Sotheby's Auction Guarantees Rise Tenfold to $253.8 Million
21.04.2006 By Linda Sandler
Sotheby's Holdings Inc., the No. 2 auction house, said guarantees rose to $253.8 million as it promised fixed prices to art sellers for forthcoming sales. That represents a more than tenfold rise in a year of its risks of losses, according to filings.
Sotheby's, which has its main sale rooms in New York, said it added $154.1 million of guarantees since the end of 2005. The company also reduced its exposure to losses by $9.5 million through arrangements with partners. In March 2005, guarantees stood at about $22.1 million.
Auction houses often compete for collectors' business by promising them a fixed price at auctions. Sotheby's told Bloomberg News in March that it gave a guarantee for the star lot for its New York auctions in May, a Pablo Picasso painting of the artist's lover Dora Maar, valued at $50 million or more. ``Dora Maar au Chat'' is being sold by a relative of Ron Gidwitz, a Chicago businessman.
``We are closely watching the use of guarantees and rebates as measures of the level of competition,'' said analyst George Sutton of Minneapolis-based Craig-Hallum Capital Group LLC in a March 29 report.
Sotheby's, run by Chief Executive Officer William Ruprecht, is riding an art boom that in 2005 brought the company its best revenues ever. Yet its market share compared with that of London-based Christie's International, its chief rival and the No. 1 auction house, fell to 46 percent last year of their combined $5.8 billion of auction sales, the lowest share since 2000. Auction sales for the two totaled $4.9 billion in 2004.
If a picture sells for more than the guaranteed amount, the auction house keeps the extra money. If a picture doesn't sell, the house risks losing all or part of the guarantee if it can't resell the picture for enough money later.
In an interview last week, Ruprecht told Bloomberg that Sotheby's makes money from guaranteed art.
``We have historically gotten better returns on our guaranteed portfolio than on our similar non-guaranteed portfolio,'' he said. ``As the art market feels strong and pretty stable, we have looked to build opportunities where we could guarantee.''