Sotheby’s Addresses Concerns Over Guarantees While Reporting Bullish 2007 Results

In prepared remarks for quarterly conference calls with stock analysts, Sotheby’s usually closely tracks the language of its earnings press release and then fields questions.
But today, while discussing the 2007 totals, which it called “the best financial results…in its 264-year history,” Sotheby’s digressed from its earnings press release to tackle the elephant in the auction room—the guaranteed prices that auction houses offer to some consignors, which can become risky in a softening market:
Bill Sheridan, the company’s chief financial officer, stated that Sotheby’s had sustained $19.1 million in losses on guaranteed property sold in 2007, which were “more than offset” by the $77 million in total auction commission revenues from guaranteed works. “As a result, we earned $58 million in revenues from our guaranteed portfolio,” he declared of the 2007 results.
Bill Ruprecht, Sotheby’s president and CEO added that he did not believe this year would see “the same kind of acceleration in guarantees as there was over the last couple of years.” The total value of current guarantees, he said, is $149 million (compared to guarantees totaling $458.5 million on Sept. 30, before the big fall sales in New York).
The officials revealed that the auction house is still trying to sell guaranteed property for which bidding fell short at the lackluster November Impressionist/Modern sale.
And now for some bullish news:
Sotheby’s today reported net income for 2007 totaling $213.1 million, about double last year’s $107 million. Total revenues were $917.7 million—38% more than the previous year—largely because of higher auction-commission revenues. Total auction sales (including buyer’s premium) for 2007 were $5.39 billion, compared to $3.75 billion in 2006. Private sales those two years totaled $730 million and $327.88 million, respectively.
Ruprecht indicated that the big art-market players are those with commodity-based wealth (i.e., oil). Contrary to speculation in the media, hedge fund moguls, he said, “never dominated our business. They are a visible but small component of the demand side.”
According to Sotheby’s press release:
For the first time, contemporary art became Sotheby’s largest category with auction sales of $1.34 billion, an increase of 107% from the prior year. Sales of Impressionist and modern art rose by 24% to $1.16 billion. Emerging markets performed strongly as well. Russian paintings and works of art brought $190.9 million, a 25% increase from the prior year. Sales in Asia totaled $400.7 million, a 41% increase from the prior year and worldwide sales of contemporary Asian art brought $140 million, 99% above the prior year.
Ruprecht also remarked that tomorrow’s big evening contemporary sale in London will be an important market indicator.