Auction Houses Aim to Sell Art at Significantly Higher Prices, Supporting Auction Activity with a Higher Proportion of Guaranteed Bids

October 31, 2011

Skate’s Market Notes

On November 1, 2011 Skate’s will release its monthly report for November, which will focus on the major auctions scheduled for this week. Below is a short preview of our key findings:

  1. Four auction sessions in total (two each at Sotheby’s and Christie’s: Impressionist & Modern and Contemporary art) scheduled for this week are valued at between $822.5 million (at the low estimate of all lots) and $1,164.7 million (high estimate). The estimated mid-point value of all lots to be offered at these four auctions is $993.6 million (N.B. all values are before the buyer’s premium).
  2. Given that the number of lots in the auction catalogues is roughly the same as it was at the same time last year, the increase in value of the artworks offered, or, rather, the increase in the suggested sell price of the world’s most valuable art brought to the market by auctioneers this year, is notable. On a like-for–like basis the auction catalogues aim to sell 17.6% higher at the low end of the estimate range, 15.9% higher at the high end and 16.6% higher at the mid-point.
  3. The more generous art pricing by auction houses is also confirmed by the very rich implied effective rate of return (ERR) during repeat sales, i.e., those artworks that are returning to auction rooms after previous auction sales. Skate’s November report will profile five such repeat sales and list an additional seven artworks with estimated ERR ranges. The mid-point expected ERR on repeat sales will, if realized, significantly increase Skate’s Top 5000 average of 4.6% per annum. Certain works by Shishkin, Leger and Derain are particularly richly priced, implying double-digit annualized ERRs for their sellers.
  4. This fall, auction houses will get the best of both worlds by combining their private dealing business model with the auction house format. In working with their best clients, auctioneers have managed to significantly increase the proportion of lots with guaranteed bids in their catalogues. They have done so without significantly increasing their own financial exposure, as they have largely relied on third-party bids. In the more risky Contemporary art auctions both Sotheby’s and Christie’s will begin their sales with more than a third of the offered volume covered by guaranteed bids at the low (or lower) estimate level. This is a remarkable change in comparison to the same auctions a year earlier—Sotheby’s share of lots with guaranteed bids (calculated at the low end of estimate range) jumped from 13.1% for November 2010 auctions to 35.2% for the same auctions in 2011; for Christie’s the figure rose from 13.5% for 2010 to 37.9% in 2011.
  5. Where the two auction houses diverge is in their strategy regarding the Impressionist & Modern art catalogues: Christie’s now has 11.1% of lots covered with guaranteed bids (10.3% last year) and Sotheby’s has none (8% last year). It will be interesting to see whether this strategy will produce materially better results for Christie’s Impressionist sale this week.

To read the full report, please click here.

Citibank Initiates Coverage of Sotheby’s, Names Skate’s Among Research Partners

October 19, 2011

Skate’s is pleased to announce that Citibank, specifically the Citigroup Investment Research division, has recently launched investment coverage of Sotheby’s (NYSE:BID). This marks the first time that this leading financial institution has devoted specific coverage to Sotheby’s.

Citi’s coverage of Sotheby’s is welcome on several levels. First, it provides further acknowledgement of a reality that Skate’s has long espoused, i.e., that art and the securities of companies that provide art-related products and services afford institutional and individual investors with a viable alternative asset choice. Second, as the largest publicly-traded art industry company in the world, the high liquidity of Sotheby’s shares allows investors an excellent opportunity to invest in a leading participant in the art market without the costs and risks involved in actual art ownership.

Authored by Oliver Chen, CFA, and Kate McShane, CFA, Citi’s research on Sotheby’s—written according to top Wall Street standards—offers a refreshing and professional analysis of the auction house business model and its upside potential. Skate’s fully welcomes any research and analysis from major financial institutions focused on the art industry. Although we remain a bit more bullish about Sotheby’s, we find Citi’s analysis extremely interesting. Citi’s initiation of Sotheby’s coverage is a very healthy event for the global art industry.

Please click here to read the full article.

First October sales results: Christie’s triumphs in contemporary art; Sotheby’s dominates Italian sales

October 18, 2011

Of all the contemporary sales that took place in London during the week of the Frieze Art Fair, Christie’s results most certainly place the auction house in the leading position. The results of Christie’s evening sale on October 14, which saw a total trading volume of $59,896,712, were double those of its closest follower Sotheby’s, which brought $28,028,014 in sales. Nearly half of Christie’s lots sold above their estimate ranges, with the most impressive result of the week achieved by German artist Gerhard Richter’s Kerze (Candle). With a record-setting final price of $16.5 mln, it sold well above its pre-auction high estimate of $14 mln. The previous record for a work by Richter was set by another Kerze (Candle), which sold at Sotheby’s in 2008 for $15.7 mln.

Along with contemporary sales, the two leading auction houses also held sales of Italian art. The Italian sale turned out to be more successful for Sotheby’s, and its results even exceeded those of its contemporary evening sale. Sotheby’s Italian sale totaled $34,085,892, slightly more than the $27,652,992 that was achieved at Christie’s. It is worth noting that many lots significantly exceeded their estimates and entered Skate’s Top 5000, which currently has a threshold price of $2 mln. Of the 14 total works that entered Skate’s Top 5000 in October, six were by Italian artists.

To read the full article with data, click here.


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