Auction Over: The Results are in for the Third Zombie License Auction

by Norris McLaughlin & Marcus, P.A.

We have now completed the latest phase of the zombie license auctions held by the Pa.L.C.B. since being permitted under Act 39 of 2016.  As this is now the third phase of the zombie license auctions, we are starting to notice a few trends, both in the auction and in the open market. 

One trend that has not changed from the previous two phases is the high and low payments for licenses in certain counties.  For example, licenses sold in Berks and Monroe counties went to bidders who bid higher than licenses that are currently available by the market by $5,000.00 or more.  By way of further example, in the third phase Weis Markets paid $150,419.00 for a Monroe County license and we were able to obtain a Monroe County license in the second phase for a client for $103,000.00.  In stark contrast, licenses in Montgomery and Lehigh counties were well below the current licenses on the market.  In particular, one license in Montgomery County sold for $200,000.00, which is approximately half of what the licenses are currently available for on the market ($400,000.00) and more than half of what they were prior to the first auction ($500,000.00).

Another trend we are noticing is the significant effect the zombie license auctions are having on the open market in certain counties.  For example, prior to the first phase, liquor licenses in Montgomery County were averaging $500,000.00 on the open market, and prices on the open market have now dropped to around $400,000.00.  Not only have the auctions caused a price drop in the open market, there seems to now be a surplus on the open market with sellers not willing to go below a certain price (based on what they paid) and buyers not willing to make a purchase with the potential ability to get a license so cheap from the Pa.L.C.B.  It will certainly be interesting to see how the license prices change on the open market in the weeks following the latest phase of the zombie license auction.

It is also important to note that the public nature of the auctions is having a dramatic effect on the open market.  Unlike the sale of a house where you can complete comparable sales pricing analysis through Recorder of Deeds information, there is no public record of liquor license sales.  Previously, buyers and sellers relied upon experienced brokers and the few attorneys that regularly deal in liquor licenses to set market pricing.  Now that these sales are public through the zombie license auction process, the auctions are starting to command asking prices in certain counties regardless of whether the recent auction results were reflective of recent market pricing.  This is quite an interesting dynamic that will certainly shake up the market for sure.

One thing is for sure, these auctions have given liquor license purchasers and sellers some serious considerations prior to taking action.  Whether it is what their license will be listed for, what they are willing to spend on a license, or whether to wait and take the risk for the next phase of the auction, there is no question the auctions have had a significant effect on the open market in Pennsylvania.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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