Inside the Big Business of Celebrity Tequilas
George Clooney becomes the latest Hollywood star to create his own agave brand in the hope of hitting Sammy Hagar's $100 million payday.
This story first appeared in the June 28 issue of The Hollywood Reporter magazine.
In the heady early days at MTV, the drink of choice was tequila, according to network co-founder Bob Pittman. At company celebrations, tradition dictated that employees congregate and drink a shot, flinging the glasses against whatever wall was convenient. This bit of controlled mayhem was a galvanizing force, even if, as Pittman says, "we had to stitch up a few bloodied feet in the process."
Rumbling behind the scenes at rock 'n' roll shows, tequila has inspired more than its share of monster jams and postgig revelry. But during the past half-decade, its allure has attracted public figures into brand partnerships and ownership.
This ever-expanding group includes rockers Carlos Santana (Casa Noble) and Motley Crue's Vince Neil (Tres Rios), country star Toby Keith (Wild Shot) and Justin Timberlake (901 Silver). This year, George Clooney and nightlife entrepreneur Rande Gerber (with real estate developer Mike Meldman) debuted Casamigos, named for Clooney's and Gerber's adjacent properties in Cabo San Lucas. In 2009, Pittman launched Casa Dragones, which at $275 a bottle ranks as the category's priciest. Travel to the Mexican state of Jalisco, and it's not uncommon to run into celebrity entourages at distilleries. Everyone from Shaquille O'Neal to Sean Combs is rumored to have interest in investing in a tequila brand.
Whether it's the mysteries of the blue agave source plant, the exoticism, the inebriation or some combination, celebrity interest in tequila is at a high. So are profits: In the U.S., the biggest market, it's a multibillion-dollar business. Since the most recent recession, sales have grown 5 percent annually -- particularly among ultrapremium tequilas, the classification of many of these new brands. "Not only is it a fun drink, but the depletions (i.e. product turnover) are crazy," says former Van Halen frontman Sammy Hagar, credited with first hitching horses to this bandwagon during the '90s when he founded Cabo Wabo tequila. His competitors look with awe at his success: Campari Group purchased a controlling interest in 2007 and bought Hagar out three years later in deals said to total $100 million.
Business arrangements -- some of which are shepherded by top Hollywood agencies, such as CAA with the Casamigos trio -- run the gamut from full or significant ownership (Casamigos, Keith, Timberlake) to endorsements. In the latter case, a celebrity can be given a fee for services, a percentage of royalties or equity points. (Agents who specialize in these deals say they've seen ownership stakes ranging from 3 percent to nearly 50 percent and that celebrity endorser/owners rarely put in any of their own money.) The spirits category also has high margins: A bottle of tequila can cost $5 to $10 to produce; most of the brands discussed here retail for $40 to $50. Vodka has the potential for much greater profits though -- grain is much cheaper than agave -- and the vodka market is bigger. (It claimed 34 percent of sales in 2012 compared with tequila's 6 percent, according to Impact Spirits Databank.) Vodka has produced both major winners -- Combs' Ciroc endorsement deal with Diageo nets him eight-figure yearly payouts -- and losers, like the failed Trump Vodka.
The cost burden for spirits comes in marketing. Says Ken Austin, founder of Tequila Avion (a brand that gained broad recognition when it figured into a story arc during seasons seven and eight of HBO's Entourage): "Juice is just a fraction of the cost. The liquor business is a very expensive business; it costs millions of dollars to get in since you're competing with multinational brands." Stars, he adds, have a built-in advantage with the name recognition they bring. The potential downside is tarnishing a celebrity's reputation as a spokesperson, even if they don't personally lose money.
The upscale tequila trend began during the '80s. Before that, it was an acquired taste, a spirit known better for its fiery kick and honky-tonk cred than sophistication. In 1989, Paul Mitchell's John Paul DeJoria co-founded Patron (now the U.S.'s No. 2 seller behind Jose Cuervo), whose multiple distillations, smooth taste, luxe packaging and price tag vaulted tequila to a rarefied level. "Before them, the high-end market really didn't exist," says Brian Dow, head of branded lifestyle at the APA Agency. The goal quickly became: Start the next Patron.
That's clearly the target of Chris Brown, a Phoenix real estate developer who founded Bonita Platinum in 2010. It's sold in a crystal bottle set in a satin-lined black box. "We wanted to produce a luxury item that American consumers could embrace," says Brown. "No sombreros, no scorpions."
Early on, Brown sent a bottle to rap star Xzibit, whom he'd seen in a music video extolling the virtues of -- what else? -- Patron Silver. "A few days later," says Brown, "I got a tweet from Xzibit saying, 'This beats Patron hands-down, for real.' " Soon after, Xzibit became an active partner in Bonita Platinum. "If we didn't have the support of Xzibit, all I'd get is a slap in the face," says Brown. "Instead, I'm going to distribution meetings." Owning one's own clubs helps, too: Hagar featured Cabo Wabo in his nightclubs of the same name, and Gerber will sell Casamigos at his clubs and lounges.
Celebrities take various levels of involvement in developing their tequilas. There are more than 140 tequila distilleries in Jalisco, and collectively they produce nearly 1,500 brands. (Of all major spirits groups, tequila is the only one that has a denomination of origin -- it must be made in Jalisco.) This means, among other things, that a single distillery might be responsible for several brands that inevitably will compete in the U.S. market. It's possible simply to travel to a distillery and choose a blend -- or not to go to Mexico at all and do so. "They just sent me the bottles," Keith once said of the genesis of his brand. The Casamigos founders, on the other hand, trumpet that they sampled 800 blends before deciding on their spirit. (Tequila is broken down into categories depending on how long it is aged: Blanco rests a short period before bottling; reposado is aged from two months up to one year, usually in oak; and anejo sits one to three years.)
As tequila goes more upscale, its flavor profile continues to veer toward a highly refined spirit that goes through multiple distillations. "Everything we've done with the brand is geared toward making this a sipping tequila, like scotch," says Pittman of his remarkably silky Casa Dragones. Adds Kevin Ruder, Timberlake's partner in 901 Silver, "We didn't want to see people making that 'face' when they drink it." Ruder toured more than a dozen distilleries, settling on Tequilera Newton e Hijos because it could execute a style smooth enough to appeal to the pop star.
Some purists, however, bemoan this trend as relatively toothless, the bottlings sweeter and more innocuous than the real thing, which one spirits expert describes somewhat dismissively as "vodka with tequila flavoring."
Then again, for many, that hardly matters, as the celebrity upscale tequila juggernaut churns on. In July, when Timberlake launches a summer tour, 901 will be cross-promoted; consumers will have a chance to win tour tickets (where legal) through the 901 website. Timberlake also has promoted the brand to his 21 million Twitter followers. "We should all believe in something," he tweeted in the fall. "I believe it's time for another shot of tequila. … happy @901Silver day everybody!"