Two Billion Dollars+ Worth Of Art Has Guaranteed Buyers

Two Billion Dollars+ Worth Of Art Has Guaranteed Buyers

$BID

There is more than $2.1-B of art for sale at the New York auctions in November. About 50%of it belongsto billionaire Steven A. Cohen, already has a buyer before the doors open at the auction house.

When the 2-week sales start on 4 November $1-B worth of paintings and sculptures are guaranteed to sell by Sotheby’s (NYSE:BID), Christie’s and Phillips at minimum prices regardless of what happens in the salesroom.

The companies are lining up deep-pocketed backers for the guarantees or financing them with their own money, this is a risky proposition because they can end up owning the works if there are no sales.

The Big Q: Will the guaranteed works sell and at what prices?

The amount of guarantees has surpassed the pre-recession peak as auction houses battle for trophy artworks and market share, especially in modern and postwar art, the segments that command the highest prices.

Sotheby’s is financing the biggest guarantee for a single collection in auction history: $500 million for the estate of its former chairman A. Alfred Taubman.

One analysts noted, “The stakes are extremely high. We have never seen this level of guarantees for one auction and/or a collection.”

Sotheby’s guaranteed $902-M in Y 2007 and Christie’s guaranteed $800-M in Y 2008.

The strategy of offering a minimum price to sellers to help land consignments backfired when prices plummeted during the financial crisis. Sotheby’s incurred $60.2-M in losses on guaranteed items in Y 2008, according to a SEC filing.

As the art market came back and competition heated up, guarantees again became a major tool to win top lots.

There are 267 guaranteed lots in the November sales. Sotheby’s and Christie’s each expects to sell at least $1-B of art and has about $500-M backed by guarantees. Phillips, the smallest of the 3 houses, expects to sell at least $75.3-M, of which about $42.9-M has either in-house or 3rd-party guarantees.

Guarantees have played a crucial role in the escalation of art prices, said dealers, advisers and auctioneers.

In May, Christie’s guaranteed a painting by Jean Dubuffet, which fetched $24.8-M, more than 3X the artist’s prior auction record of $7.4-M set only 6 months before. Another guaranteed lot was Pablo Picasso’s “Les Femme d’Alger (Version O)” which sold for $179.4-M, the record for any artwork at auction.

The Estate of A. Alfred Taubman who bought Sotheby’s in Y 1983 and served as its Chairman after taking the company public shopped the collection to Sotheby’s and Christie’s. The trove includes 500 lots, ranging from antiquities to contemporary art.

“It was a competitive back and forth on every single aspect of the proposal,” said William Taubman, Taubman’s son and CEO at Taubman Centers Inc., a real estate investment trust.

The record guarantee offered by Sotheby’s was an important consideration but not the only one, said Mr. Taubman, adding that the company’s marketing plan including the catalogs, events and exhibitions also played a role.

The bulk will be sold in four auctions, including two next week. The “Masterworks” evening sale will have 77 lots, with pieces by Mark Rothko and Willem de Kooning, with a total estimate of $374.8 to 526.5-M.

“The guarantee was a critical component of winning the consignment, and winning the consignment was good for our shareholders,” Tad Smith, Sotheby’s CEO, said.

Christie’s, under new CEO Patricia Barbizet, has scaled back on its guarantees for November, a reversal of the strategy pursued under former CEO Steven Murphy. Christie’s had aggressively offered guarantees to win market share from Sotheby’s in postwar and contemporary art, leading in the category for 9 consecutive seasons in New York. In May, Christie’s sold $1.7-B of art in a week.

Among Christie’s top guaranteed lots in November: Amedeo Modigliani’s Y 1917 painting of a sultry nude, estimated at more than $100-M, and Roy Lichtenstein’s Y 1964 painting, “Nurse,” estimated at $80-M. If sold at target prices, both works would set auction records for the artists.

Sotheby’s hedged its risk on four additional guaranteed lots by finding clients who agreed to provide irrevocable bids at auction.

One of these lots is Warhol’s portrait of Mao Zedong, estimated at more than $40-M, and sold by Mr. Cohen. Jonathan Gasthalter, a spokesman for Mr. Cohen at Sard Verbinnen & Co., declined to comment on the Warhol sale. Sotheby’s declined to comment.

While guarantees appeal to sellers, they can alienate buyers.

“A certain kind of collector does not even buy at auction anymore,” said a New York-based art adviser. “It reminds me of proprietary trading. No one knows how they are structuring these deals.”

Stay tuned…

HeffX-LTN

Paul Ebeling

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