Over the past decade, Scotch whiskey has undergone a remarkable transformation. Overall, the global Scotch whiskey market has experienced explosive growth, while items for the most expensive bottles are constantly shattered. As a result, new businesses and companies have introduced opportunities that allow avid consumers to invest in bottles and barrels.
Dishes in particular have received very recent attention as a means of investment. But with opportunity comes risk. Marketing materials and social media ads from an abundance of new firms and brokers promise huge returns on whiskey barrels, reflecting Scotch whiskey’s huge market growth. If one is to believe these claims, investing in whiskey casks seems almost like free money. Recently, this potential was highlighted by a story that showed how a lucky dish owner managed to give a big return on a dish bought in the 1990s.
However, the profits are far from certain. The truth is that while buying a Scotch whiskey barrel can lead to returns, the barrel market is not as explosive as some suggest. There is also serious risk involved. Many fad investment companies and brokers use sinister techniques around ownership that put investors’ money at greater risk than they know. Scammers are also out in force again, trying to trick people into paying too much for unremarkable dishes.
So here is a list of tips that can help anyone interested in buying a whiskey barrel, whether it is for profit or pleasure, on how to make it safe.
Avoid companies that mention a ‘586%’, ‘564%’ or ‘562%’ 10-year return on investment
Many barrel investment companies mention that whiskey is a high-performing alternative investment medium, claiming either a figure of 586% or 564% 10-year return on investment.
This figure is often clearly displayed on ads and websites, and it comes from the Knight Frank Rare Whiskey Index, which only tracks the changing prices of 100 rare and desirable bottles of whiskey, a measurement created by whiskey consultants Rare Whiskey 101. Note that this does not include casks, and is a poor indicator of whiskey patters’ potential market performance.
The Knight Frank Wealth Report itself, which publishes the index, is also appalled at how their data is being misused by these companies. In a recent excellent Whiskey Magazine article on barrel investment companies and their alarming practices, The report’s editor Andrew Shirley said: “Our index tracks 100 bottles of rare and valuable whiskey – it has absolutely nothing to do with cask whiskey.”
Companies that use the index in their promotional materials are therefore either rather vague or intentionally providing poorly contextualized information to potential barrel buyers.
2. Beware of ‘guaranteed return’ requirements
Some companies have quoted somewhere between 10-20% annual return on barrel investments, but this is misleading and any company that promises this should know better. At the time of writing, there are also no reliable or recognized measurements of the overall performance of fad investment.
In these cases, specific historical data is twisted into what appears to be official information on total return on barrels. This kind of misinformation is a real pet broker for whiskey barrel broker Mark Littler, who facilitates barrel purchases between sellers and buyers and strongly believes that increased transparency in information is necessary in barrel investments. While acknowledging that some barrels have rapidly increased in value in the last few decades, especially certain barrels purchased in the 90s, he warns that the market is also rapidly changing today:
“The market’s health and buoyancy in 2021 differs markedly from how it was in the mid-1990s. For example, Springbank had only just begun intermittent distillation in 1987 after being closed since 1979. Single malt Scotch whiskey is now an internationally recognized luxury asset, so the gains that have historically been possible will not necessarily be possible in the future. ”
3. You do not really own a Scotch whiskey barrel without a delivery order
There are a few legal documents and designations that form the heart of Scottish whiskey barrel ownership, and it is helpful to be familiar with them.
One is the register of storage ports and owners of regulations on stored goods, also known as a WOWGR. Anyone who buys and sells whiskey casks as a business (classified by UK tax law as a ‘revenue trader’) must be in the registry, which is a complicated process. Individuals who buy a few barrels as a long-term investment do not, although the difference between an individual investing in a few barrels and an ‘income trader’ may be a legal gray area.
A delivery order is also important. This is a written contract between the cask seller and the buyer and addressed to the warehousekeeper who holds the cask confirming the transfer of ownership. Without a DO, a buyer does not legally own the dish. A few brokers and companies issue a ‘certificate of ownership’, but it has no legal merit, it’s just a beautiful piece of paper.
This does not mean that a company that does not issue a DO is a scammer, but it does mean that you have a much higher risk of losing your investment if the company actually owns ‘your’ dish breaks down. Whiskey consultant and cask broker Blair Bowman illustrates riddle:
“Most of these barrel companies are simply not set up to issue DOs, as this will mean that the warehousekeeper will also have to set up a new account for each barrel owner … all of this is quite burdensome for all parties involved, hence the reasons companies do not go this route. ”
Another important note. If an investor is not resident in the UK, they need someone who acts as their duty representative, someone who is in the WOWGR register and is responsible for communicating with the HMRC (UK tax authorities) about their stored dish.
4. Scams are still around
The UK Financial Conduct Authority does not regulate investment in draft whiskey, making it a space where fraudsters can thrive. At the beginning of the new millennium, there were many fraudulent companies in operation, many of which made similar promises of large profits as some fad investment companies today. In the world of whiskey, Nant is called Whiskey, Grandtully, Cavendish / Hamilton Spirit Management, Napier Spirit Company and others along with curses for the way they cheated investors not long ago.
Finds Littler that the places today for whiskey casks and the methods of selling them often repeat scammers of the past: “The similarities with these old scams, including inflated sales prices, no transfer of ownership, misleading sales information, manipulated / counterfeit returns, and Ponzi selling in some companies today is quite remarkable. ”
A major problem is that cask buyers will not realize that they have a problem until years ahead where they will make money on their investment after the whiskey has matured for a while. As Bowman explains: “My biggest fear is that these companies will continue to attract naive investors in the short term, but when the bubble bursts, they are long gone with all the cash they generated today. I have a strong suspicion that many of these companies will no longer exist when an investor appears to be selling their dish. ”
This means that the ‘cask owner’ will be in a tough situation in a few years when they are ready to redeem the promised profits, especially without doing so.
Although investing in a Scotch whiskey barrel is a more risky proposition than might be advertised, it is still possible to make it responsible and enjoy the results several times over. But like any investment situation, it is important to do the right research before putting money down.