Misfortunes at Artprice Continue, Christie’s Legal Case Creates Important Precedent for the Global Market for Art Price Data

February 17, 2010

While all the buzz in the art market is about the unexpectedly swift recovery of art prices, the market for the art stocks tracked by Skate’s Art Stocks Index does not reflect this excitement. Closing at 120.5 last year, the Skate’s Art Stocks Index stood at 121.7 as of February 15, with Sotheby’s happy share price performance overshadowed by a decline among the other constituent stocks. Perhaps the biggest worry today is the segment for publicly-traded art market information providers.

Skate’s published an in-depth report on artnet back in November. We expressed even greater concern when Artfact completed a private equity round in December (now called Auction Holdings) stepping up competition for the online art auction marketplace business with artnet.

Our focus this month is Artprice. The firm has suffered a double blow — poor financial performance in 2009 coupled with a massive and litigious dispute with the auction industry heavyweight Christie’s. Artprice now visibly underperforms Skate’s Art Stocks Index, closing at USD 11.19, which is down 15% from last year’s closing price of USD 13.16 per share (Artprice is traded in euros but here we use converted dollar values to offer a comparison to Skate’s Art Stocks Index, which is based on USD share price values). This price, however, stands well above the EUR 6 per share recorded in early October, before the Artprice share price unexpectedly and in a few short weeks more than doubled in value over thin volume. This week Artprice tested the EUR 8 price support level and we anticipate Artprice shares diving below that level and migrating quickly toward EUR 7 or even less as markets digest firm’s financial disclosure and weigh its chances of successfully thwarting Christie’s lawsuit.

2009 Financial Results

Artprice is traditionally very laconic with its financial disclosure — here it is in full.

The headline number for this disclosure would be a 15.4% drop in annual sales to just EUR 4.86 million. It seems as though Artprice managed to slow the rate of decline to a mere 2.8% drop in sales in the fourth quarter of 2009. The firm is telling us that its January 2010 sales were up by 15.3% over the same period of 2009 but we will see if this trend reversal continues when Artprice releases its Q1 financial results in May of this year. In any event, with these numbers Artprice is roughly half the size of its major rival, artnet, in terms of revenue. In terms of market capitalization, its value continues to be double that of artnet’s. Hence, we expect a further significant negative correction for Artprice share price in immediate future.

Christie’s Litigation

As if this downward pressure on Artprice’s shares driven by poor financial performance were not enough, Christie’s is contributing further to the company’s woes. On February 9, Artprice announced that it had become engaged in a major legal battle with Christie’s over its wholesale reproduction of the auction house’s catalogues.

According to Artprice’s press release – aptly termed “long and convoluted” by The Art Market Monitor – “Christie’s has decided – 48 hours before the closure of the trial court’s (first instance) pre-hearing preliminary proceedings (February 2010) and nearly two years after the beginning of the case which has not been subject to a court-ordered appraisal – to raise its claim from 2 million euros to 63 millions euros without any shadow of a new or serious increase in motive.”

EUR 63 million is a lot of money, especially considering that Artprice’s total revenues in 2009 were just under EUR 4.9 million. The company’s total market capitalization as of February 15, 2010 was just over EUR 50 million and falling. Suffice it to say, Artprice is quite likely finished as stand alone operation if Christie’s succeeds in obtaining a judgment for the full amount.

Though the wild numbers above and the long-winded nature of Thierry Ehrmann’s commentary make for the flashiest news, the truly interesting part comes near the bottom of Artprice’s statement, which we quote at length:

As a result of the global economic and financial crisis, nearly all the auction companies around the world are moving closer to Artprice (which has been working in close collaboration with them since 1987) in order to organise their auctions online as soon as the Directive is adopted, thanks to Artprice’s standardised marketplace and its 1.3 million members. Artprice owns the largest “Fine Art” client portfolio in the world. For the art market, these client behaviour databases constitute the basis for the success of catalogued auction sales.

Christie’s and its owners Francois Pinault and Artemis have understood that the Services Directive will allow the 3,600 auction houses and 7,400 valuers around the world to access Artprice’s 1.3 million clients through its standardised marketplace protected by sui generis law at an infinitely smaller cost than the current premium rates (36% to 37.5% – source: CVV). The old lady from the Victorian era should wake up to the internet revolution rather than seeking to engage in bogus conflicts.

What Artprice is essentially arguing is that Christie’s, through its lawsuit, is attempting to hinder the movement of the world’s minor auction houses to online auction platforms such as those being developed by Artprice and other companies – in effect stifling competition, or, as the press release’s title accuses, making “another vain attempt to take control of Artprice at a lower price.”

Without commenting on the merits of Christie’s lawsuit or the accusations made by Artprice regarding the auction house’s motives, Skate’s would like to note that given the rapid change in mood among investors following the publication of Artprice’s less-than-stellar 9M financial statement in November 2009, the current legal standoff will serve as yet another trouble for a company that has been struggling for quite some time with the more fundamental business of turning a profit for its shareholders. While the old lady from the Victorian era should perhaps wake up to the challenges posed by online trading, the self-proclaimed leader of the art price database business ought to consider waking up to the response of investors to the realities of its bottom line (Artprice, by the way, does not disclose its profits (losses) and does not publish its balance sheet).

Skate’s also notes that Christie’s litigation creates an important legal precedent that is creating a threat to existence of Artprice major rival artnet and smaller competitors like Artinfo, MutualArt, Artinvestment.ru and Artron.net.

N.B. For more on the recent lawsuit Artprice has filed against Christie’s see Artprice’s press release (in French) and the corresponding story at Bloomberg.com.


Addendum – February 5, 2010

February 5, 2010

Yesterday, when we published our latest issue of Skate’s Market Notes, we stated that a variety of exchange rates led to mixed reporting on the final sales price of Giacometti’s Walking Man I. These variations have resulted in confusion on whether Giacometti has topped Picasso as the artist with the most expensive work of art ever sold at auction.

In its press release, Sotheby’s states that it “uses HSBC Bank Mid-Market Exchange Rate against Sterling which for today was 1 GBP = 1.6050 USD.” Under this rate, the total sales price for Walking Man I was USD 104,327,006 – clearly ahead of the 2004 sale of Pablo Picasso’s Garçon à la pipe.

Yesterday, we speculated that the mixed reporting could have been a case of journalists inadvertently transposing the digits from Bloomberg’s early report (USD 103.4 million). The Sotheby’s statement makes clear that this was not the case. Given the lack of precedent for using the HSBC Bank Mid-Market Exchange Rate for auction prices at Sotheby’s or elsewhere, we will continue to use the average Interbank exchange rates for this sale and non-USD sales in the future. Just as Bloomberg remained consistent with its figure of USD 103.4 million in a follow-up article, so too will we remain consistent with our figure of USD 103,689,994.

We will refrain from any additional speculation, although one can only wonder whether the unnamed buyer aimed for a pound sterling price just high enough to make headlines proclaiming broken records. If so, he or she certainly achieved the desired effect.


Giacometti vs Picasso and the Art Market in 2010

February 4, 2010

If not by tomorrow, then certainly by next week, Sotheby’s phenomenal sale of Alberto Giacometti’s Walking Man I (L’homme qui marche I) in London yesterday will be something of a distant memory. Such is the nature of hype surrounding big-ticket art purchases like this one. The reporters will quickly take their readers to more exciting events. Sotheby’s will enjoy its hefty commission – over USD 11 million from Walking Man I alone – and still higher share prices (down over 6% today but still up nearly 400% from March 2009 lows). The still unnamed buyer will get to enjoy this most iconic of Giacometti’s sculptures. And we, the analysts, will be left to determine what effects, if any, this sale will have on the greater market. What does $104 million (give or take a little) really mean in the greater scheme of art market dynamics?

To start, we need to decide, once and for all, whether Walking Man I was the most expensive work of art ever sold at auction.

According to the average Interbank GBP-USD exchange rate for yesterday – USD 1.5952 / GBP 1 – Walking Man I sold for USD 103,689,994. Although it wasn’t as low as Bloomberg’s reported figure of USD 103.4 million, it’s not the widely reported and record-breaking USD 104.3 million either.

Given the speed with which journalists do their work, we can’t help but wonder whether in the excitement of the moment a few digits in Bloomberg’s figure were simply transposed. Bloomberg’s figure of USD 103.4 million is very much in line with what the pound sterling could have been trading at the very moment the hammer fell at Sotheby’s; the widely-reported figure of USD 104.3 million falls well above the entire Interbank range for February 3.

And so, in our view, Pablo Picasso still occupies the #1 spot with Garçon à la pipe in Skate’s Top 1000, our ranking of the most expensive works of art ever sold at auction.

But does it really matter?

No, it doesn’t. What matters is what the Giacometti sale means for the state of the art market this year. Walking Man I clearly sets the tone for the spring auction season and, barring another financial crisis, for all of 2010. The sale will surely bring many collectors and investors back to the market; it will also enable auction houses and dealers to convince owners to sell on the wave of increasing prices. In other words, we expect greater volume moving forward this spring. In this sense, Walking Man I could have sold for double Sotheby’s estimate – USD 57 million – and the market implications would have been the same.

Although traditional assets have recovered well from their 2009 lows, possible stagnation in those markets will likely mean that investors will continue to channel capital into alternative assets like art. Impressionist and Modern art has done exceeding well over the past year, as collectors view these works as solid investments, if not from a return standpoint, than at least from a liquidity standpoint. Giacometti is a particularly safe bet in this respect. In Skate’s Top 1000, there are five Giacometti works that have positive average annualized rates of return (ERR), ranging from 6.5-16.55%, a phenomenal statistic for such a highly valued artist.

Alas, even a proven master like Giacometti has his market limits. The buyer of Walking Man I must surely be aware that the chances of making a profit on this particular investment are slim to none. Recouping anywhere near the purchase price will actually prove a great feat. And here it might be worth quoting Skate’s Art Investment Handbook on the irrationality behind yesterday’s purchase:

“…if historical performance is any guide, any purchase of an artwork for more than $10 million virtually guarantees a negative return. This means that spending more than $50 million for a work of art is simply trading cash for art without any consideration of the financial implications. This might be considered as irrational premium par excellence – the joy of ownership at any cost.”


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