More on Sotheby's Sale

The NY Times just posted an interesting article on the purchase of Sotheby's along with a bit of rationale on to why. Some of the reasons included not being a public company with stockholders and have more flexibility in strategic planning and an owner who is a billionaire and collector may have more of a passion for the investment.

The NY Times reports on the sale
In recent years, the competition between the world’s two largest auction houses, Sotheby’s and Christie’s, has seemed at times like a bit of an unfair fight.

Sotheby’s, which is publicly traded, has lost out to its privately held archrival for several headline-grabbing consignments. Last year, Christie’s sold the collection of Peggy and David Rockefeller for $835 million, the highest-grossing auction ever of a private collection. In 2017, Christie’s sold Leonardo da Vinci’s “Salvator Mundi” for $450.3 million, the highest auction price ever for a work of art.

Both auctions were underpinned by financial guarantees arranged by Christie’s, which since 1998 has belonged to a holding company owned by the French billionaire François-Henri Pinault.

Wendy Goldsmith, a London-based art adviser and former head of 19th-century European art at Christie’s, noted the advantage gained by an auction house owned by a wealthy individual. “If you wanted to get something done,” she said, “you went to the man with deep pockets.”

On Monday, Sotheby’s moved to level the playing field, agreeing to be acquired by a billionaire of its own, the French-Israeli telecommunications entrepreneur Patrick Drahi, in a deal worth $3.7 billion. The purchase, by Mr. Drahi’s BidFair USA, returns the only publicly traded major auction house to private ownership after 31 years on the New York Stock Exchange.

About $2.66 billion of the purchase price will be paid in cash, with Sotheby’s shareholders getting $57 per share of their common stock. That is a 61 percent premium over the stock’s closing price on Friday. Sotheby’s shares jumped 58 percent in trading on Monday after the deal was announced.

“This acquisition will provide Sotheby’s with the opportunity to accelerate the successful program of growth initiatives of the past several years in a more flexible private environment,” Tad Smith, the chief executive of Sotheby’s, said in a statement.

Flexibility is something Sotheby’s has sorely lacked. As a publicly traded company, it has had to justify every business decision and explain every market fluctuation to shareholders on a quarterly basis. That is a challenge for a business that relies on seasonal revenue and is strongly dependent on the quality of consignments in any given sale.

Patrick Drahi, a French-Israeli telecommunications entrepreneur and founder of the Altice Group, a cable and mobile telecoms company.CreditPhilippe Wojazer/Reuters
Guy Jennings, a former deputy chairman of Sotheby’s Europe who is now managing director of the Fine Art Group, an advisory company based in London, said that having to answer to shareholders had consistently left Sotheby’s lagging behind Christie’s.

“They’ve not clawed back any ground,” he said.

Sotheby’s had $6.4 billion in total sales last year, fueled in part by a 37 percent increase in private transactions. It had net income of $108.6 million, down from $118.8 million the previous year. Christie’s had $7 billion in total sales in 2018. As a private company, it does not report profits or losses.

It may have regularly trailed Christie’s in recent years, but Sotheby’s has had its moments. In 2017, it achieved an auction record of $110.5 million for a painting by Jean-Michel Basquiat, and it set a salesroom high of $110.7 million last month for a work by Claude Monet. Last year, its auction in Paris of the collection of Pierre Bergé, the former partner of Yves Saint Laurent, raised $32.4 million, more than four times the presale high estimate.

Mr. Drahi, who founded the telecom company Altice in the Netherlands in 2001, said in a statement that he remained “100 percent committed” to the telecom and media industries and that he was honored the Sotheby’s board had embraced his offer.

“As a longtime client and lifetime admirer of the company, I am acquiring Sotheby’s together with my family,” said Mr. Drahi, who is known as a collector of Modern and Impressionist works.

Mr. Drahi added that he was making the investment with a “very long-term perspective” and that he did not anticipate any changes in the company’s strategy.

The deal comes about six years after Daniel Loeb, whose hedge fund, Third Point, holds a stake in Sotheby’s, called for the resignation of Bill Ruprecht, the auction house’s chief executive at the time.

“We have heard many excuses — but no good reasons — why Sotheby’s competitive position is deteriorating, such as: ‘Christie’s is buying market share and making uneconomic deals to make headlines,’ or ‘Christie’s is private and doesn’t have to disclose its guarantees,’” Mr. Loeb, a member of the Sotheby’s board, wrote in a letter urging Mr. Ruprecht’s ouster and bemoaning a share price that was then stalled at about $51.

Mr. Smith, a former chief executive of the Madison Square Garden company, succeeded Mr. Ruprecht as chief executive in 2015, but profitability has remained a continuing challenge for Sotheby’s. In 2016, the company tried to solidify its share of the top end of the market by paying up to $85 million to acquire Art Agency, Partners, a boutique art advisory firm. But at $35.38, its closing price on Friday, the company’s stock had fallen well below its 2013 level.

“It was ripe for picking,” Ms. Goldsmith said.

Mr. Loeb said in a statement that he was “pleased to see Sotheby’s pass into such capable hands.”

Art work packed in a crate arrived at Sotheby’s from Paris in February. Being publicly traded gave the auction house less flexibility than its privately held rival, Christie’s.
Stephen Speranza for The New York Times

Mr. Drahi was born in Casablanca, Morocco. His parents were math teachers, and he showed an early aptitude for numbers. The family moved to France when he was a teenager, and he attended prestigious universities with the goal of becoming an electrical engineer.

Soon after joining the Dutch electronics giant Philips, he abandoned a traditional corporate career for the less-predictable life of a telecom entrepreneur. He drew inspiration from American moguls like John C. Malone who made their fortunes in cable television. Mr. Drahi founded a regional cable company in France that he later sold to an arm of Mr. Malone’s empire, using the proceeds to found Altice.

He has continued to pursue ambitious deals since then. Under Mr. Drahi, Altice made expensive, often debt-fueled bids for cable assets around the world, including HOT in Israel and Suddenlink in the United States. In 2014, he defeated a stalwart of French industry, Martin Bouygues, to acquire Vivendi’s SFR division in a deal valued at 17 billion euros (about $19 billion at current exchange rates).

Altice gained a new level of prominence in 2015 amid speculation that it was preparing to bid for Time Warner Cable after regulators blocked Comcast’s proposed takeover of the company. The price turned out to be too high for Mr. Drahi, and Charter Communications wound up buying Time Warner Cable.

Altice made a major cable acquisition in the United States later that year, leading a $17.7 billion takeover of Cablevision. Mr. Drahi merged the company with another Altice-owned cable operator and rebranded the operation as Altice USA, which acquired the online news network Cheddar for $200 million in April.

In addition to a penchant for buying undervalued assets, Mr. Drahi has a reputation for cutting costs. How he might apply that practice to Sotheby’s remains to be seen. Also unclear is whether Mr. Smith was party to the takeover or will become a casualty of it. He has a connection to Mr. Drahi through the Dolan family, which sold Cablevision to Altice.

Mr. Drahi is largely unknown in the art world. The pieces he collects typically sell for less than $5 million, a far cry from the sky-high prices that dominate the contemporary art market.

“Most people don’t seem to know who he is,” said the art dealer Brett Gorvy, a former Christie’s executive who operates galleries in Geneva, London and New York.“He’s not a Pinault in terms of his level of buying.”

It is perhaps not surprising then that Mr. Drahi’s purchase of Sotheby’s mystified some art executives.

“Is it a real estate deal?” asked Mr. Jennings of the Fine Art Group. “Is it prestige? Is he taking on Pinault?”
Source: The New York Times 


Sotheby's to be Taken Private

I have had several appraisers send me a Wall Street Journal article on the potential sale of Sotheby's in a $2.66 billion offer. If this happens, and Sotheby's is purchased by entrepreneur Patrcik Drahi, Sotheby's would become private (similar to Christie's).

The Wall Street Journal reports
Global auction house Sotheby’s BID +58.66% has agreed to be taken private by art collector and media entrepreneur Patrick Drahi in a $2.66 billion deal.

Mr. Drahi, 55 years old, is buying Sotheby’s shares outstanding for $57 apiece, a deal that would end Sotheby’s 31-year streak as a public company, Sotheby’s said Monday. His offer represents a 61% premium to Sotheby’s closing price Friday.

Sotheby’s shares rose 57% to $55.73 in morning trading. Shares had been down 40% over the past 12 months through Friday’s close.

“After more than 30 years as a public company, the time is right for Sotheby’s to return to private ownership to continue on a path of growth and success,” Sotheby’s Chairman Domenico De Sole said in prepared remarks.

Mr. Drahi founded European telecommunications company Altice and is the controlling shareholder and board chairman of the company’s operations in the U.S.

In a statement, Mr. Drahi said he would finance the deal using personal funds and funds from BNP Paribas . He said he won’t sell any shares of Altice Europe NV to pay for the deal but plans to monetize as much as a $400 million stake in Altice USA by the end of 2019.

He also said he would still be mainly focused on the telecom and media industries.

New York-based Sotheby’s reported $1.04 billion in revenue for 2018, and profit of $108.6 million, but both measurements fell from a year prior.

Sotheby’s recorded $6.35 billion in sales last year through auctions, private sales and inventory sales, up from $5.49 billion in 2017. Sales topped $6.7 billion in both 2014 and 2015.

Sotheby’s recently renovated its gallery spaces at its Manhattan headquarters.
Source: The Wall Street Journal 


Babe Ruth Jersey Brings Record $5.64 Million

The NY Post reports that on  Saturday Hunt Auctions sold a circa 1928-1930 jersey worn by Babe Ruth for a record $5.64 million. The previous record was for a 1920 Ruth jersey which had sold for $4.4 million.

The NY Post reports
The Babe knows how to bring in a buck.

A jersey worn by Yankees icon Babe Ruth around 1928-30 sold for $5.64 million, a record price for sports memorabilia, during the Babe Ruth Collection auction at Yankee Stadium on Saturday, according to Hunt Auctions. The previous mark of $4.4 million was set by a 1920 Ruth jersey.

The auction was made up of more than 400 Yankees related lots, including hundreds of items Ruth’s family chose to release to the public.

“For many years, we cherished the items within his personal collection and have been blessed to represent his legacy through our many family endeavors,” Linda Ruth Tosetti, granddaughter of Babe Ruth told ESPN.

“The decision to share items from his personal collection was made with careful consideration and the intent to further his legacy within a new generation of baseball fans. Babe’s collection has remained largely unknown to the general public, and we felt it was time to bring these amazing pieces of his life to light. There could be no other place to showcase these items than Yankee Stadium, and we are also thrilled to be able to benefit related charitable entities through the sale of these items.”
Source: The NY Post


A Look at Dealer Pricing

My daughter's wedding was fantastic, weather was great, and we could not be happier.

Now back to work and some posts on the fine and decorative art markets.

Fellow appraiser Selma Paul, ISA CAPP sent me an interesting article on dealer pricing and the reluctance to share prices, even with potential buyers. Transparency has long been an issue and concern int he art market, and the type of secrecy, elitism and selectivity from many dealers does not help the situation, nor assist appraisers when looking for comparable sales.

artnet news reports on dealer pricing and the sharing, or perhaps non-sharing of information
After receiving a PDF blast about a gallery’s forthcoming show of a new artist, San Francisco-based collector and arts publicist Florie Hutchinson replied to ask about prices. “Thanks so much for your interest,” came the response. “Just to warn you it is fairly unlikely there will be a painting available as we have a lot of people waiting for work and the priority is museums, then clients donating the works to museums. We’re also taking into consideration how long clients have been waiting and bearing in mind how much support those clients give the wider gallery program.”

For many novice art buyers, this sort of evasive reply to a seemingly routine question—how much does this cost?—is common. Collector and art trader Stefan Simchowitz recalls asking a gallery’s front desk attendant about the price of a painting and being told that only the sales director had access to that information. “What do you mean, you don’t know?” he asked. “You work here.”

Dealers have their reasons for keeping prices close to the vest. In an industry built on the asymmetry of information, knowing what is selling for how much equals power. But the art market’s unspoken, unofficial customs are now coming under unprecedented pressure as galleries seek to balance the desire for discretion with the need to expand their client base and stay relevant in the age of Big Data and online comparison shopping.

This tension is on plain view at the prestigious Art Basel fair in Switzerland this week. Prices are provided to trusted collectors via PDF in advance; other prospective buyers will be greeted with a cold shoulder, even on the floor of the fair. Some galleries, like Paula Cooper and Marian Goodman, may provide prices to select collectors, but make it a practice of not disclosing them to the press.

The whole process can border on Kafkaesque. “Very few of the PDFs have prices…. It can be very frustrating,” Simchowitz says. “I have these exchanges constantly. You’re offering me a piece of work, but how the hell do I know if I can afford it? They ask, ‘Well, what are you interested in?'” He doesn’t know, he replied—that’s the reason why he’s asking for more information to begin with.

Why Keep It a Secret?
There are many reasons dealers jealously guard price information. It might keep a competitor from undercutting them or seeking out the same artist’s work on the resale market for less. Sometimes the artist does not want to see their work reduced to a simple commodity, or the consignor wants the freedom to dramatically adjust the price later if the work doesn’t sell.

There is a long history to this practice. In 1971, New York City passed the “Truth In Pricing” law, which requires all retail establishments—including art galleries—to post prices in plain view. Dealers largely ignored the rule until the city began enforcing it more strictly in 1988—but even then, they interpreted it loosely. Mary Boone reportedly posted a price list in the back office, requiring visitors to climb two steps and lean over a velvet rope to see it. Today, the law is rarely enforced.

New York dealer James Fuentes recounted a story from a client—now a major collector—who had a rude awakening at a major Soho gallery in the 1980s. “He’s looking at this print by Sandro Chia, and he asked the gallery for the price. And they respond, ‘six,'” Fuentes recalls. “He had no idea—it could have been six million. I laughed because to me that’s kind of indicative of the way the game is played.”

There is also a psychological factor. Exclusivity is frustrating when you are on the outside, but thrilling when you are accepted into the fold. This has been true since the dawn of the modern art market in the ’60s, when dealers like Leo Castelli or Sydney Janis were working with a much smaller pool of buyers. “The more exclusive or higher the prices, the more buyers they would get,” says Pace Gallery president Marc Glimcher.

Collector Alain Servais has counseled numerous friends who came to the collecting game more than a decade after he started out and who constantly complain that they cannot get access to work by, or even prices for, the artists they covet. His advice? “Market yourself. Invite a couple of dealers to your home. Or a few journalists, if they want to write about collectors…. By not being available to everyone, when the price is available to you, you feel special.”

Collectors also often have their own reasons to discourage price transparency. “You publicize how much someone paid for a painting and someone is going to walk into their living room and say, ‘Oh you paid X for that painting,'” Glimcher says. This knowledge can compromise collectors’ safety—not to mention their tax payments or divorce settlements.

Is a Revolution Coming?
In some corners of the art world, however, this tradition is beginning to change. This week, David Zwirner Gallery launched Basel Online, a virtual art-fair booth that offers 20 works exclusively online for a total of around $5 million by artists including Carol Bove, Josh Smith, and Jordan Wolfson. Prices range from $45,000 for a painting of a match by Harold Ancart to $1.8 million for a Yayoi Kusama pumpkin sculpture.

Meanwhile, fellow mega-gallery Gagosian—which does not post artist names or titles of works in its art-fair booths, let alone prices—launched a similar viewing room during Art Basel last year. According to the gallery, half of the 10 works found buyers during the room’s 10 days of operation, including a €950,000 (roughly $1.1 million) Albert Oehlen.

The goal of these efforts is to cultivate new buyers who might be unfamiliar with the customs of the art world or uncomfortable asking for a price in person. More than half of the inquiries to Zwirner’s online viewing room, which has operated for more than two years, have come from new clients, according to the FT.

“Transparency is in the interest of new buyers who don’t really know the market,” says Olav Velthuis, an economist and professor at the University of Amsterdam. “At the same time, I would say in the end, having transparency is in the interest of the entire market.”

Fuentes says he now routinely keeps a price list available for each show at his Lower East Side space. “It just makes brick-and-mortar galleries look archaic if we’re not doing the same thing,” as other outlets, he says.

Others concur. “Every dealer should be doing their utmost to protect their artists in placing the work well,” says New York dealer Sean Kelly. “But I really don’t see how price opacity can you help you that process. If we all want clients to regard us as honest and credible professionals, we need to behave as though we have nothing to hide.”

Of his own journey toward price transparency, Glimcher says: “At some point we started cultivating new buyers, Russian, Chinese; I went out to Silicon Valley. Suddenly, we’re engaging all these market forces that our market wasn’t built for. The reason we need transparency is because we want people who are unwilling to enter the market to enter the art market.”

Hutchinson says that ultimately, galleries will now usually share this information when asked (even if they must be asked more than once). But those dealers that have exclusionary practices “by hiding or withholding prices create an artificial imbalance. As a young collector, I find that hurdle very discouraging.”

Ultimately, dealers may have no choice but to adapt. Hutchinson points to a recent New York Times story noting that when Uber and Airbnb go public this year, Silicon Valley could get up to 10,000 new millionaires overnight. And these new targets feel quite differently about price transparency than previous generations of moneyed collectors. “These are millennials and mostly software engineers,” she notes. “Their lexicon is information.”
Source: artnet news


Fine Art and Museum Workers Salaries

Only a quick post, daughter getting married Sat afternoon, soon off to the rehearsal dinner.

Spotted this interesting post on Business Insider on fine art and museum worker salaries. Follow the links in the article to view the referenced spreadsheet or CLICK HERE to view. Or, follow the below source link for the BI article.

  • A Google Spreadsheet entitled " Arts + All Museums Salary Transparency 2019" is revealing what art-museum employees make around the world.
  • Around 1,900 submissions have been entered by the employees themselves in a bid to make salaries transparent.
  • The numbers reveal that museums are relying increasingly on seasonal employees, and that museum presidents and directors make much more than everyone else.
Source: Business Insider 


Soodie Beasley Elected to ASA PP Discipline Committee

Great news for all personal property appraisers. Fellow appraiser, Journal of Advanced Appraisal Studies contributor, Digital Journal of Advanced Appraisal Practice contributor, 20th century design expert and good friend Soodie Beasley, ASA has been elected to the ASA Personal Property Discipline Committee as a member at large.

Congratulations to Soodie, I know she will be a positive force for ASA personal property and for working with compeer associations to advance the personal property profession.

Give a shout out and send along congratulations and well wishes to Soodie for accomplishments and new position on the ASA Personal Property Discipline Committee.


Investing in Fine Art

Bloomberg has an interesting article on investing in fine art. Bear in mind, investing is a different approach than collecting. The article takes a quick look at investing in the art market and where there is some misleading content when looking beyond mega and important sales where many art investors cant compete. Look at some of the examples of returns the articles lists, and these are for important and sometimes iconic works.

The article has some interesting view points.

Bloomberg reports
You, too, can make a fortune in the art market. All you need is an eye for important, beautiful works, some spare cash and a time machine. If you lack the ability to go back a decade or more to buy what we now know will bring huge prices, well, then, making great returns in art is very, very hard.

We were reminded of this courtesy of the sale earlier this week of one of Claude Monet’s haystacks paintings, “Meules” (1890). The painting was auctioned at Sotheby’s in New York for $110.7 million, a record sum for a work by an impressionist. According to the Financial Times, the price, including auctioneer fees, was 44 times more than the $2.5 million the painting fetched when last sold at auction in 1986. This works out to an annual rate of return of 12.2% over 33 years.

Then yesterday, the estate of S.I. Newhouse Jr., the former Condé Nast chairman, auctioned at Christies in New York Jeff Koons’s stainless steel "Rabbit." At $91 million, it set a record for a living artist. According to Architectural Digest, Newhouse bought the sculpture in 1992 for $1 million. At 91 times more than the sculpture cost 27 years ago, this works out to an annual rate of return of 18.2%.

Before you look at these gains and assume that investing in art seems like a sure thing, some cautionary words are in order. The problem with this is that investors tend to notice the big winners, while ignoring the works of art (or other assets) that fail to appreciate in value. Statistically, the vast majority of investments have returns that are nothing like this; some even lose value.

This tendency to give too much weight to the big winners while excluding the losers -- otherwise known as survivorship bias -- has a long and storied history in investing. Mutual funds were the first great example of this: Funds tend to regularly close down and disappear due to poor performance. The Vanguard Group and Dimensional Funds Advisors each separately found that about half of funds close within 15 years. When the losers get killed off, it makes the average performance of the survivors look that much better.

How much better? Vanguard noted that 62% of surviving large-capitalization value funds outperformed their specific benchmark. But taking account of the funds that shut lowers the rate to just 46% after five years and the disparity gets bigger the further out you go. Larry Swedroe of the BAM alliance points to an earlier study by Lipper: In 1986, it reviewed 568 stock funds, with an average annual return of 13.4%. By 1996, those returns had improved to 14.7%. During that 10-year period, almost a quarter of the funds disappeared. These tended to be the worst performing funds, and once they exited the database, the survivors registered a cumulative 1.3 percentage point improvement -- essentially accounting for all of the increase in returns.

The art equivalent of this are all of the works buried in attics and basements and, most impressively, in storage at museums. Take two big museums in New York: The Metropolitan Museum of Art's modern and contemporary art collection alone contains more than 12,000 works. Not far away, the Museum of Modern Art  has almost 200,000 modern works. Most of these wouldn't fetch nine figures at auction.

It is human nature to look at big winners after-the-fact, while failing to include the impact of the losers. It is not what we see that matters so much as what we do not see.

Other collectible luxury items similarly attract attention from time to time. Fine wine has been popular, as have collectible cars. Recall the end of 2018, which was a disappointing year for U.S. equities, and an even worse one for overseas stocks. The Wall Street Journal reported that luxury goods such as wine, art, classic cars and exotic colored diamonds did better than stocks and bonds in 2018. Well, not exactly. It's only after we adjust for all of those items that weren't counted in the investment-returns analysis that we can make a sound judgment about performance.

This is the problem with drawing any conclusions from these sorts of one-off events or sales of greatly appreciated novelty assets. Mutual funds are assets designed to appreciate and be held cheaply, but the same cannot be said for these other collectibles. Everything from art to antique Ferraris to fine wine to jewelry requires storage and insurance -- costs that can add up.

Author and investment adviser William J. Bernstein points out that much of the appreciation in art and other collectibles is really just a lesson in the magic of compounding. One painting by one of the Old Masters bought from the artist for the equivalent of $100 and sold 350 years later for hundreds of millions of dollars returned just 3.3 percent annually, he calculated. “If you save and you have even a modest rate of return over hundreds of years, then you’ll have a fabulous amount of money” he said on our Masters in Business podcast.

Selecting appreciated investments after the fact is easy. Instead, consider this challenge: What work of art are you willing to buy and hold for sale in 2052? That question reveals just how difficult investing in collectible assets really is.
Source: Bloomberg