Notwithstanding its sale last year of the most expensive work of art ever sold at auction, Sotheby’s today reported lackluster results for 2012: Net income was down a whopping 37%, ($108.29 million, compared to $171.42 million the previous year).
Total sales for the year (including private and dealer sales) were $5.4 billion (down 7%), compared to $6.27 billion at Christie’s (up 10%). Christie’s, unlike Sotheby’s, is not publicly traded and does not disclosed its net imcome, so we can’t compare profits at the two houses.
Total revenues at Sotheby’s dropped 8% to $768.49 million; auction and related revenues dropped 10% to $717.23 million. In a conference call this afternoon with security analysts, Bill Ruprecht, Sotheby’s CEO, blamed some of the decline on 2012’s shortage of important single-owner consignments at his auction firm, compared to the previous year.
Unsurprisingly, Sotheby’s followed archrival Christie’s in increasing its fee charged to buyers: At Sotheby’s, starting Mar. 15, buyers will pay 25% on the first $100,000 of the hammer price; 20% on the portion of the hammer price above $100,000 up to and including $2 million; 12% on any remaining amount above $2 million.
“For over 98% of lots sold, this change will represent an increase of 2% or less in the final purchase price and for all lots, a maximum 3.6% increase in the final purchase price,” Sotheby’s announced.
At Christies, the new rates, effective Mar. 11, are 25% on the first $75,000; 20% on the portion above $75,001 up to $1.5 million; 12% on the amount above $1.5 million.
What both houses have done is to raise the threshold at which the lower percentages kick in. But Sotheby’s has raised the threshold for reduced rates higher than it is at Christie’s, putting more of a burden on buyers. At both Sotheby’s and Christies, the 12% rate currently applies to the amount in excess of $1 million (soon to be raised to $1.5 million at Christie’s; $2 million at Sotheby’s).
Back when I started covering auctions, when only Sotheby’s, not Christie’s, was in New York, there was no fee at all charged to auction buyers in the U.S. Now much of the burden has been shifted to the hapless buyers, with sellers’ commissions sometimes negotiated down to almost zero, as an enticement to important consigners. What’s more, the buyer’s premium was originally intended to compensate the auction house for its services to buyers. But now a portion of the fee paid by buyers is sometimes handed over to the sellers.
Further muddying the waters is the reliance of auction houses on “guarantors” and “irrevocable bidders,” to whom the auction house pays a share of the upside if the price goes above the undisclosed amount of the guarantee or irrevocable bid.
What used to be a relatively straightforward and transparent process, except for the auctioneer’s “chandelier bids” up to the level of the undisclosed reserve (to which I do not object, although some dealers do) has now become a very murky marketplace. I think it’s time to get back to the time-honored parameters of “fair market value”—the price arrived at between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts,” without all the convoluted, secret side deals.
This won’t happen unless government regulators take a fresh look at whether auctions are still fair and level playing fields, with clear cut relationships among auction house, buyers and sellers, as they originally were intended to be.