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Sotheby’s 2012 Results: How Erroneous Financial Reports Go Viral

Ruprecht2

William Ruprecht, Sotheby’s CEO

Sotheby’s 2012 results were nothing to crow about (and CEO Bill Ruprecht didn’t, although he professed optimism for the future). But I rubbed my eyes in disbelief when I saw this over-the-top headline on the homepage of Huffington Post Arts:

THE END IS NEAR???: Sotheby’s Revenue Declines

[UPDATE: It looks like “THE END IS NEAR???” has now been deleted from the HuffPost’s headline.]

While exaggerating Sotheby’s plight in its tabloid headline, the HuffPost’s article greatly (and inaccurately) minimized the auction house’s decline in profits for the year. That’s because it relied on Katya Kazakina‘s Bloomberg piece, which quotes Ruprecht’s comments explaining the lackluster results for the entire year, but unaccountably reports the numbers for only the fourth quarter (not the full year).

[UPDATE: The HuffPost article was signed by Katherine Brooks in the mobile version, but unsigned in the desktop version.]

Katya wrote that Sotheby’s “fourth-quarter profit fell 7.6 percent as auction revenue declined and it refinanced debt. The New York-based company’s net income [for the fourth quarter, not the full year] fell to $66.1 million from $71.5 million a year earlier.”

More significantly (as reported by me yesterday, but unmentioned by Kazakina), Sotheby’s full year profits (“net income” on P. 6 of the top-linked “consolidated income statements”) fell by a whopping 37% ($108.29 million, compared to $171.42 million the previous year). The 7.6% fourth-quarter profit decline that was cited by Bloomberg and re-huffed by Huff was a mere hiccup compared to that full-year decline.

Huff compounded the confusion by erroneously referring to the fourth-quarter drop as the decline for the entire year. It stated that Sotheby’s “netted $71.5 million in a single year [really the fourth quarter] in 2011.” Ruprecht didn’t discuss these results “in a press conference,” as Huff apparently imagined. It was in his quarterly conference call with securities analysts (which I listened in on yesterday afternoon).

In her NY Times report, Carol Vogel got most of it right, except for her passage regarding Sotheby’s buyer’s premium increase. She writes that “shoppers at Sotheby’s will be charged 25 percent on the first $100,000; 20 percent from $100,000 to $1.9 million [emphasis added] and 12 percent of the rest.” It’s actually 20% on the portion of the hammer price above $100,000 up to and including $2 million (not $1.9 million).

In her Wall Street Journal report, Kelly Crow also garbles the description of the new fee structure, but the problem is more syntax than substance:

An artwork’s winning bidder will be asked to pay a fee of 25% of the work’s gavel price up to $100,000, plus an additional 20% of its price up to $2 million [actually, 20% of the amount between 100,001 and $2 million], plus 12% of anything above that.

All of which is to say that precision (especially in financial matters) counts, and that the best arts reporters are not necessarily the best business reporters. We all make mistakes, and I’m sure I’ll be called out the next time that I make one!

The most problematic aspect of Vogel’s report is likely not her fault. Probably cut for space was this passage, which appears at the end of the online version, but is missing from today’s hardcopy:

For the full year, Sotheby’s saw both its revenues and profits decline. Revenues in 2012 were $768.5 million, an 8 percent decline from the previous year; the company attributed much of that fall-off to a reduction in commissions. Net income was $108.3 million, a 37 percent decrease from 2011.

To my mind, the information about Sotheby’s serious financial travails should be the lede, not details about the new commission charges.

If you haven’t had enough of this yet, here’s Sotheby’s 133-page 10-K annual report, just filed with the SEC.

an ArtsJournal blog