Guarantees Fell by 18% in 2019

A few weeks ago Barron's posted this interesting article on auction house third party guarantees in the post ward and contemporary art evening sales at the main houses. The article notes the art market was softer in 2019 and 3rd party guarantees fell to $1.08 billion per an Art Tactic report. The article notes "73% of guarantees from 2016 to 2019 have been for works by the top 25 artists, the report said, with nearly 27% applied to works by Jean-Michel Basquiat ($436.8 milion), Andy Warhol ($398.3 million) and Gerhard Richter ($230.6 million)."

Barron's reports

The value of works guaranteed by third parties during post-war and contemporary evening art auctions at the top houses fell 18% to US$1.08 billion in 2019 amid an overall softening in the art market, the London art analysis firm ArtTactic said in a recent report.

But those who took the risk to back works largely did well, reaping a return of 11% this year, ArtTactic said in its December report, “Post-War & Contemporary Auction Guarantee Analysis,”  focusing on the auctions at Christie’s, Phillips, and Sotheby’s, in London, New York, and Hong Kong.

Guaranteeing works of art can be lucrative for art collectors, who increasingly take out loans, often backed by their own art collections, to provide the guarantee. Arrangements for these guarantees are different at each auction house, but generally involve a pre-auction agreement with a collector, the auction house, or another third party, to buy a work of art at a fixed price.

If the work doesn’t sell, the collector who put up the guarantee buys it for the agreed-upon fixed price. But if the work does sell, the guarantor shares in the amount above that price. So if a collector guarantees a painting at $10 million and it sells for $12 million, then he or she gets a portion of that excess $2 million. If no bid exceeds $10 million, the painting is considered “bought in,” meaning, the guarantor takes it home.

In 2019, only 1% of the lots offered were bought in, down from 2.2% in 2018, and 4.2% in 2016, ArtTactic said, meaning the guarantee bet paid off for a lot of collectors. Returns at 11% are strong, but still down from a high of 12.7% in 2018. The low was in 2015, when returns were 9.7%, ArtTactic said.

The drop in the value of guaranteed works this year is not a surprise given an overall decline in art sales in 2019. While final figures for the year aren’t out yet, there was a 31.5% drop in sales during the post-war and contemporary art evening sales at the three houses in New York in November compared to a year earlier, and a 33% drop in auction guarantees, ArtTactic said.

In November, the guarantees were equal to $360.5 million, or 66% of the low estimate of the evening sales.

Driving the dip all year was a lack of major estate sales headlined by high-profile paintings, such as Claude Monet’s Nymphéas en fleur, which sold for nearly $85 million, from The Collection of Peggy and David Rockefeller in May 2018, or Edward Hopper’s Chop Suey, which sold for $92 million from The Barney EbsworthCol lection in November 2018, both at Christie’s. Overall, guaranteed sales hit a record $1.31 billion last year driven by these estate sales, which reached a combined total of $1.16 billion, with fees.

The question is whether the lack of major estate sales and big-ticket works in 2019 led to fewer guarantees or whether the softness in the market is a result of art collectors being unwilling to back big-ticket works with hefty guarantees?

ArtTactic suspects that the drop in works at the top end of the market does, in fact, reveal dwindling appetite for risk among high-end collectors. “It look like the guarantors in the West are increasingly getting jittery going into the new year,” the report said.

The situation was the reverse in Hong Kong last year, however, where collectors picked up the pace of guaranteeing works at evening sales of post-war and contemporary art, leading to a 52.9% boost in sales overall. The estimated value of guarantees rose to $78.5 million this year from $26.4 million in 2018, ArtTactic said.

Another bright spot? An uptick in guarantees for works by female artists. Last year, 10.5% of all guaranteed works were by female artists, up from 6% in 2016, while the average price of these guarantees rose to 90% of the guarantees for works by male artists, up from 52% in 2016.

The biggest rise among female artists were works by Louise Bourgeois, with the value of guarantees for her works jumping to $31.9 million this year from $900,000 in 2018.

Overall, nearly 73% of guarantees from 2016 to 2019 have been for works by the top 25 artists, the report said, with nearly 27% applied to works by Jean-Michel Basquiat ($436.8 milion), Andy Warhol ($398.3 million) and Gerhard Richter ($230.6 million).

Source: Barron's

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