Sotheby’s Under the Hammer for $3.7 Billion

I’m finally back to scribbling after a very pleasant sojourn in Spain – hope you appreciated the updated archival posts, gentle reader – and the big art world news at the moment is the announcement that the venerable auction house Sotheby’s is being sold to French telecom billionaire Patrick Drahi for $3.7 billion. [Full Disclosure: I earned my Master’s in Art Business at Sotheby’s Institute of Art in London.] The deal has, understandably, tossed the art press into a maelstrom of chatter about what the purchase will mean both for the venerable auction house and for the future of the art market. Before we get into some of those opinions however, let’s try to get a grasp on some of the factors at play in this deal.

Founded in 1744, more than a decade before its arch-rival Christie’s, at the outset Sotheby’s was primarily involved in the rare books market. It was only later in the 19th century that it began to turn its attention to the buying and selling of paintings and sculpture, making the art trade the primary focus of its business from about World War I onwards. Those of my readers who are interested in corporate history – and Sotheby’s has quite an interesting one – would do well to pick up a copy of British historian Robert Lacey’s excellent “Sotheby’s: Bidding for Class” (1998) which, although missing the scandals and turmoil that hit the auction house beginning the year after the publication of Lacey’s book, remains the definitive biography of the company, warts and all.

Although still often thought of as a British firm, Sotheby’s has in fact been an American company since the early 1980’s, with its headquarters on the Upper East Side of Manhattan, and some years later incorporating in Delaware. Beginning in the late 1980’s, Sotheby’s became a publicly-traded company listed on the New York Stock Exchange. With the purchase by Mr. Drahi and approval by the board of his plan to take the company private again, that will be coming to an end by the close of the 4th quarter.

Like Christie’s, Sotheby’s will now be controlled by a French corporate entity, but there are no plans to shift operations from the U.S. to France. In a letter released to the press, Mr. Drahi indicated that he is satisfied with things as they are. “As the future owner,” he notes, “I have full confidence in Sotheby’s management, and hence do not anticipate any change to the Company’s strategy. Management and their exceptional teams and talent around the world will continue to operate with my full support. This investment will further demonstrate the anchoring of my family in the United States, a country where we have been very welcomed since the successful acquisitions of [several U.S. telecom/media companies.]”

In purely financial terms, the sale of Sotheby’s is not a major event. As a luxury product, art is not a basic component of the economy in the way that petroleum, natural gas, or commodities such as meats and grains are. In 2017, Christie’s sold $6.6 billion worth of art, while Sotheby’s sold $6.4 billion. Meanwhile, in 2017 sales of U.S. beef cattle exports totaled nearly $7.3 billion. Even if we put the art market into a secondary category of non-staples, it’s dwarfed by the size of markets for consumer products: in 2017, for example, over $15.8 billion of athletic footwear was sold in the U.S. alone.

That being said, for the simple reason that art *is* a luxury good, the art market is always going to attract more media attention than the market for pork bellies or auto parts. This is partly due to Sotheby’s itself, which spearheaded the movement to turn the often hushed and discreet practice of buying and selling art at auction into an international media event. As Art Daily points out, “[a] key turning point was the 1958 sale of the Goldschmidt collection in London, a black-tie celebrity event attended by such luminaries as Kirk Douglas, Anthony Quinn, W. Somerset Maugham and Dame Margot Fonteyn. As the first auction house to become a truly international enterprise, Sotheby’s was organizing sales in Hong Kong by 1973, Russia in 1988 and India in 1992.”

As I often explain when asked about the buying and selling of works of art, it’s important to understand that, from a market share perspective, Sotheby’s and Christie’s are the Coke and Pepsi of the art world. They far outstrip, in terms of sales volume and value, any other auction houses or dealers. And their decisions regarding what art they want to sell, and how much they want to sell it for, have far-reaching consequences.

Getting private collectors with deep pockets interested in acquiring the works of particular artists can inflate the prices achieved in the sale of those artists’ works not only at auction, but also at the dealer or private sale level. Naturally, insurance markets have to react with respect to those changes in value, which can skyrocket or collapse within a short period of time. Objects or works of art that ten years ago could be had for practically nothing can become extremely expensive and practically unattainable, if the two big players suddenly take a shine to those pieces, while items which Sotheby’s and Christie’s sold frequently and at high prices a decade ago could now be worth half or less than what they once were if the auction houses lose interest, thereby causing these works to fall into secondary markets.

Ripples from decisions taken by Sotheby’s and Christie’s can spread even wider, as well. For example, museums may decide to accession or de-accession works for their permanent collections based on what these entities are pushing, or they may even decide to mount exhibitions as a result of the attention that certain types of art are getting from the big two auctioneers. Art fairs will often feature artists whose work falls in line with what is doing well under the hammer, while journalists and researchers will often focus on the artists who are big sellers at auction and the major collectors of their work, rather than bring to the forefront of the conversation artists who exhibit talent but little or no marketability.

In theory, taking Sotheby’s private will allow it to compete more directly with Christie’s, in ways which it cannot currently do as well as a publicly-traded company. “Despite the soaring value of the global art market over the past two decades,” explains Eileen Kinsella over on ArtNet, “auction houses have struggled with high overhead costs and shrinking margins as collectors demand ever more favorable terms and houses enter into complex financial guarantees with outside parties to offset risk. Private ownership has enabled Christie’s to take arguably riskier moves and keep more of its financial information under wraps. Sotheby’s, meanwhile, has focused much of its energy on beefing up sales in the middle market and acquiring auxiliary art-related businesses.”

Putting Sotheby’s on a more equal footing with Christie’s should increase competition and benefit the art market as a whole. “In truth, it was time the publicly quoted company went private,” notes art market expert Georgina Adam in The Art Newspaper. “It was constantly at a disadvantage compared to the world’s leading auction house, Christie’s, because of the necessity of reporting its financial results every quarter. This revealed fine details such as the level of guarantees and other information, such as the existence of defaulting buyers. Once hidden behind the veil of secrecy of a private company, Sotheby’s will be battling Christie’s on the same terms and will be freer to do advantageous deals and outbid its rivals when consigning key works without the world knowing.

On the other hand, Hyperallergic raises similar concerns to those raised by Ms. Adam, noting that Sotheby’s going private will inevitably decrease the amount of easily accessible public information concerning the company’s sales. “For art market experts,” writes Zachary Small, “Sotheby’s return to privacy is somewhat worrisome for research purposes. This marks the presumable end to a paper trail of public records, filings, and disclosures that have provided scholars with significant data points for analyzing how the industry functions.” While there will still be some amount of information made publicly available, Mr. Small is right in expressing concern that, with no other major auction house having to fully disclose its dealings, the art market will be returning to what it was for many years: a secretive world in which backroom deals are the norm, and our understanding of shifts in that market will become even more limited than they are at present.

In recent years, Sotheby’s has been playing second fiddle to Christie’s in both sales and press coverage: thanks to major events like the auction of the Da Vinci “Salvator Mundi”, Christie’s has been top dog for close to a decade now. Will that begin to change once Sotheby’s goes private? Only time will tell.

smothers

2 Comments on “Sotheby’s Under the Hammer for $3.7 Billion

  1. I understand we can’t measure art like beef or petroleum by-products, at least my head understands. But the wealth is immeasurable in my heart.

    Like

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