More bad news for Mastro

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Posted By: boxingcardman

You are thinking too linearly on this issue. Holding consignor money 45 days isn't about banking the cash and earning interest, it is about using the funds as a short term source of funding so as to minimize the amount of use made of a credit line, which has a far higher cost than what the money could earn. Many of us do the same thing to Visa, MC and AMEX when we pay down the card every month. Now factor in Mastro's schedule of auctions--3 CC and 3 regular, spaced roughly evenly throughout the year and you have a large anticipated cash flow every two months (plus an extra here and there like the live auction at the National). Instead of living on the net left after an auction supplemented by credit they have to pay for until the next stream of revenue and escrowing the auction proceeds, my bet is that they used the consignor money as it came in for operating expenses, advances, etc., minimizing the cost of credit by taking a free short term loan from the consignors. It probably saved them several months a year in interest on several million dollars in short term loans. My hunch is that the hiccup this month was that a bank pulled a credit line unexpectedly, leaving them with no cash (they'd spent that first) and nowhere to get it to write the checks at the 45 day mark, until they freed up funds from elsewhere or arranged a new line of credit. I would not be surprised if the story about the wrong account was literally true--it was probably a sweep type account into which the credit line was dumped as needed to cover checks. No line = rubber checks.

It's a nifty little scheme provided that the line of credit is there to cover the gaps.

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