Bloomberg’s Katya Kazakina beats a bit of a dead horse with a long story on the decline of auction commissions due to the competition for consignments. As with guarantees, the so-called enhanced hammer deals are a subsidy the houses give to generate exciting lots and strong sales figures.
Since 2009, art prices have soared and sales have more than doubled. But Sotheby’s commission margins, the revenue from commissions as a percentage of auction sales, have dwindled to about 14 percent from 21 percent.
There are two things Kazakina’s piece doesn’t acknowledge: this May’s sales cycle is estimated to be half of last year’s just as the houses are trying to reverse the tide on such deals and, more to the point as the chart above shows, although the commission margins are lower in 2015 than they were in 2009, the absolute commission is much higher.
A little rough arithmetic from the chart above shows that 21% of 2.3bn ($483m) is greater than 14% of 5.9bn ($826m.) So Sotheby’s increased their auction commission revenue by 71% while total auction sales went up 156%. The commissions are falling behind because of the deals but they’re still growing.
Which brings up a final point that never really gets mentioned when the press writes how the auction houses could easily fix their businesses if they didn’t give up so much to the consignors. These deals are brought about by a competitive marketplace. Sotheby’s doesn’t slash commissions because it wants to. The firm has to compete with Christie’s and, increasingly, Phillips. The more players that enter the fine art auction space, the greater the competition. That leads to lower margins which are a boon to sellers. And let’s remember that auction houses are enterprises that serve the seller’s interest.