Grapefruit Sculpin

Grapefruit Sculpin is a fruited IPA made by San Diego-based Ballast Point Brewing.

Ballast Point beer is going to be made in Wisconsin.

It’s relative fine print in the most shocking brewery acquisition news I’ve ever heard: Ballast Point, a San Diego-based brewery that is making 200,000 barrels of beer this year and was sold for a cool $1 billion just four years ago, had been purchased by Kings & Convicts Brewing Co., a suburban Chicago outfit that last year produced — wait for it — 600 barrels of beer.

There are no typos in that paragraph. The new owner of a brewery distributed in 49 states is one that has nine employees. It opened two years ago.

None of this makes any sense, right? It’s a stunner, but there are some answers to the obvious questions that have been reported so far. Let’s dig into some of these nuggets.

The Wisconsin connection

First things first. In January, Kings & Convicts announced plans to open a roughly 50,000-square-foot production brewery as part of a hotel and banquet complex in Pleasant Prairie, just 4½ miles north of the Illinois border and about 30 miles from Kings & Convicts’ brewery in Highwood, Illinois. The new facility, initially said to be opening in late 2019, now is on track to begin brewing next summer.

Kate Bernot of Good Beer Hunting reported that the facility eventually will be used as the hub for producing Ballast Point beers for markets in the East and Midwest. That could mean fresher Ballast Point in Wisconsin, which is good for the brewery’s hop-forward portfolio.

The Chicago connection

How a tiny Chicagoland brewery ended up with Ballast Point was one of many points of intrigue in this story.

The beer unit of Constellation Brands, which purchased Ballast Point in 2015, is based in Chicago.

Kings & Convicts co-founder and CEO Brendan Watters told Chicago Tribune reporter Josh Noel that the company’s inquiry into Ballast Point began during a July golf outing with an unnamed Constellation rep.

“I said, ‘What are you doing with Ballast Point?’” Watters told the Tribune. “They said, ‘Why?’ I said I wanted to buy it. It was as simple as that.”

As for how Kings & Convicts could afford to purchase what was a $1 billion asset four years ago, Noel reported in a follow-up story that Kings & Convicts’ original investors were already pretty well capitalized. Before starting Kings & Convicts, Watters was a hotel executive who sold the corporate owner of Settle Inn and GuestHouse Suites for up to $10 million in 2015. Another investor in Kings & Convicts was brought on board to make the Ballast Point deal happen: Richard Mahoney, chairman of the board of The Wine Group, which owns brands including Cupcake and Benziger.

Flipping the script

This deal defies almost all conventions, but one particularly interesting way it’s doing so is by flouting the basic storyline of brewery acquisitions in the past decade: big brewer buys smaller brewer.

Constellation Brands is the third-largest brewer in the U.S. Its beers include the U.S. distribution of Corona, Modelo and Pacifico, as well as Florida-based craft brewery Funky Buddha. (The Kings & Convicts deal excluded a Virgina brewery built for Ballast Point, suggesting Constellation may not be done with the craft sector just yet.)

But Constellation is also big in wine — Robert Mondavi, Prisoner, Kim Crawford — and spirits, with Svedka vodka, High West whiskey and Casa Noble tequila. It has operations in the U.S., Mexico, New Zealand and Italy.

In recent years one name after another has fallen off the Brewers Association’s annual list of the largest 50 craft brewing companies as large craft brewers are disqualified from it as they’re gobbled up by larger companies. Goose Island. Lagunitas. Founders. New Belgium, with the news just last month.

When it’s time for the 2020 list, it would appear Ballast Point will be the first to reappear on the rankings as it becomes independent once again.

Taking on water

When Ballast Point sold to Constellation — again, for a billion dollars — it was one of the most widely respected craft breweries in the nation, and capitalizing on its reputation by aggressively opening new markets.

Its launch in Wisconsin that January, 10 months ahead of the sale, made it available in 27 states, nearly all of which had been added in the previous few years. It more than doubled its sales in 2014 and again in 2015.

That growth and Ballast Point’s premium pricing — sixers of its flagship Sculpin IPA fetched $15 — was key to its record price tag, which would seem to be a high-water mark for brewery valuation. (Anheuser-Busch kicked off the era of craft brewery acquisitions in 2011 when it bought Goose Island for a measly $38.8 million.)

Constellation pushed Ballast Point’s production up to a reported 431,000 barrels in 2016, but it has contracted sharply since despite a nearly nationwide footprint. The number Watters cited for its 2019 production was 200,000 barrels.

A Good Beer Hunting report this June painted a dire picture of the once-vibrant brewery, shedding sales force and other employees and even — inexplicably, I’d say — dumping aging beer from more than 1,000 barrels.

If Constellation knows how to run a big craft brewery, it didn’t show it with its management of Ballast Point. With the purchase — widely panned as a reach at that price — Constellation acquired a rapidly rising star. With the sale, it divested of a distressed asset.

“Trends in the U.S. craft beer segment have shifted dramatically since our acquisition of Ballast Point,” Bill Newlands, Constellation president and CEO, said in the announcement of the sale. He added that, free of its Ballast Point albatross, Constellation was excited to devote more resources to the launch of a Corona hard seltzer line in 2020.

What Constellation got for its once $1 billion investment has not been disclosed. While Watters told the Tribune that Ballast Point was not formally shopped by Constellation “so far as he knows,” the Good Beer Hunting report cited unnamed sources saying “prices as low as $100 million for the brand and brewery were in discussion.”

Ready for the big time?

Watters has told reporters that Kings & Convicts is bullish on Ballast Point and is ready to turn it around by investing in sales staff and innovation in its beers.

First impressions, though, have not been promising. Kings & Convicts proudly announced the acquisition on social media with a link to its website. The site was down most of the day of the announcement.

The legions of puzzled beer industry watchers who Googled Kings & Convicts found a search result that put its golf simulators on equal billing with its beer.

None of this is central to running a successful brewery, but it’s unquestionably a bad look at a critical time. And none of it suggests Ballast Point will be in any better hands than it was in Constellation’s.

Got a beer you’d like the Beer Baron to pop the cap on? Contact Chris Drosner at chrisdrosner@gmail.com or follow him on Twitter @WIbeerbaron.

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