All That Glitters In The Auction World Is Not Gold....

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Posted By: bruce Dorskind

Sotheby's loses $14M on auction guarantees

Minimum price guarantees made to art sellers comprised the majority of Sotheby's third-quarter loss, which missed Wall Street forecasts.

Sotheby’s reported a quarterly loss that was narrower than a year earlier but missed Wall Street forecasts as the auction house took $14.6 million in pre-tax losses on auction guarantees at its Impressionist art sales this week.

Manhattan-based Sotheby’s lost $20.9 million, or 33 cents per share, in the third quarter, primarily on auction guarantees, or fixed-price promises made to sellers regardless of whether their art is sold. The company lost $30.7 million, or 50 cents a share, during the same period last year.

Auction guarantees have become a sticking point for auction houses like Sotheby’s and rival Christie’s International. In August, Sotheby’s received board approval for up to $500 million of guarantees each year, and at the end of that month said it had outstanding guarantees of $378.1 million, with another $95 million earmarked for pending offers.

With 78% of its low-value prediction for a Nov. 14 sale already guaranteed, Sotheby’s could be up against more losses before the year is out. Guarantees of at least $174 million have been made for paintings by artists that include Francis Bacon and Mark Rothko, according to according JPMorgan Securities analyst Kristine Koerber.

Third-quarter revenue at Sotheby’s climbed 48% to $85.1 million. Analysts had expected losses of 30 cents per share on revenue of $79.2 million.

Sotheby’s Chief Executive William Ruprecht remained optimistic. “The art market has shown considerable strength since the beginning of our fall season,” he said, noting that Sotheby’s third quarter usually represents only about 7% to 10% of its annual auction sales.

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Posted By: Jason L

no tears shed here

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Posted By: davidcycleback

If they moved operations from Manhattan to Beaver Dam Wisconsin, they'd save $14 million in rent the first year. Though the only building in Beaver Dam big enough would be Old Man Olsen's barn, and Sotheby's would have to shovel it out themselves

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Posted By: peter chao

I'm not sure what an auction guarantee does, does it simply guarantee that the art seller will get at least their reserve price? Or does it do more than that?

Peter C.

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Posted By: barrysloate

Sotheby's had an art sale this week that didn't do very well, and according to what I heard, the mood in the room was "nervous." Even though the typical buyer has tons of money, with the economy so shaky a lot of them don't feel like spending too much these days.

Hope it doesn't hit the card market.

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Posted By: davidcycleback

But what is art? We know what cards are-- rectangular cardboard thingies.

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Posted By: peter chao

Don't worry Barry, I'm inclined to think that results from Mastro's next auction would be a better indicator of the health of the baseball collectibles market.

Peter C.

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Posted By: barrysloate

Art is rectangular canvassy things.

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Posted By: barrysloate

Peter- it would be a good barometer, and I think the vintage card market is relatively healthy right now. But we can always reach a point where people just don't feel like spending as much as they used to, even if they have it.

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Posted By: davidcycleback

Actually, this board has had about as big of debates over what constitutes a baseball card, as art philosophers have had over what constitutes art. Broke into fisticuffs when someone proposed that Topps stamps are cards.

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Posted By: T206Collector

...i.e., someone who sold 450 of his 520 T206 cards back in April, it would be nice for the prices to come down as I begin to reacquire them.

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Posted By: barrysloate

I think the Skydash collection in the December Mastro auction is a can't miss because it is rare, high grade, and new to the market. That is exactly what collectors look for.

But from what I read, the Sotheby's sale had some recycled pieces, and in a tough economy those will not do well.

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Posted By: Rich Klein

It will be interesting to see what the bigger auctions do next year; I suspect with the growing credit crunch, price of a gallon of gas flying past $3,... that we may see a lot of items hit the market through these auction venues. Can the card market, which has been very strong in pre-war, sustain these huge gains.

It will be interesting

Rich

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Posted By: Fred C

I understand what a "reserve" is to an auction but I don't quite understand the Auction Houses "guarantee" of selling a piece of art for a minimum price. Isn't the whole idea of an auction to let the market decide the value of what ever is up for bid? Something smells funny here. If I were a shareholder in Sotheby's I'd be appalled and I'd probably demand an inquiry to the business practice of "guaranteeing" a winning bid. If I were a share holder I'd be wondering if the seller and Auction House are up to something that is not on the level. I'd also be wondering how much of the material being sold belonged to the Auction House or if some of the material had partial ownership of people in the Auction House.

Can anyone tell me how the "guarantee" works for the Auction House? Can anyone tell me why an Auction House would be so STUPID as to make this "guarantee"?

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Posted By: peter chao

Deleted.

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Posted By: Max Weder

Rich

I agree the market will be interesting.

For Canadian collectors, the financial situation has been very interesting. With the Canadian dollar hitting $1.09 briefly (after a rise from 84 cents at the beginning of the year), my collection has "crashed" in value (since I have to spend Canadian dollars to live) but my ability to buy baseball material has soared (since I earn Canadian dollars).

While this is a temporarily welcome relief from having to pay a 50% premium when the Canadian dollar was 67 cents US, the rapid run-up of foreign currencies suggests to me (in my neophyte economic analysis) that the US economy is in trouble. Ultimately, if the US economy tanks sufficiently, the Canadian economy will suffer equally, due to its interlinked nature.


Max

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Posted By: barrysloate

Fred- here's how the guarantee works. Suppose you consigned a baseball card to me and you felt it was worth $1000. So I then give you a check for that amount before the auction.

If your card sells for $1500, we both did well. But if it sells for $800, I would have to assume the full loss.

That differs from a cash advance, which on a card worth $1000 would probably be around $400-500, putting the auction house at virtually no risk.

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Posted By: Jeff Lichtman

Fred, I suppose the auction houses provide guarantees in order to attract more consignments. And presumably the guarantees are at such a level that the auction prices should easily exceed. Or in the case of Sotheby's, not.

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Posted By: barrysloate

When a fabulous collection comes on the market, the competition to get it is fierce. Sellers use this to their advantage and make huge demands on the auction houses. In some cases it's practically a life and death situation for the auction house to get it. So they will offer the consignor tremendous guarantees to keep it away from the competition.

In a red hot market it almost always works. In this economic climate, maybe not.

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Posted By: Ryan Christoff

Words cannot express how deeply saddened I am to see an innocent auction house like Sotheby's dragged through the mud with these terrible accusations. Especially considering their special partnership with SCP Auctions, a leader in the field of auction house ethics. As stated on the SCP website, "We pride ourselves on customer service and speedy response to any issues and inquiries. We're proud to call many of the nations top collectors clients and more importantly friends."

It just gives me a warm and fuzzy feeling to know that their clients are not merely clients. No, more importantly, we are friends. I can honestly say I have never had a friend treat me with the same dignity and respect I receive from SCP/Sotheby's.

It is only because of the intimate relationship (very intimate, in fact) I have with the dynamic duo of SCP Auctions and Sotheby's that I can say with certainty that these accusations are false. Both of these companies are beyond reproach!

Otherwise, you'd have to think that having a policy with minimum price guarantees for consignors might motivate a lesser auction house to resort to truly despicable and unethical acts such as doctoring catalog photos and otherwise misrepresenting items in their auction prior to artificially driving the price up by shill bidding. If not for the impeccable morality we all know SCP/Sotheby's are known for, someone could wind up paying $10,000 for an item, say a photograph, that was really worth less than half that amount due to a large amount of undisclosed damage and shill bids.

Even in a worst case scenario like that, I take great comfort in knowing that such a bidder would receive top-notch customer service and a speedy response to any issues or inquiries they had.

Isn't it about time we stopped picking on the good guys like Sotheby's and SCP Auctions? Remember, they are not just auction houses.

They're your friends.

-Ryan

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Posted By: Fred C

Barry and Jeff,

Thank you for the responses. I guess that Sothebys made some very bad predictions on the final hammer price of the art work. I still don't understand how they can get away with this practice if there are other stakeholders involved. This seems to be a very poor practice.

Barry, I just wanted to be sure I understand this. Sothebys (for example) would give $1K to a consignor and that would then be the final amount given to the consignor regardless of the final hammer on the art work.

Or

Would Sothebys provide the $1K advance and they would also provide the consginor more money if the final hammer was greater than the $1K advance fee.

I could almost understand a shared risk where the consignor accepts a fixed amount and the Auction House would either make more money or get "hammered" on the final realized price because it fell below the "guaranteed" price provided to the consignor. This approach seems very risky and in this case it will cost Sothebys quite a bit of money. I'd be pretty angry if I were a stock holder.

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Posted By: barrysloate

Yes, Sotheby's is guaranteeing a certain minimum to the seller in advance in order to secure the collection. Sometimes the guarantee is above what the collection might be worth, but the auction house takes the risk that with spirited bidding it will exceed their expectations, thus covering their bet. Usually it works, but apparently the sale from a few days ago did not do well. And it is possible they took a loss. This is what the high stakes auction game is about.

If a collection sells for far above the guaranteed amount then both seller and auction house can make more money. It all depends on their agreement.

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Posted By: boxingcardman

I am really happy we don't compete with Euro-based bidders for cards.

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Posted By: Bob

I have a friend who is making a small fortune dealing in basketball cards and post war cards, selling them to Asian buyers overseas who can't seem to get enough of them. I have always wondered why this "group" never entered in to the prewar card collecting market. Any thoughts?

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Posted By: Jim VB

Ryan,

Ouch! I just brushed up against your post. The edges are still sharp (and deservedly so!)

<<They're your friends.>>


With friends like that, who needs an enema?

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Posted By: barrysloate

Why can't Asian buyers just get these cards for market price off ebay? They're not exactly rare or hard to find.

The Asian collectors may not appreciate the history of the American game, and may not have a feel for vintage cards. Just a guess.

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Posted By: davidcycleback

Since Sadahara Oh's days and before, Japanese pro jerseys have been in English, which demonstrates the Japanese's admiration for the American game.

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Posted By: Bob

Barry- This may not be that important but I know all my auctions on ebay are limited to buyers from the US and Canada. I have seen a lot of other ebay auctions which are designated the same way. I have no qualms about selling to buyers overseas (and have sold other items to Europeans many times) but not cards.
tbob

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Posted By: Fred C

Bob,

Lets just hope that the Asian market doesn't get into vintage BB cards. The prices we've seen recently tell me that there are barely enough vintage cards to keep the North American collectors satisfied.

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Posted By: barrysloate

Bob- that's actually a good point and I really prefer only to sell U.S. There's a lot of paperwork and it's expensive to ship even to Canada.