The Fine Art Market

Bloomberg takes a look at the current state of the fine art market, referencing some of the concerns from recent reviews, statistics and financial reports. The article states the upcoming New York sales are expected to net about 50% less than last years. That has to have an enormous impact on the profitability of the major houses.

In times of uncertainty, the auction houses start to pull back on guarantees which can be such a double edged sword, and actually very dangeous in a declining market.  The article states Christie's is offering few incentives to sell and has reduced guarantees from 72 last May to 15 this year, and Sotheby's from 54 to 12.

Bloomberg reports
Last May, the art market had its biggest auction season, selling a record $2.7 billion of blue-chip works. Next week, Christie’s, Sotheby’s and Phillips expect to sell about 50 percent less at their semi-annual sales in New York.

Everything is truncated -- from the auction houses’ combined presale estimates of $1.1 billion to $1.6 billion to the number of Impressionist, modern, postwar and contemporary art offerings. The top lots at both Christie’s and Sotheby’s are valued at more than $40 million each -- roughly $100 million below the estimate for last year’s Pablo Picasso painting. The number of guarantees to sellers also has been reduced.

‘Wait and See’
“It’s a contraction in every sense,” said Todd Levin, director of Levin Art Group, who advises collectors. “There’s a wait and see approach. No one wants to catch a falling knife.”

After five years of growth, auction houses are preparing for a rocky patch. Global art sales fell 7 percent last year to $63.8 billion, led by a slowdown in Asia and weaker demand for postwar and contemporary art, according to the European Fine Art Foundation. Sotheby’s Chief Executive Officer Tad Smith warned of “difficult” quarters ahead during a February call with investors.

The auction houses are competing for consignments amid falling oil prices, underperforming hedge funds and greater scrutiny of the art market. Governments in China, Europe and the U.S. are looking into the ways major art collections are used to hide ill-gotten wealth and avoid taxes.

Reducing Risk
“The art market follows the 1 percent,” said James Chanos, an art collector and founder of Kynikos Associates LP. “Whether it’s the 1 percent in Brazil, Russia, China or America. Let’s face it: It hasn’t been a good year for the 1 percent.”

Following a war for market share, the auction houses are focusing more on profitability. After losing millions of dollars on aggressive guarantees in November, Sotheby’s and Christie’s are offering fewer incentives to sellers. Christie’s said it has 18 guarantees next week, down from 73 in May 2015. Sotheby’s has 12 guaranteed lots, down from 54 a year ago.

“There’s less risk and therefore fewer masterpieces,” said Wendy Cromwell, an art adviser in New York. “You are seeing the fallout from the course of business that was unsustainable. It was extraordinarily expensive for the auction houses to maintain the facade of those big sales and watch the profit erode.”

More Cautious
Auction house executives said they are more cautious. “We had to push back in terms of the expectations of the sellers,” said Brett Gorvy, international head of postwar and contemporary art at Christie’s.

Sellers include money manager David Ganek, who is parting with a child-size sculpture of Adolf Hitler on his knees and wearing a gray schoolboy uniform. Estimated at $10 million to $15 million, the controversial work by Maurizio Cattelan is among the star lots of Christie’s curated “Bound to Fail” sale on May 8. Of the event’s 39 lots, 10 have third-party guarantees, according to the auction house.

Phillips’s 37-lot evening sale is scheduled two hours after Christie’s on May 8. This smaller auction house also has reduced guarantees. The sale’s top lot is Brice Marden’s somber painting “Star (for Patti Smith),” estimated at $5 million to $7 million.

Christie’s evening sale of postwar and contemporary art on May 10 has 61 lots, about a third less than a year ago. The top lot is Jean-Michel Basquiat’s canvas depicting a horned devil’s head with streams of red, green and black paint. Estimated at more than $40 million, the work is being sold by Adam Lindemann, a gallerist and collector who bought it for $4.5 million at Sotheby’s in 2004.

Water Lilies
The auction house’s 52-lot evening sale of Impressionist and modern art on May 12 has a low estimate of $138 million. That’s less than a single Alberto Giacometti sculpture of a pointing man fetched in May 2015. The top lot this season is Claude Monet’s painting of water lilies, estimated at $25 million to $35 million.

Sotheby’s, which has dominated Monet’s auction market for several years, doesn’t have a blockbuster work by the artist this season. Instead, its Impressionist and modern art evening auction on May 9 is led by a group of Fauvist paintings. The top lot is Andre Derain’s seascape with a red sailboat, estimated at $15 million to $20 million.

There are 44 lots in its May 11 evening auction of contemporary art, a third less than last May. The top lot is Cy Twombly’s “Untitled (New York City)” painting from his “blackboard" series, estimated at more than $40 million.

Miami billionaire Norman Braman is selling a 1961 sculpture by David Smith priced at $8 million to $12 million. The collector bought it at auction for $418,000 in 1990, according to Artnet.

Advisers and collectors said the volatility could be seen as a welcome change. Fewer investors in the market means more opportunity for collectors who had been priced out.

“Last year at this time, you had competition coming from nearly every part of the world,” said Sandy Heller, a New York art consultant. “You don’t really have that right now. So I consider now a great time to be a buyer. You can likely come away with some pretty good deals.”
Source: Bloomberg 

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