Have you been missing me?

9 05 2013
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Guido Reni, ‘The Penitent St Peter’.

Sincere apologies.

It’s been very, very busy.

In a good way.

My inactivity is unforgivable. As a small offering to compensate for my absence, here’s a link to a feature article I wrote on the market in Aboriginal art for The Age on the weekend…. click here.  





And the ballroom dancers went around… and around… and around again. A lesson in reading auction figures.

6 03 2013
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John Brack, ‘Backs and Fronts’ (image via http://www.aasd.com.au)

Hello, old friend. Nice to see you again.

It’s good to know some things never change. As regular as clockwork… John Brack’s Backs and Fronts is back on the auction podium for the fourth time in nine years. Wouldn’t be the first, and certainly won’t be the last rapid-fire repeat customer in the Australian art auction world. But I’ve grown particularly fond of this one over the years. Not to mention, those pirouetting figures offer a lovely analogy for the way this painting keeps spinning back and forth through the auction market.

I had a glance back over the painting’s auction record, and it reminded me of an object (or, perhaps ‘abject’) lesson to take on board when looking at reported prices. Thankfully, the Australian Art Sales Digest now publishes hammer prices (the price that the auctioneer calls out at the fall of hammer), not just prices realised (hammer price plus buyer’s premium), which thankfully makes the following exercise much easier.

When many people look at auction prices, (such as the prices for Backs and Fronts over the years laid out in the table below), they simply compare the prices in each column. So, for example, you’d be thinking… “hmm… The painting sold for $1,700,000 in 2007, then $1,800,000 in 2010. Given the whole GFC/collapse of the art market thingy, that’s not too shabby in terms of a return, really, is it? At least they didn’t lose any money.”

Sale date Hammer price Price incl. premium
25/11/1997 (Christie’s) $215,000 $239,000
10/3/2004 (Deutscher-Menzies) $392,290 $470,750
13/6/2007 (Deutscher-Menzies) $1,700,000 $2,040,000
24/6/2010 (Menzies) $1,800,000 $2,160,000
21/3/2013 (Menzies) (yet to be offered) estimate: $1,400,000-1,800,000

Above figures from Australian Art Sales Digest: www.aasd.com.au

But herein lies the problem with that approach. The question you should really be asking is: “what did it cost the buyer to acquire the painting, and what did they recoup when it was sold?” To work that out, you need to first look in the ‘price including premium column’ – that is the total amount the buyer would have had to pay to acquire the artwork. So in 2007, for example, the buyer ponied up $2,040,000 to get their mitts on Backs and Fronts. Then, you need to look at the ‘hammer price’ in 2010 – $1,800,000 – and subtract a good chunk of that amount to account for estimated selling costs (commission, insurance, illustration and cataloguing fees). Let’s make that a round (and fairly modest) 15%.

So when the person who bought the painting in 2007 sold it in 2010 the net amount heading their way would be ($1,800,000 – 15%) = $1,530,000.

Instead of what appears to be a slight rise in value from $1,700,000 to $1,800,000, we now have a fairly dramatic loss – $2,040,000 outlay becomes $1,530,000.

Not so rosy now. And that doesn’t even take into account the effects of adjusting for inflation.

So what does that tell us about the upcoming reappearance of our spinning ladies and gents at auction? Well, the low-end of the 2013 estimate is $1,400,000. That means the reserve price must be equal to, or fall below, $1,400,000. Let’s take the 15% selling costs from that figure… that gives us $1,190,000 ($1,400,000 – 15%). That is the net amount the seller will pocket if the painting sells at its reserve (conservative, because it presumes a reserve at $1,400,000 – it could be lower).

Meaning? The person who spent $2,160,000 for Backs and Fronts in 2010 (the price including premium paid that year) is now happy to sell it for $1,190,000.

(Apologies for the shouty caps that follow…)

That’s right… THEY PAID $2,160,000 AND ARE HAPPY TO SELL IT FOR $1,190,000.

Really?

Try spinning that.





Arty-Party!

23 06 2010

Look! Sad-eyed puppy!

Mea culpa. Apologies for being so slack with the posts of late. But I have good reason. Things have been very busy in the offline world. But the outcome of all this hard work is that if you’re in Melbourne, or have reason to be here on 15-16 July, I’m co-convening a symposium at the University of Melbourne with speakers drawn from across the art world talking about all things current in the Australian art industry – from fakes and forgeries, to the sustainability of the Aboriginal art market, and the potential effects of the resale royalty legislation and the proposed changes in the Cooper Review on the market. Artists, dealers, auction house representatives, legislators, academics, all going head-to-head. It’s going to be juicy. Keynote addresses are to be given by the Minister for the Arts, Peter Garrett, AM, MP, and Sam Leach, the winner of the 2010 Archibald and Wynne Prizes, and there’s an associated Melbourne Conversations event at Fed Square on the evening of Thursday 15 July. More details can be found hereincluding how to register. More updates to follow.





All art buyers are equal, but at auction, are some buyers more equal than others?

10 05 2010

Auction_hammerThe laws that govern buying and selling in a competition-based forum are based on the premise that all buyers are competing on a level playing-field. According to competition laws, the only factor that should restrict your capacity to bid at an auction is personal access to material resources (the size of your wallet/cheque book/credit limit), and, of course, the total amount you’re willing to pay for the thing being sold.

The Australian Competition and Consumer Commission (ACCC) regulates the auction trade (be that the real estate, used car, or art market) to ensure that no factors endemic to that trade contribute to the creation of an uneven playing field. By law, when you’re bidding for an artwork at auction, the person against whom you’re bidding should have no financial advantage over you that has been put in place by another participant in the auction process. Interesting to consider, then, the buyer’s premium. During the brouhaha over art auction practices that played out in the public arena a year or two ago, the one issue that wasn’t raised is the question of whether or not auction houses offer loyal/preferred clients a discount or rebate on the buyer’s premium. And I think it’s an important question to ask. The following is all hypothetical, but I’d be really keen to see what prevailing auction house policy is on these matters.

Why? Well, in Australia, the major art auction houses charge 20% on top of the hammer price of an artwork. So, if you are the successful bidder for painting and the auctioneer brings down the hammer at a price of $1,000, you will also be liable for a charge of $200 plus 10% GST on that amount, so the total premium added to the hammer price will be $220. Your total bill for the painting will be $1220. But, what if the person you’re bidding against has been promised a rebate on the buyer’s premium by the auction house? Let’s say, for argument’s sake, that something has been put in place prior to the auction that would mean he or she will only be 10% out-of-pocket in buyer’s charges. That rebate might be offered in many and varied ways – one that springs to mind could be that, if the buyer was also a volume seller, they could be offered a commensurate discount on their seller’s fees. However the rebate or discount might be offered, it would give your competitor a considerable advantage over you. Back to the $1,000 painting, if you calculate that you don’t want to pay more than a total of $1,200 or so, you will stop bidding at $1,000. But, let’s say your competitor also wanted to limit his or her total bill to $1,200 or so – with the rebate, they could bid up to $1,100 and still only be liable for a total amount of $1,221. So, you would stop bidding at $1,000, and they could bid up to $1,100. The same bid on a hammer price of $1,100 would cost you $1,341.

This would not be not the same as preferential treatment offered to buyers in the retail industry – for example, discounts offered to people who have signed up to a retail chain’s loyalty program. In retail sales, buyers pay an asking price. Their choice on whether or not to buy is based on the price on the tag. They are free to negotiate the price with the seller or, if they deem it too expensive, to walk out of the shop. Competition in this environment is based on price-point – a retailer that asks too much for its product will be ‘punished’ by buyers who will go elsewhere to find the same or similar product at a lower price. Price adapts to demand. It is the retailer’s prerogative to offer loyal shoppers discounts to reward their patronage – although it may mean that those in the loyalty program take advantage of their discount and rush in to buy up all the available black trenchcoats, for example, leaving none for the other buyers. But because the members of the program and the less privileged buyers are not competing to set a price for said trenchcoats, this scenario does not contravene anti-competition laws.





A guaranteed disaster? Art auction houses left hanging as the market turns.

6 04 2009

Francis Bacon's Study for Self-Portrait

 

 

 

Picture this (if you’ll pardon the pun) – you are the fortunate owner of an artwork of mind-blowing significance. The art market is booming – nay, it’s gone warp speed, hyperbole be damned. You love your painting… have loved it and treasured it for many years. But the sky-rocketing prices prove too much for you. You approach an auction house or three – this is a seller’s market, remember. No point settling for the first offer you get. A pre-auction bidding war ensues. One of the auction houses offers you a guaranteed minimum price – if that price isn’t reached during the auction, the auction house will be compelled to pay you the guaranteed price and to take the painting into its possession. Nothing to lose, right?

Well, it must have seemed like a good idea at the time. But now that art buyers are more concerned about paying the heating bills and filling the fridge than buying art (as much as art warms the cockles of the heart and nourishes the soul), the practice of offering art-sellers a minimum price when they consign works for sale may well have left the big auction houses in a bit of a pickle. In Sotheby’s case, a pickle of the magnitude of up to $US 500 million. That’s a very, very big pickle.

In documents filed with US authorities in April 2007, Sotheby’s listed outstanding guarantees of $US 295 million. Although I’ve been unable to find an indication of the company’s exposure in late 2008 when things started to go pear-shaped, the board set a ceiling of $US 500 million on its exposure through guarantees. Comparable figures for Christie’s, which is not  a public company, are not readily available. But to give a sense of how much of the art that passed through the top end of the market may have been guaranteed, witness the following figures: Sotheby’s guaranteed 78% of a single contemporary sale by value (14 November 2007), and Christie’s 52% of its 13 November 2007 sale.

So, the last sales of 2008 and the first of 2009 are likely to have been pretty tricky for the big auction houses. Artworks consigned for sale under the old guard popped up on the rostrum, with associated guarantees and big promises, but with far fewer big-spenders in the audience. Case in point: Francis Bacon’s Study for Self-Portrait [pictured] turned up at Christie’s in November 2008 with a minimum estimate of  $US 40 million. The Florida-based collector, George Weiss, consigned the painting for sale at Christie’s after the auction house offered him a guaranteed minimum price. But the ultimate timing of the auction wasn’t so flash-hot. Weiss’ painting, which was billed as the sale highlight, was sharing wall-space with works consigned by Lehman Brothers ne’er do well, Richard Fuld. Not a good time to be competing for attention with such a tangible reminder of the unfolding economic disaster.

The Bacon did not sell. In fact, almost a third of the 75 contemporary works on offer that night didn’t find buyers. Weiss expected to be paid his guaranteed minimum price. Christie’s International, citing “the changed climate of the art market”, refused to pay up, according to the breach-of-contract complaint Weiss filed in New York.

Could this just be the tip of the proverbial iceberg?

Image: The Guardian