May 31, 2022
The art auction world operates on a cyclical calendar. The highest-profile Modern and Contemporary auctions occur in New York in May and November and London in June, October, and February. The May sales in New York concluded two weeks ago with record-breaking sales at the top auction houses, Sotheby’s, Christie’s, and Phillips.
Over the two-week period, art sales exceeded $2.5 billion, and several records were set, including the highest total sale for a private collection, that of Harry and Linda Macklowe. The Macklowes collected art together for over 65 years until their bitter divorce led a New York judge to order the entire collection auctioned off publicly. The sale, which took place at Sotheby’s, realized $922 million for just 65 works and was sold in six months. Other record sales include $195 million for a portrait of Marilyn Monroe by Andy Warhol (sold at Christie’s), $67.5 million for a painting of a nude by Picasso (sold at Sotheby’s), and $85 million for a Jean-Michel Basquiat (sold at Phillips).
While these record prices are undoubtedly impressive, the high-profile blockbuster evening sales can be less profitable for the auction houses than the lower value day auctions. Stiff competition between the two leading auction houses, Sotheby’s and Christie’s, gives savvy sellers a competitive advantage when negotiating deals to sell their art. Auction houses will usually “give back” a portion of the buyer’s premium they earn on the sale and waive all other marketing fees to secure the consignment.
Many sellers will also ask for a guarantee when consigning an artwork at auction, which ensures a minimum price for the piece. To secure competitive consignments, the auction house must find a third party to guarantee the artwork or assume the guarantee in-house. An in-house guarantee can be a risky proposition because if the auction house does not drum up enough interest to secure a buyer at, or above, the guaranteed price, they must purchase the artwork. This scenario occurred at the onset of the Great Recession when Sotheby’s and Christie’s ended up with a reported $63 million of guaranteed art on their books.
Sotheby’s was taken private in 2019, so investors no longer have access to their financial statements and therefore have limited visibility into how profitable these auctions are. We can, however, see which works are guaranteed in each auction if we look closely at the auction catalogs.
Auction house sales make up approximately 47% of the global art market, so the performance of these high-value sales can be a strong indicator of the overall health of the art market. While the art market seems to be stable despite uncertainties in the global economy and rising inflation, it historically lags the financial markets, so the performance of the next couple of years could be more volatile. Although I won’t be raising an auction paddle anytime soon, I look forward to following along!