But with inventory and reserves now built up, profits made from here on out will be paid out quarterly. Sylva and Bryson City can each expect checks for $11,600 to arrive any day, a payout from the second quarter, Clampitt said.

 

Cherokee forays into ABC store of its own

No sooner than Bryson and Sylva’s joint venture has started paying off, however, and the end is in sight. Cherokee is well on its way to an ABC enterprise of its own and within the year will stop buying from its neighbors.

From the beginning, Cherokee has wanted to setup its own ABC store, selling the liquor to Harrah’s itself and keeping the profits for the tribe rather than sending them down the road to Bryson and Sylva.

The logistics of starting one haven’t been easy. The tribe ultimately needed a special bill passed by the General Assembly allowing it to start its own ABC venture, so it can order directly from the state warehouse without going through the Sylva or Bryson stores as middlemen.

The Sylva and Bryson stores weren’t planning on riding the casino’s liquor gravy train forever.

“I figured it wouldn’t be long before the tribe got it worked out,” said Larry Callicut, town manager of Bryson City.

“I was not at all surprised when the Cherokee said they can just buy stuff directly from the state,” Pennington added.

 

Delayed gratification

It will be several more months, and possibly even a year, before the new Cherokee ABC board is up and running, however. There’s a complicated computer system to set up, a staff to hire and a place needed to hold all those waiting pallets of liquor.

“They’ve got some organizing planning and what not to do,” Clampitt said.

Once that’s done the Sylva and Bryson joint venture will become obsolete. It would make sense to shut down the operation and close out the books, liquidating all that inventory and cashing out the checking account.

At that point, the two towns could expect a final payout of $50,000 each.

That’s a good chunk of change for small, cash-strapped, recession-burdened towns to clear. It’s better than nothing, Clampitt supposed, but it wasn’t exactly free money.

“It’s been a whole lot of work,” Clampitt said.

The Bryson ABC store lends its staff to the joint venture serving the casino. It takes labor to manage the inventory: keep up with what’s running low, place monthly orders with the state, parcel out weekly shipments to the casino and all the related bookkeeping.

They also personally deliver weekly orders to the casino — a perk afforded to their special customer. (Run-of-the-mill bars and restaurants have to do their own pick-up.)

The Bryson ABC store gets compensated for some of those hours. In June, for example, the store billed the joint operation for $607 worth of its employees’ time.

But the Bryson board also donates some of the labor and overhead to the joint venture. It doesn’t pro-rate a portion of its utilities to the Cherokee operation, for example. Nor does it bill for the labor of unloading the truckload of orders coming from the Raleigh warehouse each month.

The two stores have finally paid themselves back for start-up loans taken from their own bank accounts to get things up and running — namely building up the necessary inventory.

The stores also had to purchase a $15,000 computer system for the joint Cherokee venture. The state ABC system is particular about the software used by all the stores, requiring a certain type of program that interfaces directly to the state warehouse, not only for placing orders but also allowing the state to track the whereabouts of every bottle of liquor.

The state wouldn’t let Bryson’s ABC store use its existing computer system, since the Cherokee venture was technically considered a new standalone enterprise, Clampitt said. So both stores dipped into their own funds to buy the computer system, cutting into profits they would have made otherwise.

Pennington said he was skeptical from the start.

“It was such shall we say a unique situation to start that combined store, I personally never felt like it was done for the best interest of the people of Jackson County to begin with,” Pennington said.

Pennington said he actually advocated against it, but the state ABC people made them do it.

“It wasn’t our idea at all,” Pennington said.

As for the $15,000 computer system? Bryson and Sylva ABC boards have already written that off and deducted it from the Harrah’s profits. But it would be nice to get a little something back for it when the joint venture is shut down,  Clampitt said. He hopes they could sell it to the new Cherokee ABC board.

Coincidentally, a countywide alcohol referendum on the ballot in Jackson County next year could lead to a new ABC store in Cashiers, which if passed, might just need a computer system as well.

 

Why so complicated?

Liquor sales in North Carolina are a tightly regimented affair. All liquor coming in to the state makes its first stop at warehouse in Raleigh. Local ABC stores in turn order from the state warehouse, a means of controlling the sale and distribution of liquor to the public.

Local stores act as middlemen. They get the liquor at wholesale prices, then mark it up to resell to customers, both to the general public and to bar and restaurant owners. The state dictates how much of a markup is allowed, about 25 percent.

After covering overhead and salaries, local ABC stores turn the remaining profits over to the local government, either the town or county, or in some cases both.

Bottoms up: Towns likely to continue benefiting from liquor sales

With Gov. Beverly Perdue reversing her stance on her previous suggestion to privatize liquor sales, towns can rest assured they’ll probably not soon see this important revenue stream go dry.

In Waynesville, beneficiary of about $170,000 in annual profits from its ABC store, Perdue’s announcement might give the local ABC board the reassurance it needs to decide how to best handle cramped quarters. Should Waynesville build a new store as previously considered near the big, new Super Wal-Mart; or, should Waynesville simply expand its existing ABC store? said Town Manager Lee Galloway.

The state’s ABC commission in March approved Waynesville’s request to build a second store. Indecision over whether the state might privatize liquor sales put the plan into limbo, however.

Though, truthfully, Galloway wasn’t all that worried about this looming financial threat to the town’s coffers. He said he believes if the proposal moves forward, which seems highly doubtful now without Perdue’s backing, the state would find another method of reimbursing towns for the docked dollars.

Perdue made her I’m-now-against-privatization announcement last week at a meeting of county commissioners attending a legislative goals session in Durham. In the audience was Macon County Commissioner Ronnie Beale, whose primary concern centered on consumption, not revenue. In this, the local Democrat had an ally in the Christian Action League of North Carolina, which bills itself as having the largest networks of members, volunteers and churches of any Christian public-policy group in the state.

The Christian Action League opposed privatization on the grounds people might drink more if access wasn’t state controlled. Walter Harris, president of the Association of ABC Boards, flatly stated he, too, believed privatization would result in increased imbibing.

“I think it is a wise decision not to put liquor at every stop,” Beale said, adding that North Carolina’s less-than-happy experience with privatizing mental-health care raises serious questions about such initiatives.

Billed as “reform,” many critics — including Beale — have said the new mental-health care system in North Carolina fails to provide the state’s most vulnerable residents with basic, much less adequate, care.

Some highly placed Republicans in the now GOP-controlled legislature had expressed their concerns, too, about letting private business owners sell liquor out of grocery stores or other retail stops. North Carolina currently controls every aspect of the more than $5 billion business, but the governor was eyeing privatization as a means of generating dollars to help with the state’s $3.7 billion shortfall.

Adding fuel to the idea of letting vendors handle liquor sales were a number of lurid headline-generating stories about high times by, and high salaries of, some ABC board members downstate.

Such issues, Beale said, can best be handled through other means than simply handing off sales to private business owners.

Franklin Mayor Joe Collins said he believes the current system works, and that by confining liquor sales to (in Franklin’s case) a single store, “certain challenges” surrounding alcoholic beverage sales are more easily controlled. The mayor added he was pleased that, after study, the governor was willing to squelch her own idea.

Canton Town Manager Al Matthews said he isn’t so sure the matter is closed, however, and said the issue merits continued monitoring. Canton, particularly, might have been in a bit of a pickle if privatization had occurred — it has a relatively new ABC store, and sales revenue is being used to offset the building costs.

“Somebody was going to be stuck with a debt,” Matthews said.

 

2010 gross sales at area ABC stores

Canton    $964,474

Maggie Valley    $1,588,210

Waynesville    $2,107,992

Sylva    $2,610,265*

Franklin    $2,434,888

Highlands    $1,567,570

Bryson City    $1,751,508*

SOURCE: North Carolina ABC Commission

* Bryson City and Sylva sales include alcohol purchased by Harrah’s Cherokee Casino

Compromise ends tug-of-war over who will be Harrah’s liquor distributor

While the addition of alcohol sales at Harrah’s Cherokee Casino and Hotel will undoubtedly be lucrative for the Eastern Band of Cherokee Indians, they won’t be alone in reaping a windfall.

Harrah’s will order all its liquor from the ABC stores in Sylva and Bryson City, which in turn will benefit the town’s coffers. The tribe does not have its own ABC store, and thus had to look to neighboring locales for its liquor.

Tension inevitably erupted between the ABC boards in Sylva and Bryson City at first, as each clamored at the chance to be Harrah’s supplier — and reap the profits and tax revenue off each bottle.

Typically, restaurants and bars buy liquor from the ABC store in their own town or county. In this case, however, the Cherokee Reservation straddles Jackson and Swain counties. Harrah’s itself lies on the Jackson County side, giving the Sylva ABC store de facto standing. But Bryson City is physically closer.

A compromise worked out between the Bryson City and Sylva ABC boards created a special joint board to exclusively handle alcohol sales to Harrah’s. They will share profits evenly.

N.C. Representative Phil Haire, D-Sylva, and Jackson County Commissioner Tom Massie encouraged the two ABC boards to work together.

“Half of something is better than 100 percent of nothing,” said Massie, adding that both counties would be affected by the addition of alcohol at the casino.

“We’re the ones that are going to have to deal with any problems coming from alcohol sales on the reservation, depending on whether they go east or west,” said Massie. “If we’re going to get the problems, we should get some of the revenues.”

Bryson City’s ABC board is admittedly doing most of the work, primarily since it has extra warehouse space to handle the added inventory, according to Laurie Lee, an auditor with the state’s ABC commission.

“The day-to-day work is handled by Bryson City,” said Lee.

Bryson City will order alcohol, provide warehouse space and take orders from the casino, according to Monty Clampitt, chairman of the Bryson City ABC board.

The Sylva ABC board’s only tasks are to “maintain the alcohol permit” for the joint operation and appoint members to Bryson City-Sylva ABC board.

However, both boards will advance $7,500 to cover initial start-up costs.

“The cost is almost nothing,” said Clampitt. “We have the warehouse space already. Labor would be provided by current employees.”

Alcohol for the casino will be stored in Bryson City’s old warehouse, while the new warehouse, built last year, will continue to be used for basic store operations.

The tribe plans to handle law enforcement, thus receiving the customary 5 percent of ABC profits designated for the local police station. The remaining profits will be split evenly between the Bryson City and Sylva ABC boards.

The two boards had been working on an agreement since September and finally signed a contract in mid-October. The state ABC commission formally approved the merger in mid-November, paving the way for Harrah’s to starting offering liquor drinks.

“I think this is a good compromise,” said Massie. “I think it benefits all involved.”

When asked about how much he expected his ABC board to profit from the expansion, Clampitt replied, “My crystal ball’s broken.”

For now, the takeover is going smoothly, according to all parties involved.

“It’s a new venture and we are proceeding as responsibly and carefully as we can,” said Charles Pringle, spokesman for Harrah’s Cherokee.

Page 2 of 2
Smokey Mountain News Logo
SUPPORT THE SMOKY MOUNTAIN NEWS AND
INDEPENDENT, AWARD-WINNING JOURNALISM
Go to top
Payment Information

/

At our inception 20 years ago, we chose to be different. Unlike other news organizations, we made the decision to provide in-depth, regional reporting free to anyone who wanted access to it. We don’t plan to change that model. Support from our readers will help us maintain and strengthen the editorial independence that is crucial to our mission to help make Western North Carolina a better place to call home. If you are able, please support The Smoky Mountain News.

The Smoky Mountain News is a wholly private corporation. Reader contributions support the journalistic mission of SMN to remain independent. Your support of SMN does not constitute a charitable donation. If you have a question about contributing to SMN, please contact us.