Form 8-K
Current Report
Filed Nov 14, 2008
As I previously reported, Sotheby’s announced on Nov. 7 that it was predicting a loss of about $17 million on its contemporary art sales this month.
Now that the sales are over, Sotheby’s has reported that the actual loss on contemporary art guarantees was much worse:
On the Form 8-K that it filed with the Securities and Exchange Commission on Friday, the auction house revealed that the $17.6 million in predicted losses (related to guaranteed property scheduled in the Nov. 11 and 12 contemporary sales), which it had recognized in its financial report for the third quarter of 2008 (ended Sept. 30), were underestimated by about $10.6 million. The actual loss on guarantees in these contemporary sales totaled a whopping $28.2 million.
The 8-K also revealed:
As a result of certain guaranteed property that failed to sell in these Contemporary Art auctions, the Company will own inventory currently valued at approximately $16 million, which had original presale low and high estimates of $24.1 million and $32.7 million, respectively.
As of Nov. 14, 2008, subsequent to the Contemporary Art sales discussed above, the Company has outstanding auction guarantees totaling $13.5 million, the property relating to which has pre-sale low and high estimates of $14.7 million and $19.4 million, respectively. The property related to such auction guarantees is being offered at auctions in December 2008 and the first half of 2009.
In light of the current uncertainty in the global economy and volatility in the financial markets, the Company expects to continue to substantially reduce its use of auction guarantees until stability is restored in the global economy and financial markets.
A year and a half ago, CultureGrrl said this about a possible day of reckoning, such as the one we have just experienced:
If the market heads south, the bull market-driven presale estimates and the financial risks of loans and guarantees suddenly become very dangerous. We’ve seen this happen before. It’s always tempting to believe that the good times will roll forever. That belief has always proven wrong.
The auction-house experts had better have their ears to the ground and their hands ready to pull the emergency brake.
They didn’t do it in time. Hence, the train wreck. Since Christie’s is not a publicly traded company and doesn’t have Sotheby’s financial reporting requirements, we don’t know whether its experience with guarantees this month was similarly unfavorable. What we do know is that contemporary art prices tanked at Christie’s, as they did at Sotheby’s, with some guaranteed works selling below estimate or not at all.