During today’s quarterly conference call for stock analysts, Bill Ruprecht, Sotheby’s chairman, president and CEO, gave the following explanation for the increased risk Sotheby’s has assumed through guarantees granted to certain consignors, which totaled $392.6 million as of Oct. 16. (Remarks below in brackets are mine, not his.):
Competition for the best works remains robust in this strong market. We’re certainly winning our share of these and, of course, this keeps commission margins [commission revenue divided by hammer price] under pressure.
[The commission charged to a seller can be reduced to little or nothing, in the race to win coveted consignments. Big-ticket sellers are sometimes also offered a portion of the fee that auction houses charge buyers.]
This season, our use of auction guarantees has increased, in order to secure some unique, high-value consignments. Overall, through the last nine months of this year, as well as in our October sales and last week’s Impressionist sales, auction guarantees have been meaningfully profitable [emphasis added] to the company.
We expect auction guarantees to remain a consignment-getting tool when we prudently feel it’s the right decision for the business. Going forward, the size of our guarantee book can vary significantly from season to season, depending upon the specific opportunities in the market place.
None of the analysts on the conference call questioned what had happened with the underperforming Giacometti, for which the consignor had been guaranteed an undisclosed amount. We may never know whether that transaction, which accounted for almost one-quarter of the $422.1-million total for last week’s Impressionist/Modern evening sale, was “meaningfully profitable.”
Sotheby’s reported today that its net income (profit) for the first nine months of 2014 was $44.05 million, up from $39.25 million for the same period the previous year. (Those figures are listed near the bottom of the “Condensed Consolidated Statements of Operations” at the end of this press release.)