Sotheby’s Contemporary Success and More on Guarantees

Francis Bacon, “Study of a Nude with Figure in a Mirror,” 1969
Sotheby’s had a lot riding on today’s London evening sale of contemporary art, which its president and CEO, Bill Ruprecht, said yesterday would be an important art-market indicator.
I don’t yet have all the official press-released information, but it seems clear that the “indicator” is upbeat. Estimated to fetch a total hammer price “in excess of” $144 million, the sale brought (WITH buyer’s premium) $189.42 million. Here are the online results (in British pounds).
Top lot, as expected, was Bacon‘s “Study of Nude with Figure in a Mirror” (above), $39.78 million (with buyer’s premium) against an estimate “in excess” of $36 million (hammer price). A number of contemporary Chinese artworks were unsold. We’ll know more about that market after this sale.
Meanwhile, the company’s 10-K Annual Report to the SEC, always a riveting read, went online today. Among its implications: You auction sellers who were issued coupons, now redeemable for cash, in connection with Sotheby’s and Christie’s 2001 antitrust settlement, had better stop procrastinating. Some $45.4 million in coupons ($22.7 million at each auction house) are still outstanding, and they will become worthless pieces of paper on May 15. Some of you did take action, however, after my above-linked Wall Street Journal appeared. When I wrote about the coupons last May, about $92-million worth had not been redeemed.
Here‘s more detailed information about what to do with those pieces of paper if you find them. If you don’t cash them in, the auction houses get a windfall: Sotheby’s reported that its $22.7 million in unredeemed coupons was “reflected as a current liability in the Consolidated Balance Sheets.” Anything unredeemed by the deadline will result in a “reversal of any remaining liability.”
There’s also a lot more detail in the 10-K about the nature and size of the auction house’s guarantees to consignors. (If prices exceed the guarantee, the auction house and any third-party guarantors get a large percentage of the upside; if guaranteed amount is not reached, the auction house and any third-party guarantors pay the guaranteed amount to the consignor and may take possession of the work.)
The 10-K reveals how guarantees have escalated over the past three years:
For the years ended December 31, 2007, 2006 and 2005, the total amount of auction guarantees issued by the Company, net of the impact of risk sharing arrangements with partners, was approximately $902 million, $450 million and $131 million, respectively….
As of December 31, 2007, the Company had outstanding auction guarantees totaling $190.4 million, the property relating to which had a mid-estimate sales price of $204.5 million. The Company’s financial exposure under these auction guarantees is reduced by $41 million as a result of risk sharing arrangements with unaffiliated partners. Substantially all of the property related to such auction guarantees is being offered at auctions in February and May of 2008….
As of February 19, 2008, the Company had outstanding auction guarantees totaling $185.2 million, the property relating to which had a mid-estimate sales price of $195.5 million. The Company’s financial exposure under these auction guarantees is reduced by $36.6 million as a result of risk sharing arrangements with unaffiliated partners.