Pulling back the curtain on whisky cask brokerage
Whisky cask investments have become a hot, often contentious, topic in the trade. Here, independent old and rare spirits consultancy Wisgy shines light on the complexities of whisky cask brokerage and common misunderstandings.
In the second instalment of the ‘Secret Wisgy’ series, which interviews an anonymous, trusted expert in a particular wine and spirits field, Wisgy has published the ‘Secret Whisky Cask Broker’ interview.
To extend the reach of this important topic, Wisgy founder Isabel Graham-Yooll reached out to The Spirits Business to exclusively share the interview. Graham-Yooll boasts years of experience in the secondary wine and spirits market, most recently as director of Whisky.Auction, where her commitment to protecting consumers against fake lots helped the award-winning auctioneer become one of the most trusted specialist online spirits auctions.
The secret whisky cask broker, who requested to remain anonymous, has endeavoured to offer more transparency about how whisky brokering works, and the complex ecosystem of relationships and transactions that take place before a cask reaches the point of being offered for ‘investment’.
“Every whisky company I know has been selling casks,” the secret broker said. “Retailers, wine merchants, whisky brands, warehouses, it’s happening across the board.
“Yes, speculative cask investment vehicles [SCIVs, companies that sell casks as investments] and other resellers are over-charging their customers but everyone selling casks is implicated, and everyone’s moral outrage seems to fluctuate depending on whether they’ve had a good or bad month sales-wise.”
In March the BBC released a documentary, called Disclosure: Hunting the Whisky Bandits, following eight months of investigations into fraudulent practices in the whisky cask investment sector.
In this interview, the secret cask broker discusses everything from what a whisky cask broker actually does and the role of SCIVs and distilleries in cask investments, to clarifying the purpose of delivery orders.
The complete interview is available to read on the Wigsy website.
First can you explain what a whisky cask broker does?
I’m a middleman. I place casks of whisky from distilleries into the hands of people that need them, such as independent bottlers. That’s it. I’m just one link in the food chain. Imagine a pyramid with different levels of cask brokers all with different roles. When we’re doing our job well, we work discretely, you wouldn’t know we even exist. We don’t advertise on social media. You won’t find us because we don’t want that sort of attention.
Is everyone trading with each other?
Yes; in practice, the cask brokering ecosystem is more of a web than a chain. Especially around the middle of the pyramid. There are micro levels within levels, and a lot of trading back and forth. It just depends on who needs what when. You find circles of brokers, bottlers and warehouses that like to work together because they have built up trust. You might be part of a couple of different circles that interact, like cogs.
Where do speculative whisky cask investment companies fit in?
In the grand scheme of things, the speculative cask investment vehicles (SCIVs) aren’t even part of the pyramid. The SCIVs who sell to private individuals possibly believe they’re operating in the trade, but they’re essentially resellers.
It’s important to understand that in the whisky industry, this sort of cask trading is a lucrative side hustle. It’s a tiny percentage of what actually happens in whisky. There are millions of casks of whisky maturing in Scotland, and most of them aren’t going anywhere near an SCIV. Most whisky is made to be sold in a branded bottle. The consumers are buying bulk whisky at retail prices. They’re paying the highest possible prices. How long it takes to get a return on their investment depends on how much they overpaid. Some SCIVs claim to ‘buy direct’ with ‘no middlemen’, then they add 90% margins, or sell £2,000 [US$2,700] casks for £12,000 [US$16,300]. Consumers have no benchmark to compare value because all the SCIVs quote similar prices.
Why would brands not want their casks going to SCIVs?
There are lots of reasons you’d distance yourself from SCIVs if they use deceptive practices, misrepresent the quality of casks, fraudulently sell casks that don’t exist, or double sell ones that do, but there are other concerns too.
Even if they’re doing nothing illegal, SCIVs don’t have any real whisky experience; their aim is not to grow the whisky industry, but to profit from it. They create a mess, go bankrupt, then walk away. It’s frustrating to anyone who wants the industry to thrive. There are all these boiler-room type call centres selling low-value casks for high prices as investments. Their staff are motivated by hard sales and commission.
It’s not illegal but it’s questionable. It’s not fraudulent but it’s unethical, it’s unfair.
I see interactions on social media from commentators who present themselves as industry insiders, but they only see things through the lens of their own level. There’s no reason SCIVs and resellers should be expected to comprehend how casks are brokered further up the chain, yet they make assumptions and spread misinformation.
The whisky trade is all about making money. Every distiller and trader invests in casks. Some private individuals do too. If we continue to play out this argument [on social media] that all investment in whisky casks is wrong, or even immoral, or that ‘cask investment’ equals ‘cask fraud’, while we continue to allow whisky businesses to feed the speculative whisky cask investment market, then we are no better than the fraudsters we’re enabling. Simultaneously, the whisky industry is knowingly (albeit quietly) feeding the speculative cask investment market. Adding a layer of hypocrisy.
Can you explain what you mean by industry hypocrisy?
Whisky brands love to celebrate their centuries-old murky practices. This industry is built on stories of illicit stills, smuggling, tax avoidance and even organised crime. Why is anyone surprised that there remains a certain ‘sketchiness’?
Do you taste every whisky?
We draw samples to ensure there’s nothing inherently wrong with the whisky, that it’s got the expected distillery character and there aren’t obvious faults. And of course, whiskies need to be tasted before a decision is made about bottling them. Other than that, I don’t make qualitative judgements about the spirit. Often, I’m not even tasting it. If I’m transferring 30 casks of new make, I’m not tasting samples of that.
Is there a strong market for bulk whisky?
I remember years ago every broker’s cask list included the same unsellable bulk whiskies. Then suddenly all these unwanted whiskies were sold to SCIVs, six casks at a time. Now, we’re seeing basic Irish whiskey being offered in bulk by SCIVs. It has never had much investment value, and now that there are 10 times as many distilleries in Ireland, it’s hardly likely to improve.
Can you settle this once and for all: is a delivery order a receipt of ownership?
A delivery order, or ‘DO’, is the document that instructs a warehouse to transfer casks from the ownership of one company (or person, these days) to another. A DO contains all the information a warehouse needs for that transaction, so it’s the easiest way to transact between brokers.
For example, if you have a DO but it hasn’t been sent to the warehouse, then it’s meaningless. People have been stung by SCIVs that led them to believe that a DO is proof of ownership. It isn’t. Even if a warehouse confirms a cask does exist, the DO is not your proof of ownership.
Are all cask brokers fraudsters?
At my level of the cask broking industry there isn’t a fraud problem, but the SCIVs are the wrong people to trust. They are disproportionately represented by people from what we call ‘sketchy heritage’. I have a long list of blacklisted people who have a history of defrauding people. I see new SCIVs crop up regularly, people from one company all move en mass to the new one: same staff, same directors, investors and shareholders. It’s an absolute nightmare. On top of that, every time there are accusations of fraud it triggers a general panic about casks. It doesn’t reflect well on anyone in the industry.
Are cask contracts all equal?
This business is all about trust, yet some people sign contracts and carry on regardless. Some agreements are confidential too, so that makes it even more complicated if the cask is then resold. The old-fashioned way was just with verbal agreements, it was one of the joys of the industry – forget the SCIVs for a moment – it’s about relationships. Everyone knew everyone’s name; you didn’t need many rules. That sort of thing doesn’t work when it starts to disseminate to SCIVs and private individuals. There aren’t the rules in place and this is where we find ourselves.
Where do distilleries stand on cask trading?
There’s a perception that distilleries don’t know what’s happening to their casks. They know exactly what’s happening in the market.
What’s the solution to SCIVs?
I’m compassionate about people who have been misinformed and misled and I like to think these are problems that can be fixed, and there are certainly better ways to do things. There is a need for respected independent advice. That doesn’t exist yet (even if some SCIVs claim it does). However, I don’t think there is an easily achievable solution without destroying the legitimate trade too.
Final advice?
Don’t buy a cask – buy a good bottle of whisky instead. Or wine. That’s the best advice I can give.
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