When is an “auction record” not really an auction record?
That’s a question that may be raised regarding a wobbly Twombly benchmark set at Sotheby’s last November. In her Bloomberg report on that auction house’s $242.19-million evening Contemporary sale last week, Katya Kazakina unpacked the back story for this untitled Christopher Wool, for which the bidding inched up to $12.2 million, against a presale estimate of $14-18 million. (Final price for the Wool, with buyer’s premium: $13.9 million.)
Here’s Katya’s jaw-dropper:
“Chameleon” was one of four lots at Sotheby’s consigned by Daniel Sundheim, the chief investment officer at Viking Global Investors. They were part of a swap to pay for a $70.5 million Cy Twombly painting that he bought in November.
Sotheby’s offered Sundheim a guarantee for seven swapped works (three of which went up for sale in London in February). Sotheby’s outsourced some of the risk on Wednesday by locking in bidders for the four works.
I sent a list of questions to Sotheby’s about this unorthodox payment arrangement. Specifically, I asked if there were any inaccuracies in the Bloomberg passage quoted above.
Through its press spokesperson, Sotheby’s twice answered: “We have no comment.”
But in her report of a month ago—Why Auction Houses are Giving Away Millions—Katya explained how the Twombly “record” was engineered:
The star of the evening, Twombly’s “Untitled,” was vulnerable because it didn’t have a bidder lined up. So Sotheby’s cut a deal with Sundheim, …a trustee of the Museum of Modern Art. According to people familiar with the deal and a financial filing with New York State, the house let the collector largely pay for the Twombly with a pledge to consign seven other works with a combined estimated value of $50 million to $75 million. Sandy Heller, a prominent art adviser, was still negotiating for Sundheim as the auction began.
Sotheby’s guaranteed Sundheim minimum prices for the art—a move that leaves the house on the hook if prices fall short. Four of Sundheim’s pieces, among them a Warhol and a Basquiat, are going up for auction in May [as happened last week].
The Twombly not only set a record for the artist, but was also “the top lot sold at Sotheby’s worldwide in 2015,” according to the auction house’s press release.
Here’s that Twombly, as installed in Sotheby’s presale exhibition last November:
Bidding on this blackboard painting had stalled at $62.75 million, against a hammer-price estimate “in excess of $60 million.” My tweeted comment then was:
$70.5m with buyer’s fees makes the Twombly a new auction record for the artist. No fireworks, but gets the job done.
— Lee Rosenbaum (@CultureGrrl) November 12, 2015
This “record” gives me traumatic flashbacks to two other famous “records” that weren’t as bullish as they at first seemed:
–Australian financier Alan Bond set an auction record for any painting with his controversial $53.9-million purchase in 1987 of van Gogh‘s “Irises.” It later came to light that Sotheby’s itself had loaned Bond about half of the purchase price, with “Irises” as collateral. That painting is now securely ensconced at the Getty Museum.
—Art dealer Shigeki Kameyama of the Mountain Tortoise Company, Tokyo, set an auction record for any work of contemporary art in 1989 when he bought de Kooning‘s “Interchange” at Sotheby’s for $20.7 million. Unable to pay that amount, he ultimately consigned other works to Sotheby’s to defray the debt. That de Kooning was recently purchased from David Geffen by hedge-fund mogul Kenneth Griffin, who loaned it to the Art Institute of Chicago.
We don’t know if the unorthodox arrangement with Sundheim was a one-off, or part of a new Sotheby’s strategy for bolstering bidding. Time (and Katya) may tell.
What we do know is that the Wool selling last week for $13.9 million, reportedly as part of the Sundheim “swap,” was purchased by this season’s binge-bidder, Yusaku Maezawa, the 40-year-old founder of a Japanese fashion website. It was one of six lots in that sale for which Sotheby’s secured an irrevocable bid after the catalogue was printed. (Those IBs were announced at the sale.)
In her October 1989 NY Times article about Alan Bond’s iris crisis, Rita Reif noted that the van Gogh’s so-called “record” price had “fueled an atmosphere of euphoria in the art market. The price became the benchmark most often cited as proof that art was a commodity that had weathered the economic crisis.” Similarly, last November’s Twombly “record” set a benchmark for that artist and may have propped up shaky confidence in art’s touted attractiveness as an “asset class.”
At a time when auction houses say they are offering fewer guarantees to consignors, an art swap in lieu of cash payment may be another way of boosting prices—one that, unlike guarantees or irrevocable bids, is not publicly disclosed in the sales catalogue.
As I’ve repeatedly written (most recently here), all the convoluted side deals that pump up prices make today’s auctions a far cry from the classic IRS definition of “fair market value”—“the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act and both having reasonable knowledge of the relevant facts [emphasis added].”
How many participants in today’s pre-engineered auctions actually have “reasonable knowledge” of the complex machinations underlying these sales, so that they possess the “relevant facts” in weighing how much they should bid? And how can they be confident that auctions provide a level playing field for buyers, when a potential bidder may have cut a secret non-cash deal with the auction house to facilitate his purchase?