Auctioneers Gone Wild? Unfair "Fair Market Value"

Sotheby's ad for fashion plates

We impecunious art-market scribes are a bearish bunch. Most of us can't afford a square inch of a van Gogh, so we may enjoy a certain charge of schadenfreude from envisioning the eventual comeuppance of those who can pay for the whole painting. As Marion Maneker recently wrote, in an astute article for Slate:

How can you tell that it's nearly auction season in the art market? When the press begins predicting an imminent crash....Everyone wants to be the first to identify the next crash.

Hey, I did it first, almost two years ago, after which, as we all now know, the market continued its unabated surge. This was tremendous prescience on my part: Eventually, I'm quite likely to be right.

Now along comes Carol Vogel, in yesterday's NY Times "Arts & Leisure" section, making some dramatic assertions about the current state of the market:

The creative business maneuvers adopted by the auction houses to land big consignments and encourage buyers speak of desperation. Sotheby's and Christie's are at the point where they are often willing to forgo profits just to win commissions [did she mean, "consignments"?] and beat out the other on sales totals. In addition to the guarantees granted to sellers, which in some cases this season are said to be even higher than the works' sales estimates, the two companies are buying works of art outright, advancing sellers money ahead of the sales and in rare cases even becoming involved in sellers' real estate transactions.

These confidential deals are so abundant that it is difficult to judge whether a strong evening sales result is a smoke screen. But if profits dry up, such face-saving strategies can't last forever.

This disturbing description of auctioneers-gone-wild is unsupported in Vogel's story by factual evidence, let alone named (or even unnamed) sources. Advances against sales and even auction-house ownership of some works are nothing new and are publicly acknowledged by the auction houses. But the suggestion that the guarantees, in some cases, exceed the presale estimates is astonishing, if true. (Guarantees are the amounts that the auctioneers, in some cases, agree to pay to consignors, even if bidding falls short.)

I'm not saying that Vogel is wrong. I'm sure that a professional of her stature would not engage in baseless conjecture. I'm just saying that a prominent journalist, alleging that a "smoke screen" may be concealing the true state of the art market, needs to provide readers with something less vaporous than her own unsubstantiated say-so.

The screen that I'm concerned about is more opaque than mere smoke: It's the lack of transparency about third-party guarantors (such as dealers or private collectors), who in some cases commit to placing an irrevocable bid to support an auction price. Their incentive, aside from supporting market levels, is a share in the auctioneer's profit if the bidding exceeds the amount of the guarantee.

We don't know which works have received bids from third-party guarantors, nor are we informed when these market-bolsterers are the winning bidders. We do know, from the published conditions of sale and from presale announcements, that guarantors bidding on certain lots may be "interested parties," who may (according to Sotheby's, but not Christie's "conditions of sale") have knowledge of the "confidential" reserve (the seller's minimum price). What we don't know about these third parties is specifically who they are (i.e., the artist's dealer or the representative of the artist's estate); whether they are indeed bidding; whether they do (unlike most bidders) know the level of the reserve (below which the object won't sell); whether they are the winning bidders.

With all these confidential side deals going on, with auction houses' possessing direct financial interests in certain works and in certain private galleries, and with sellers sometimes receiving even more than hammer price (thanks to confidential arrangements for the auction houses to hand over to some sellers an undisclosed portion of the buyers commission), we've come a long, troubling way from the traditional clearcut role of the auction house as disinterested broker between buyer and seller. The IRS used to regard auction prices as the best gauge of fair market value---the price paid by a willing buyer to a willing seller, with neither side under compulsion and both sides possessing full knowledge of the facts. But has "fair market value" now become unfair market value? A lot of boundaries have been blurred.

On a lighter note: Christie's won the product-placement wars by scoring a page-wide reproduction at the top of Vogel's article---the Bacon triptych that it will offer later this month. Sotheby's, however, took matters into its own hands by placing a full-page NY Times ad (above) yesterday for the central panel of its larger, higher-estimated Bacon triptych in the "Styles" section---more commonly associated with fashion and jewelry ads. Do the same people who crave Prada and Harry Winston want to accessorize with a harrowing depiction of "a headless body...savaged by a swirling bird of prey" (as the Sotheby's catalogue describes this panel)?

I guess the auctioneers understand their target market better than I do.