When the Pink Star—a 59.60-carat, oval, internally flawless diamond—fetched $71.2 million (including buyers premium) at Sotheby’s Hong Kong on Apr. 4, it was touted by the auction house as setting a “New World Auction Record for Any Diamond or Jewel.” That amount was considerably less, however, than the aborted $83-million Sotheby’s sale of that the same gem in 2013—a transaction never consummated “because the buyer…never paid and the auction house had to reclaim the stone,” as reported by Bloomberg‘s Corinne Gretler.
Now it seems that this year’s more modest “Pink Star” record is still not a done deal: This sale, again, has yet to be consummated.
In Sotheby’s earnings call with security analysts yesterday (text of comments here), Mike Goss, the auction house’s chief financial officer, revealed that the firm’s inventory balance “still includes the entire amount of the $68 million Pink Diamond.” The auction house, he said, is waiting to “collect the money from the buyer, which we anticipate to happen within the year.” ($68 million was estimated value of the diamond when Sotheby’s, under the terms of its guarantee to the consignor, took it into its own inventory after the 2013 purchase fell through—shades of the unsold A. Alfred Taubman consignments.)
The specific time limit to “collect the money from the [April] buyer” is disclosed in Sotheby’s latest Form 10-Q quarterly report, filed yesterday with the SEC: It reveals that “the purchaser of the Pink Diamond, who is one of the largest jewelry retailers in the world [identified in the sale’s press release as Chow Tai Fook], is legally obligated to pay the purchase price by no later than Apr. 4, 2018 [emphasis added].” The previous quarter’s 10-Q, dated May 10, did not mention the possibility of a year-long payment delay.
Before an auction, purchasers sometimes arrange for “extended payment plans,” as described in the catalogue’s “Conditions of Sale.” When contacted by me, Sotheby’s would not say whether delayed payment had been prearranged for Pink Star. Also involved in this transaction was Sotheby’s $34.2-million sale of an “undivided legal and beneficial 50% ownership interest in the Pink Diamond,” which occurred during the second quarter of 2016, as reported in the latest 10-Q.
The press release issued after the Apr. 4 auction identified the New York-based diamond firm that had partnered with Sotheby’s on the diamond’s sale:
Mellen Inc., Sotheby’s partner in the Pink Star, said, “Mellen is privileged to have had the opportunity to partner with Sotheby’s in auctioning the Pink Star and congratulates its new owner on purchasing one of Earth’s most magnificent natural treasures. We are grateful to Sotheby’s for their stewardship as we continue our tradition of providing extraordinary gems to the world’s most distinguished clientele.”
According to a Rapaport News report, Sotheby’s had also secured a second partner for the diamond—Diacore, the Johannesburg-based diamond manufacturer that had “purchased the original 132.50-carat rough and took two years to cut and polish it.”
Directly after the April sale, the gem was renamed the “CTF Pink Star,” in honor of the late father of the founder and chairman of Chow Tai Fook, whose current chairman, Henry Cheng Kar-Shun, placed the winning telephone bid, according to Sotheby’s.
An image of the diamond is the second of those featured, at this writing, on the Collection webpage of Mellen, where it is called simply “The Pink Star” (omitting the CTF designation). Maybe you need to actually pay for something before getting the naming rights:
Chow Tai Fook’s purchase may proceed as anticipated. But if and when that happens, the $71.2-million sale won’t yield a big payday for Sotheby’s. According to the latest 10-Q:
When payment is collected and the related revenue is recognized in our financial statements, the sale of the Pink Diamond will result in a gain of approximately $0.5 million [emphasis added], after taking into account the associated cost of inventory sales of $70.7 million, which includes amounts due to our partner and other costs related to the sale.
The auction firm had lined up an irrevocable bidder who promised to bid on the Pink Diamond, “at a value that ensure[d] that the lot [would] sell.” Under the terms of the agreement with Sotheby’s, the irrevocable bidder was to be “compensated based on the final hammer price in the event he or she [was] not the successful bidder.” If he/she was the successful bidder, the irrevocable bidder stood to “receive a fixed fee,” as explained in the catalogue. During the conference call, Sotheby’s CEO Tad Smith mentioned that “our book of guarantees and irrevocable bids performed very well” in this year’s second quarter.
Surprisingly, the Pink Star was the only Sotheby’s-auctioned object specifically cited by Smith during yesterday’s conference call. By contrast, his predecessor, Bill Ruprecht, always saw these calls as an opportunity to sing the praises of past and future auction highlights, conveying a sense of excitement about the offerings that drove the business. I had hoped that Smith might have used this occasion to inform us about the important (if regrettable) Berkshire Museum consignments. (But perhaps that’s not something to boast about.)
For reports on other takeaways from Sotheby’s earnings call, see Robin Pogrebin‘s concise summary for the NY Times and Anna Brady‘s rundown for the Art Newspaper. A key metric is the $76.9 million in net income (profits) for this year’s second quarter. That marked a 14% decrease compared to the same period last year, which Sotheby’s attributed to “a higher level of indirect expenses….Total revenues for the second quarter of 2017 are up 5% from $298.7 million to $314.9 million, largely due to increased inventory sales from the prior period.”
Art-market and stock-market wonks can hear a replay of the entire conference call, here.
The stock market apparently didn’t like what it heard. Sotheby’s share price, which has risen substantially this year, dropped yesterday from 53.7 at the opening to 51.15 at the close, on high volume. As of 11:09 this morning, it stood at 51.05.