8/03/2010

Changing Faces of Auction Houses

Fellow appraiser Kathi Jablonsky sent me an interesting article from Spear's Wealth Management Survey.  The article discussion the changes that have and continue to take place within the auction house marketplace.  I have posted numerous times on the expansion of Christie's into the primary market with gallery sales, plus the expansion of art related services including insurance, storage and appraisals  And, we cant forget the ever expanding yet traditional role of auctions as they are selling increasingly more to collectors rather  than dealers, plus the backroom private placement activity is steadily growing.

The article makes some very good points, and notices how the auction market has been transformed over the past 20 years from a dumping ground for estates and divorce with most purchases made by dealers. That has all changed now, as auctions now compete with dealers collectors dollars.  The auction wholesale model is changing to a combination wholesale and retail market place.

It is a very interesting article to read from differing viewpoints, including the auctioneer, the collector, the dealer and the appraiser as we have to select the proper and most common market place in many of our reports.

Spears reports:

Until twenty years ago the auction rooms were wholesalers. Debts, divorce and death brought paintings on to the market, which the rooms then auctioned to the dealers, who bought 95 per cent of the works, which they then offered on to private buyers and museums. Go back even further to the post-Second World War art market and it is unrecognisable. Catalogues were slim, modest, soft-back volumes which published brief picture descriptions with no illustration and no estimate. Attributions were often optimistic and dealers were expected to make up their own minds as to a picture’s merit and value.

However, as the 20th century ended, the rivalry between the auction houses intensified as they desperately tried to take market share off each other. In the late 1990s Christie’s and Sotheby’s resorted to price-fixing to try to maintain their margins, and Sotheby’s is still smarting from the public humiliation it suffered when caught.


CHRISTIE'S MANAGED TO come clean to the US authorities and gain immunity just before Sotheby’s tried to do the same to them, whereas Sotheby’s chairman Alfred Taubman and chief executive Diana Brooks were found guilty of conspiring with Christie’s to fix commissions. Taubman served ten months of a one-year sentence and Brooks was given a $350,000 fine, six months’ house arrest and 1,000 hours of community service.

In more recent times, Christie’s and Sotheby’s have also gone after the market share controlled by dealers. Clare McAndrew, the founder of art market analysts Arts Economics, calculates the market’s most recent peak turnover in 2007 as $65 billion, of which around half is controlled by dealers. Before, when clients considered whether to sell at auction or privately, dealers offered the advantage of a discreet private sale. Sellers often have a preference for a quiet sale because of tax or family issues.

In response to this, the auction houses have developed specialist teams to deal with private sales so they can offer clients the option of a private sale or an auction. Sotheby’s bought Noortman Master Paintings, a leading dealer in Old Masters, for $56.5 million in 2006, which allowed it a stand at the Maastricht Fine Art Fair. Christie’s bought Old Master dealers Hall and Knight in 2004 and contemporary dealer Haunch of Venison in 2007.

Figures for private sales are growing rapidly at both auction rooms: in 2007 Christie’s had private sales of $542 million and Sotheby’s $730 million. In 2009 Christie’s private sales activity grew by 3 per cent to 12.5 per cent of its global turnover, and Jussi Pylkk√§nen, Christie’s European president, expects this to grow to 20 per cent in the next three years. ‘We’re much more than an auction room now,’ he says.

To read the full article, click HERE.

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