Another Sotheby's/Christie's Windfall: Unredeemed Auction Settlement Coupons

A. Alfred Taubman, Sotheby's former chairman, out of jail and back (as a client) at the auction house last night

Last night was a watershed for Sotheby's, not just because of its many records broken by its Contemporary sale, but also because it was the last day for redemption of the antitrust settlement coupons (issued to compensate clients who were hurt by illegal collusion between Sotheby's and Christie's in setting commission rates). If you still have those pieces of paper, shred them or frame them as souvenirs: As of today, they're worthless.

I don't know how Christie's carried those coupons on its balance sheet, but since Sotheby's is publicly traded, we do know, from its SEC filings, that as of Mar. 31, some $41.8 million of those coupons were unredeemed of the original $125 million, with each auction house then having potential liability for half of those amounts. Sotheby's reflected its $20.9 million share of those unredeemed certificates as a liability on its balance sheet. That means that it should be reporting a one-time windfall equal to the final unredeemed amount in the next quarter. A total of $125 million in coupons was originally issued as part of the antitrust settlement.

A. Alfred Taubman (above), Sotheby's former chairman, who was jailed for his involvement in the commission-fixing conspiracy, was back in good form this month at his old haunts, chatting up other attendees and buying two works at the Christie's Impressionist/modern sale, as he told me when I ran into him before Sotheby's Contemporary sale. He had no clue that this was a landmark day in the antitrust annals. "I wasn't even involved in the operations of the company when I was there," he assured me---the same stance that he (unsuccessfully) took at his criminal trial.

A few other interesting revelations, quoted from the latest Sotheby's Form 10Q:

As of March 31, 2008, the Company had outstanding auction guarantees totaling $301.4 million, the property relating to which had a mid-estimate sales price of $313.8 million. The Company's financial exposure under these auction guarantees is reduced by $41.9 million as a result of risk sharing arrangements with unaffiliated partners. The property related to such auction guarantees is being offered primarily at auctions in May and June 2008. As of March 31, 2008, $88.9 million of the guaranteed amount had been advanced by the Company....

As of May 8, 2008, the Company had outstanding auction guarantees totaling $232.5 million, the property relating to which had a mid-estimate sales price of $239.9 million. The Company's financial exposure under these auction guarantees is reduced by $42.6 million as a result of arrangements with unaffiliated third parties. The property related to such auction guarantees is being offered primarily at auctions in May and June 2008, with the remainder of the property to be offered at auctions in the second half of 2008. As of May 8, 2008, $84.4 million of the guaranteed amount had been advanced by the Company and will be recorded within notes receivable and consignor advances....

At March 31, 2008, consignor advances issued to the one borrower totaling $62.6 million comprised approximately 22% of the net Notes Receivable and Consignor Advances balance. Of this amount, $57.5 million is related to an auction guarantee.

Sotheby's would provide me with no further details about the megamillion loan to one borrower, nor would Bill Ruprecht, its president and CEO, disclose to me the final figure for the amount of the auction settlement coupons that were unredeemed as of today.
Sotheby's stock has perked up a bit since my report last Friday. It was trading at $28.58 as of 12:15 a.m., up 7.04% from yesterday's close.