In the midst of a flurry of publicity about how the Big Two auction houses are self-sabotaging their profitability through cutthroat competition to win top consignments, Sotheby’s today announced an attempt to bolster its profits—yet another hike in the fee it charges to buyers. If things go true to form, Christie’s will soon follow the leader.
Here are Sotheby’s new charges (with old ones in parentheses), effective Feb. 1:
Buyers will be charged 25% of first $200,000 (previously $100,000) of the hammer price; 20% of amount above $200,000 to $3 million (previously above $100,000 to $2 million); 12% of excess over $3 million (previously $2 million).
Let’s look at a specific example of how this will work: If your winning bid on an object was $10 million, you would have previously paid $11,365,000 million, including the buyer’s premium. As of next month, it will cost you $11,450,000 million.
Bill Ruprecht, Sotheby’s soon-to-depart president and CEO, issued this statement about the hike:
This will improve Sotheby’s revenue, strengthen the company’s profit margins, fund innovation, help us continue to make interesting and exciting investments in the business, and support our growing online and traditional engagement with clients around the world.
The “clients around the world” who will not feel “supported” by this fee hike are the buyers. They may well declare: “Enough is enough! It’s the sellers [who, in some cases, are charged no commission and even get a cut of the buyer’s premium] who should be footing more of the bill.”
When one of the Big Two raises the buyer’s premium, the other invariably follows suit. They once engaged in an illegal price-fixing scheme to arrive at synchronized fees; now it’s presumably just a matter of “great minds think alike.”
None of this solves the bigger problem: In order to snare choice offerings, both sides appear to be cutting dicey deals with consignors, thereby compromising the auction houses’ take (as was thought to have occurred with Sotheby’s $101-million Giacometti and with Christie’s $58.4-million Koons).
In any effort to stop this mutually destructive battle of excessive guarantees by the auction house, third-party guarantees, irrevocable bids, and even transfers of some of the buyer’s premium to the sellers of highly desirable works, collusion between the auction houses is clearly out of the question. Only government regulation can put an end to the confidential, convoluted side-deals that make a mockery of the “level-playing-field” concept of auctions and make the art-auction business seem increasingly shaky, even as the dollar volume of sales is rising.
A mere change in CEOs at both houses is unlikely to provide enough of a jolt to solve these underlying challenges. And there’s just so much that you can extract in fees charged to buyers before they start to balk.
The definitive article enumerating the reasons why the auction market is ripe for tighter regulation was Robin Pogrebin‘s and Kevin Flynn‘s 2013 piece in the NY Times—As Art Values Rise, So Do Concerns About Market Oversight.
In light of recent developments, their report should be reread and, at last, heeded.