Market Softness and Guarantees

The NY Times just posted an interesting article on recent auctions and growth of guarantees.  The article points out that overall the total sales numbers are down. The article makes an interesting point, does the growth in guarantees signify a market weakness? Also, given the issues surfacing with global economics, will the art market start to slide as well, especially in the modern and contemporary sectors.

The NY Times reports
LONDON — In the end, what should have been one of the biggest weeks in the art world was overshadowed by events in the wider world.

On Nov. 13, just as Christie’s afternoon auction of Impressionist and modern art in New York was ending, terrorists were attacking a stadium, a concert hall and cafes in Paris. The assault on a city where Picasso, Modigliani, Giacometti and so many other artists have lived and worked had a special poignancy for the art world.

Before the attacks occurred, those in the art business were already trying to make sense of the results in New York. The recent sales suggest challenges ahead, particularly in the key sector of 20th- and 21st-century art.

The $170.4 million with fees — the second-highest price ever paid for a work at auction, not accounting for inflation — tendered by the Chinese collector Liu Yiqian for Modigliani’s 1917-1918 “Nu couché” at Christie’s “Artist’s Muse” sale on Nov. 9 inevitably created a sense that the auction market was booming.

But overall numbers were down. Last May, evening sales of contemporary and modern art at Christie’s, Sotheby’s and Phillips netted a total of $1.8 billion with fees. Six months later, the total for these events dropped about 33 percent, to $1.2 billion. And even as economic uncertainty cools overall demand for investment-grade 20th- and 21st-century Western art, the dominant driver of growth in the market, auction houses are still facing the consequences of offering generous guaranteed prices to sellers.

“We’ve seen a reduction in sales value correlated to the amount of guaranteed lots,” said Anders Petterson, the managing director of ArtTactic, a research company in London. “It looks as though May 2015 was the peak. Since then we’ve seen Sotheby’s and Christie’s trying to wind down their financial exposure. People are still prepared to pay huge prices for selected lots, but guarantees have created a perception that the market is stronger than it is.”

In May, 84 of 180 lots, or 47 percent, carried guarantees in Christie’s “Looking Forward to the Past” sale of 20th-century masterworks and in Christie’s and Sotheby’s evening contemporary auctions. But this time, just 37 of 154 lots, or 24 percent, had guarantees at the equivalent three evening auctions.

Those figures would seem to support the notion that wealthy sellers’ ability to make Christie’s and Sotheby’s compete for the privilege of guaranteeing them minimum prices — waiving fees and giving them a portion of the buyer’s premium — has artificially inflated the market. It has certainly made it more difficult for the auction houses to make money.

In a recent instance, the Taubman family’s deft use of competitive tendering led Sotheby’s to pay out $515 million to secure the collection of A. Alfred Taubman, the auction house’s former chairman. The first two Taubman estate auctions, of Impressionist, modern and postwar masterworks and of contemporary art on Nov. 4 and Nov. 5, netted a total of $419.7 million respectively.

Immediately after the two sales, Tad Smith, the president and chief executive of Sotheby’s, said in a news release that with hundreds of more works from the collection to be offered this year and next, the auction house expected to “cover the Taubman guarantee in its entirety.” He added that “that these first two auctions represented 90 percent of the value of the property in the collection.”

The stock market has been less impressed. The release on Nov. 6 of third-quarter results showed commissions from Sotheby’s sales were down 12 percent from the same period in 2014 because of “significantly weaker sales results in higher margin categories such as old master paintings, Asian art and jewelry.” On Nov. 6 Sotheby’s stock was valued at $34.09. At the close of trading on Thursday the price stood at $28.97, a decline of 15 percent. On Nov. 13, the day after Sotheby’s evening sale of contemporary art brought in $294.85 million (a 22 percent decline from a sale in May), Bloomberg News reported that the auction house was offering buyouts to its employees in an effort to reduce costs.

Christie’s, which is privately owned, also has had problems with guarantees. The top price at its New York auction of contemporary works on Nov. 10 was $36 million — for Andy Warhol’s “Four Marilyns” (1962), which had a presale estimate of $40 million and had been guaranteed by Christie’s itself. The work had been bought privately eight months before by the Turkish collector Kemal Has Cingillioglu for a reported $44 million. Guarantees are generally based on prices that include the buyer’s premium, and sellers generally don’t want to lose money, so the guarantee was likely to have been about $45 million.

The themed sale, “The Artist’s Muse,” brought in $491.35 million. It was widely viewed as having a less coherent premise than its May predecessor, which raised $705.9 million.

“On the one hand, they’re taking hits, but they’re also trying to offload the risk,” Lisa Schiff, an art adviser in New York, said of the practice of collectors or outside investors providing all or part of some guarantees. “It just can’t keep going up and up. This is the ebb and flow of the market. It’s the healthy course of any capitalist enterprise.”

Nonetheless, auction houses are still making money from bread-and-butter contemporary sales. Sotheby’s, for instance, grossed $98 million at its Nov. 12 day auction in New York. Though many owners would also be selling for free or minimal charges, guarantees are rare at this lower price level and virtually all of the buyer’s premium — a total of perhaps $20 million in this case, i.e. 20 percent — would have gone to the house.

So-called higher-margin categories, including Asian art, can yield a combined 40 percent of fees from the seller and the buyer. Unfortunately for Sotheby’s and Christie’s, the market for these categories appears to be contracting, with recent sales showing mixed results. That may reflect a simple drop in demand, but also sellers’ and buyers’ reluctance to pay 15 percent and 25 percent apiece for the privilege of using Sotheby’s or Christie’s when cheaper live and online alternatives are available.

Sotheby’s achieved a notable success on Nov. 11 in London, selling out a private European collection of classical Chinese furniture, a hot subsector of the market. The 26 lots netted a total of 11.1 million pounds, about $17 million, 10 times the presale estimate. A huanghuali wood altar table sold to a Chinese collector for £1.8 million. But another Sotheby’s auction of Chinese ceramics and artworks on the same day raised just £2.7 million, with half of the 195 lots failing to find buyers. Its equivalent auction last year brought in £8.9 million. Bonhams, which has been a force in the Asian art market in recent years, also found it hard going, with a Nov. 13 sale of Chinese art raising £2.3 million, less than half the proceeds of its similar sale a year earlier.

The latest auctions have done little to calm the market’s nerves. In Sotheby’s sale on Wednesday night of the latest Taubman tranche — 31 lots of American art — eight works failed to find buyers, and the total of $13 million still left an $82 million gap between achieved sales and the total guarantee for the collection. Martin Johnson Heade’s superb but unfashionable 1887 landscape, “The Great Florida Sunset,” which had a presale estimate of $7 million, sold for $5.85 million with fees.

It would appear that the art world, like the world at large, has some challenging times ahead.
Source: The NY Times

No comments: