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Taubman’s Revenge? Sotheby’s Gavel-Busting $515-Million Guarantee

My misgivings about how Sotheby’s success in winning the A. Alfred Taubman consignment might backfire, which I voiced early last month in an interview with a British reporter, now appear to be on the money.

At the end of his Oct. 10 London Times article—Sotheby’s Gambles on $500m Art Sale (paywalled)—investigative reporter Alexi Mostrous gave me the last word:

The art journalist Lee Rosenbaum said Taubman had always thought it unfair that he was “the only one who went to jail in the [Sotheby’s/Christie’s price-fixing] scandal….So if the sales don’t go well, you could say, in a strange way, it’s Taubman’s revenge.”

Today you could also say: The handwriting is on the wall.

Sotheby's exterior transformed with artists' names and images from the Taubman sales Photo by Lee Rosenbaum

Sotheby’s exterior, adorned with artists’ names and images from the Taubman sales
Photo by Lee Rosenbaum

In response to a question by Taposh Bari of Goldman, Sachs, during Monday’s conference call with stock analysts, Patrick McClymont, Sotheby’s CFO (who had been a partner and managing director at Goldman, Sachs), admitted that any prediction about whether the Taubman sales would yield a profit for Sotheby’s is “premature” and “depends on what happens with the upcoming sales and also ongoing progress we make in selling [unsold] objects out of inventory.” Some 17 works failed to sell in last week’s Masterworks and Modern and Contemporary art sales, and many others sold below estimate.

Sotheby’s has a tough mountain to climb because the deal it struck with the Taubman heirs is unheard-of in terms of its magnitude—a gargantuan guarantee to the consignors of $515 million, entirely assumed by Sotheby’s, coupled with the astonishing willingness of the auction house to forego commissions: Comments made during the conference call indicated that Sotheby’s charged no commission to the sellers and will also fork over to them the full amount of the buyer’s premium, unless and until the $515-million promised payout is achieved. (The Taubman Estate’s beneficiaries include Alfred’s son Robert, a member of Sotheby’s board, who recused himself from the board’s consideration and approval of the consignment deal.)

Works sold thus far from the Taubman auctions have brought a total of about $420 million. McClymont on Monday said that the low estimates plus buyer’s premium on works yet to be sold from the collection (American art and old masters) total about $60 million. The balance of what’s owed to the heirs under the $515-million guarantee would come from “property we bought in [i.e., unsold works] and mark back to market and include in our balance sheet [with an eye to future sales]….In the aggregate, we believe those will be sufficient to cover our guarantee” [emphasis added].

This falls far short of saying that these sales will be “good for our shareholders,” as Tad Smith, Sotheby’s neophyte CEO, has repeatedly stated. What brings joy to the hearts of shareholders are impressive profits, not impressive consignments.

Sotheby’s share price has been tanking on Smith’s watch:

SothShare

A number of commentators have made the point expressed by Eileen Kinsella in her recent Artnet post on the Taubman guarantee: “A number of sources,” she wrote, have opined that “Sotheby’s could not have risked losing the collection to arch-rival Christie’s since—from a business standpoint—it would have been unacceptable, not to mention impossible to explain why heirs of the former chairman of Sotheby’s [emphasis added] opted to sell his collection through its biggest competitor.”

Change that italicized phrase to: “heirs of the former disgraced chairman of Sotheby’s,” and a decision to pass up the chance for this mega-consignment (with its concomitant challenges to profitability) could have been quite easy to explain. Why would Sotheby’s feel impelled to promote the collection of the man who oversaw (and went to jail for) its darkest chapter—the Sotheby’s/Christie’s price-fixing scandal—on terms excessively generous to his heirs?

It’s hard to believe that such a deal would have been struck by Smith’s predecessor, Bill Ruprecht, who devoted the early part of his tenure to restoring Sotheby’s tarnished reputation after the debacle on Taubman’s watch. (Even Taubman, in his memoir, credited Ruprecht with doing “a terrific job guiding the company back to strength and profitability.”)

It’s a pity that the Detroit Institute of Arts, which so heroically protected the integrity of its permanent collection, has suffered collateral damage from the Taubman sell-off. I was saddened to see five old masters that had been on loan from Taubman to the DIA being ogled on Sotheby’s walls. They’re due to hit the auction block on Jan. 27.

Below are four of them.

Here’s the fifth, displayed in another gallery:

Guercino, "The Penitent Magdalene," est. $500,000-700,000 Photo by Lee Rosenbaum

Guercino, “The Penitent Magdalene,” est. $500,000-700,000
Photo by Lee Rosenbaum

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