Wine country goes back to basics — and online — as pandemic upends business


Selecting a bottle of wine to share over dinner was easy enough before the pandemic. Anyone might worry about paying too much or sounding silly when ording a fancy-sounding choice, but the ritual of picking a bottle to share, or glass to sip, had a way of making any meal out feel special.

That was until about five months ago. Now the idea of ordering wine, dining out or engaging in routine social gatherings, like birthday parties or anniversaries, involves weighing the potential risk of a run-in with the novel coronavirus, which the U.S. still struggles to tamp down.

The crisis has led U.S. households to rein in spending, hobbled entire industries and threatened the ruin of jobs. In other words, it’s the kind of public-health and economic shock that’s one for the history books. It might even be driving Americans to drink more.

The problem is they’re drinking more at home. And that’s had a sobering effect on much of the U.S. wine industry, which after a near quarter-century of growth, saw domestic wine sales drop 5% over the past 12 months to about $48 billion in June, according to data from industry research firm bw166.

Experts singled out March 20 as the day everything changed, when California, Illinois, New York and other states issued stay-at-home orders that came thundering down across the nation, forcing bars, restaurants and wine-tasting rooms and other nonessential businesses to shutter as authorities raced to control a wave of COVID-19 infections.

“When you add both the shutdowns of tasting rooms and closures of restaurants, 44% of sales fell out from underneath the wineries in one night,” Rob McMillan, an executive vice president and founder of Silicon Valley Bank’s wine division, told MarketWatch.

“It was a bad day to wake up.”

Like many other industries, wineries remain in the midst of an upheaval sparked by a global pandemic that’s been brutal on lower-income workers, but sparing Wall Street, where U.S. stock benchmarks, including the S&P 500 index,
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,
trade near record territory.

It’s not that consumers stopped drinking wine. Rather, diners who might in better times split a bottle at a restaurant, suddenly were rushing their carts through big-box stores and grocery aisles to fill up on necessities, including wine.

“Nationwide, retail sales blew up,” said Gary Obligacion, the general manager at the Post Ranch Inn, a luxury resort in Big Sur, Calif., that overlooks the Pacific Ocean, of the shift to at-home wine drinking at the onset of the pandemic. “People were in panic mode,” he said.

Post Ranch and its Sierra Mar restaurant recently reopened after a nearly three-month shutdown. For now, that still means only serving guests staying at the resort, who can order meals in their rooms or book at the Sierra Mar’s outdoor deck. But the restaurant’s thick, multipage wine book has been replaced by iPads that, like any wine bottles purchased for a table, are sanitized within view of diners.

“It’s all being done in a format for peace of mind around health and safety,” said Mark Buzan, Sierra Mar’s wine director, of the new protocols that make “any romantic notion about bringing a dusty, old bottle up from the cellar to present to a guest” a thing of the past.  

Two U.S. wine industries

The puzzle for smaller, premium winemakers to solve has been how to reach customers when retail sales have been booming, but mostly benefiting the nation’s wine Goliaths.

“There’s two wine industries,” McMillan said. “Roughly 75% comes through the largest 13 wineries,” he said, pointing to top sellers that include the E&J Gallo Winery, The Wine Group and Constellation Brands STZ. “They make wine, sell it to wholesalers, restaurants or grocery stores, and then it goes to the consumer,” he said. “The smaller wineries don’t get much wholesale attention.” 

What has been working, for some smaller producers, has been efforts to reach customers directly to spur sales, including online through their own websites, instead of relying on restaurants and others to create a buzz.

That’s meant repurpurposing staff and going back to the basics, including hitting the phones to drive sales. “It’s not like small wineries figured out overnight how to do outreach for online retail,” McMillan said. “For some, the only thing on their website was a shopping cart icon.”

This chart breaks down how sales have shifted at many U.S. wineries after shelter-in-place orders took hold, as producers ramped up business through wine clubs, online and over the phone.

Wine buying shift in 2020


SVB

Further into summer, as more restaurants reopened under new social-distancing rules, off-premise alcohol sales remained robust.

Spirits have led the charge higher, with sales jumping 29.3% for the week ended July 18, versus a year prior, while wine sales rose 19.7%, according to the latest data from Nielsen.

“A lot about wine is the story,” said Russ Colombo, a senior vice president at Baker Boyer, a lender in Walla Walla, Wash., focused on financing smaller wineries in the region. “The first bottle you sell or place at a restaurant is difficult enough,” he said, but after that “it’s all about momentum.”

For winemakers able to drum up their own support and sell directly to customers, a bonus is that they don’t have to pay a middleman, which can mean about twice as much profit for a producer when compared with wholesale transactions, Colombo said.

On the other hand, Colombo also called wineries “one of the toughest things to finance,” not only because of the fierce competition, but also because winemaking takes talent, a long view and probably luck.

“Winemakers are good at agriculture,” he said. “But for higher-end red wine, even before it hits the market, it could be two years. And in those two years, the world changes a lot.”

Wine Facts

One boon for smaller producers during the national tug of war over reopening, face masks and social-distancing restrictions has been visitors flocking to nearby wineries and vineyards for a bit of respite.

“Most high-end wineries that have tasting rooms are going to the reservations system,” Colombo said, adding that catering to fewer customers due to health-and-safety rules has been a positive for sales. “Winemakers, they find they can spend more time with their customers, tell their story and establish a personal relationship.”

And yet, there’s plenty of uncertainty. The earliest part of the 2020 harvest has kicked off in California’s wine country, while the state on Thursday reached the grim milestone of becoming the first state to report 600,000 COVID-19 cases since the pandemic was first detected in the U.S. earlier this year.

“What I can tell you is that it’s been an excellent growing season. The crop loads look average to high and you have to find homes for all of that fruit,” said Jennifer Putnam, chief executive at Napa Valley Grapegrowers. “But it’s a pretty intricate dance we do. You have to have a healthy workforce, good weather and people supporting Napa Valley agriculture and wines.”



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‘Fortnite’ maker accuses Apple of illegal monopolistic practices in tech battle royale that appears headed for a courtroom


The maker of “Fortnite” has launched a Battle Royale against Apple Inc., accusing the tech giant of seeking to “unlawfully maintain its monopoly.”

Epic Games said Thursday it filed legal papers against Apple
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after the iPhone maker booted the company’s hit game “Fortnite” out of its App Store, and a lawyer representing Epic confirmed that the complaint was filed in the Northern District of California. Apple removed the game after Epic began offering players a discount on in-game purchases if they opted to make a direct payment and not buy their digital offerings through the App Store.

The game maker came prepared for a fight, debuting a video that spoofs Apple’s classic 1984 advertisement, which urged customers to oppose conformity and prevent International Business Machines Inc.
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-1.31%

from dominating the computer market. Back then, Apple warned that without a change, the year 1984 could mirror George Orwell’s dystopian “1984” novel; Epic Games cautions in its ad that 2020 could come to embody “1984” as well.

Apple charges developers 30% of purchases made through the App Store, and 15% after the first year of subscriptions. This has been the focus of antitrust investigations into the company, which is worth nearly $2 trillion thanks to the money it collects from the iPhone and the apps and services that are delivered through it. Epic has long tried to avoid paying such fees, previously launching its own store to get around Alphabet Inc.’s
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+0.62%

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similar Play Store that is bundled with Google’s rival Android operating system.

Google booted Fortnite from the Play Store late Thursday after Epic Games rolled out the same discounted direct-payment option on its app for Android users. Those with Android devices will still be able to play the game by downloading it through Epic’s own app store, but they won’t be able to play through the official store offered by Google, which also keeps a 30% cut of digital purchases made on apps downloaded through the Play Store.

“While Fortnite remains available on Android, we can no longer make it available on Play because it violates our policies,” Google said in a statement quoted by The Verge.

See also: ‘Fortnite’ spurned Android, then Google found a major security flaw in its app

Fortnite had racked up more than 125 million app installations and more than $1 billion in player spending on Apple iOS devices alone through mid-May, according to mobile-app research company Sensor Tower.

After Epic publicly announced Thursday morning that it would offer users on Apple’s iOS operating system a discount on purchases made through their own store instead of through Apple, the Cupertino, Calif.-based tech giant removed the app from the App Store. In response, Epic filed a lawsuit against Apple that says it seeks “to end Apple’s unfair and anticompetitive actions that Apple undertakes to unlawfully maintain its monopoly” involving app distribution and in-app purchases.

An Apple spokesperson said in a statement that Epic Games introduced the feature without the company’s approval and did so “with the express intent of violating the App Store guidelines regarding in-app payments.”

The statement also said that Apple will “make every effort to work with Epic to resolve these violations so they can return ‘Fortnite’ to the App Store.”

An Epic spokeswoman confirmed the suit in an email to MarketWatch.

As part of its blitz against Apple, the company has launched a page on its website with the tagline “#FreeFortnite” that tells customers to use this hashtag in support of Epic by engaging with the App Store’s official Twitter account. The hashtag was trending on Twitter within an hour of the site’s launch.

Epic says on its website that players who’ve already downloaded “Fortnite” to their Apple mobile devices “should have no issues continuing to play Chapter 2 – Season 3’s 13.40 update.” Once the new season begins, Epic expects that players will be able to play the older content but not access new material.

For more: Apple and Facebook could be most vulnerable among the antitrust suspects

Apple’s fee policies around the App Store have come under increased scrutiny from both developers and regulators recently. Big developers including Spotify Technology SA
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have looked for ways to avoid paying Apple a cut of subscription fees, and the developers of Hey, a new email app, publicly battled with Apple in June after the email service rolled out its app without an option to buy subscriptions from within the app. Apple and Hey’s developers eventually reached a compromise.

Regulators and lawmakers in the U.S. and Europe have also questioned the company’s App Store policies and whether they stifle competition.

Epic argues in its complaint that Apple “harms app developers’ relationship with their customers” through its mandatory involvement in all transactions since customers “often blame Epic” for problems related to payments. “In addition, Apple is able to obtain information concerning Epic’s transactions with its own customers, even when Epic and its own customers would prefer not to share their information with Apple,” the complaint said.

Evercore ISI analyst Amit Daryanani said in a note to clients late Thursday that Apple collects an estimated $30 million monthly from Fortnite. The company generated $13.2 billion last quarter in revenue for its services segment, which includes the App Store. He expects the legal battle to be “a multi-year process that is appealed at every level of the US court system.”

Apple shares rose 1.8% Thursday and have gained more than 50% in the past three months as the Dow Jones Industrial Average
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, which counts Apple as a component, has added 20%.





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The extra $600 in weekly unemployment benefits expired — but gig workers and self-employed Americans still qualify for benefits


For the first time during the pandemic, weekly jobless claims dipped below 1 million, but there are likely many more Americans who qualify for unemployment benefits who didn’t apply.

When the $2 trillion CARES Act passed in March, self-employed, independent contractors, gig workers and other nontraditional workers became eligible for unemployment benefits. Even though the federally-funded $600 a week in enhanced unemployment benefits, which was also part of the CARES Act, expired on July 31, these types of workers can still collect state-level unemployment benefits through the end of the year.


‘There is definitely a chance that the loss of the $600 is changing claimant behavior’


— Michele Evermore, a senior policy analyst at the National Employment Law Project

This nuance may have been lost in translation when the $600 benefit expired, said Michele Evermore, a senior policy analyst at the National Employment Law Project, an advocacy organization focused on workers’ rights.

“There is definitely a chance that the loss of the $600 is changing claimant behavior,” she said, meaning that unemployed workers may have wrongly assumed that they would no longer be eligible for unemployment benefits after July 31. A total of 10 million Americans have already been approved for unemployment benefits who otherwise would have been ineligible if not for the CARES Act, Evermore said.

Unemployment benefits are based on how much money a worker earned while they were employed. For traditional salaried workers, that amount gets automatically reported to state workforce agencies. But self-employed and gig workers often lack the ability to provide an exact net earnings amount, Evermore said.

“But if they can prove that they worked and got income or were offered a job and that job offer was rescinded due to COVID-19,” she said, they can collect what amounts to half of the average weekly unemployment benefit in their state.


In all 50 states and Washington D.C., the minimum amount is over $100 a week

In many cases that will enable them to collect more in unemployment benefits than they would if they had a traditional job where their earnings were reported automatically, Evermore told MarketWatch.

At a minimum, gig workers, independent contractors and other self-employed workers can collect the equivalent of the average weekly benefit in their state. In all 50 states and Washington D.C., the minimum amount is over $100 a week, according to the Department of Labor. That’s especially important because it means these types of workers will be eligible for an additional $300 a week under President Donald Trump’s executive order. (Anyone who gets at least $100 in unemployment benefits from their state would qualify for the extra $300.)

However, it could be some time before these workers actually get those benefits. State governors have said that state workforce agencies are not properly equipped to quickly implement the changes Trump’s executive order calls for.

Evermore said she hopes that Congress will consider extending the period of time gig and self-employed workers can collect unemployment benefits, but she is “worried we will reach a deadlock on this in December like we are seeing now with the $600.”



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My mother’s will says her boyfriend can live in her home after she dies. Can I still kick him out if the deed is transferred to me?


Dear Moneyist,

My mother currently owns a beautiful home in Virginia Beach that is paid for; she inherited a very sizable number of assets from her late husband. In her will, she would like to leave the house to me, but has stipulated that her boyfriend can remain in the house indefinitely, although he will have to pay utilities. The will also stipulates that he cannot have another woman living in the house.

This puts me in a sticky spot, as I have no emotional or legal ties to this man. She has known him for less than four years, and they met out of loneliness. Bottom line: I would like to keep this home in the family, but I do not want to deal with removing her boyfriend from the home. Would I have the right to remove him from the home if the deed is transferred to me?

Unhappy Daughter

Dear Daughter,

Before I answer your question: People often meet out of loneliness. Romance is a better reason to fall in love than, say, finance. Isn’t it a nice thing that your mother has found happiness with this man? If they enjoy each other’s company, make each other laugh, luxuriate in the companionship their partnership affords them, travel the world, or just snuggle up at home, what’s not to like?

Here are your options: You can take your chances that she manages her estate properly and you eventually inherit the house. There are three outcomes to that: 1. Her boyfriend lives out his life there, and you inherit her home after that. 2. She inadvertently leaves him the house by putting him on the deed, and you inherit nothing. Or 3. She messes up her will, and you kick him out.

The Moneyist: I filed a joint tax return with my estranged wife because she is a gambler and her finances are a mess. But I got NO stimulus check — what can I do?

Alternatively, you could recommend a good estate attorney, tell her you are happy that she is happy, and assure her that you will do your best to ensure she need not worry about what will happen to her boyfriend after she’s gone. Assuming she then managers her estate according to her wishes, there is one outcome: Her boyfriend lives there, and you inherit her home after he dies or moves out.

For that last option, she would likely set up a life estate deed, putting her house in a trust to avoid probate, and make stipulations in the will that you receive it after her boyfriend decides to leave or he dies, whichever comes first. The Drucker Law Offices in Beverly Hills, Calif. says this is eminently doable, but should be water tight as life estate deeds can have unforeseen complications.

Among them, according to The Drucker Law Offices: There may be unexpected gift taxes if your mother’s boyfriend terminated the life estate prior to his death, financial problems could arise if he failed to maintain the home, and it could lead to a reassessment of the property for property tax purposes; however, they could get married or file registered domestic partners to avoid that.

The Moneyist: I didn’t get my stimulus check because I owe back child support. It’s not fair. My stepchildren rely on me — what can I do?

Your mother could also transfer an interest in the property to her boyfriend for a term that is less than 35 years. “There is an exemption from the reassessment rules for property tax purposes where the transfer of the interest in California real estate is for a term that is less than 35 years,” The Drucker Law Offices added. Estate law, of course, will vary depending on the state where your mother lives.

Four years together is better than four months or four weeks or four days. Your mother knows this man well enough, and holds him in high enough esteem to ensure he has somewhere to live should she predecease him. You don’t have to like him or be his best friend, or invite him over for supper if he does outlive your mother. But it would be nice if you did decide to respect her wishes.



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As Big Ten and Pac-12 cancel their football seasons because of COVID-19, college sports programs are facing a financial apocalypse


While millions of fans are lamenting the looming disappearance of college sports this fall, the coronavirus pandemic is also exposing financial fault lines and a broken governance model that may trigger an opportunity to irrevocably transform big-dollar college athletic programs.

COVID-19 has cast a harsh spotlight on some painful truths about high-revenue college football in particular—notably, that the billions generated by lucrative media contracts and conference-owned networks have warped the mission and incentives in this educational not-for-profit model, resulting in years of overspending on coaching salaries and gilded sports facilities.

The absence of significant reserve funds to cover these costs, due to a “spend what we make” mentality, is evident in the painstaking and   splintered decision-making process on whether to play football in the fall and keep the TV money flowing.

These big-revenue programs are part of the NCAA’s Division I Football Bowl Subdivision (FBS) — 130 football teams in all, whose athletics department budgets ranged from $16 million to $207 million in 2018. This 10-conference subdivision includes the only college football teams that still might play this fall — a number that dwindles by the day, with news Tuesday that the Big Ten and the Pac-12 conferences have cancelled the fall season.

The disjointed decision-making, with emergency
meetings of each conference’s governing board of university presidents, may
leave the viability of fall football in limbo for days or weeks. That muddle stands
in contrast to the Division I Football Championship Subdivision, and all of
Division II and III, whose 600-plus colleges and universities have already
cancelled their fall championships, including football.

The Big Ten and Pac-12, along with the ACC, Big
12 and SEC, are members of the TV-revenue
rich “Power 5” conferences that ultimately control the decisions for FBS college
football.


The Power 5 would collectively lose more than $4 billion in football revenues from a mass cancellation, with each of its 65 programs losing an average of $62 million.

Adding to the turmoil, Power
5 football players are split about playing this fall. Hundreds of players from the
Pac-12 and Big 10 are demanding that their conferences meet
their safety and other concerns, while others have started their own campaign
to support playing this fall.

Black athletes account for more than half of football players in the Power 5 conferences, and hospitalization rates from COVID-19 are roughly five times higher among Black Americans than white Americans. Given the disparate impact of the pandemic and emerging questions about the potential long-term health complications of COVID-19, athletes are raising critical questions about the priority of racial equity, health and safety.

The lack of unifying
leadership in making decisions about a fall season underscores college
football’s broken and fragmented governance system. Unlike the NCAA’s March
Madness basketball tournament, the FBS’s 10 conferences manage their lucrative postseason championship—the
College Football Playoff—independent of the NCAA
.

Last spring, the NCAA canceled
March Madness in one board meeting. By contrast, the presidents and
commissioners of each of the Power 5 conferences are making the call on fall
football on their own.  

Outside of the Power 5
conferences, the vast majority of 1,200 non-profit educational institutions in
the NCAA’s three divisions do not view athletics programs as money-makers. Colleges
and universities fund athletics as enhancements to student life, much like providing
opportunities for students to participate in dance, theater, debate, or other
development and civic engagement activities. At the more than 400 schools in
Division III, one
out of every six students participates in varsity sports.

While the absence of fall
sports at most NCAA institutions will not result in significant revenue
shortfalls in ticket sales or media contracts, the impact may be seen
in reduced tuition revenues for many small colleges that depend on athletics as
an enrollment tool for recruiting students.

At the other end of the
spectrum, the Power 5 football programs have created a financial structure that is “too big to fail.” The pandemic
should propel a radically reorganized way of doing business.

Twisted
incentives in FBS football

A crude sense of the
financial apocalypse that could result from cancelling football for all of the Power
5 conferences (as opposed to postponing football to the spring) can be gleaned
from institutionally-reported data collected for the Knight
Commission on Intercollegiate Athletics
, an independent group on which we serve that
has a legacy of influencing NCAA policy change.

Patrick Rishe, director of
the sports business program at Washington University in St. Louis, used our
database and other sources to project that the Power 5 would collectively lose more
than $4 billion in football revenues from a mass cancellation, with each of its
65 programs losing an average of $62 million.

Looking at fixed expenses, our database shows
that 54
of the public Power 5 institutions (data for private institutions is not available) hold $7.4
billion in total athletics debt for which they pay a combined $578 million in
annual debt service
.

These same institutions also have contracts with highly paid
coaches that, in many cases, don’t have “force majeure” clauses allowing for
reductions during a crisis, such as a pandemic. In 2018, these same 54
institutions spent more
than $2.4 billion
in coaching, administrative and staff salaries.

The other half of the FBS conferences outside the Power 5 have programs that face different financial realities. Two funding sources under severe strain during the pandemic—student fees and institutional support—make up 56% of these programs’ budgets.

Adding to their financial woes is the cancellation of early season non-conference road games against Power 5 football teams. In past seasons, these games have provided guaranteed million-dollar payouts, often accounting for 10% of the budgeted revenues for the entire athletics department of these lower-resourced programs.

With
important meetings to come, it is not yet clear if any FBS football games will
be played this fall or spring, but what is clear is a new model for college
sports should emerge.

For too long, Division I and its FBS football
model have been shaped by distorted non-educational incentives to simply win
games and boost television market share. At this moment of crisis, Division I
college presidents have an opportunity to demonstrate bold leadership. A
post-pandemic model for college sports should address excessive spending and
promote fiscal sanity, while creating incentives and new governance structures
that do more to prioritize college athletes’ education, health, safety and
success.

Nancy Zimpher is chancellor emeritus for the State University of New York and Jonathan Mariner is the former executive vice president and CFO of Major League Baseball. Both are board members of the Knight Commission on Intercollegiate Athletics.



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