This commentary on the idea of a double bind guarantee employed in the sale of the Leonardo is available to AMMpro subscribers. Monthly subscriptions begin with the first month free and you are encouraged to subscribe and cancel before the first month’s billing if you don’t value the content.
The Art Newspaper has head-scratching story this morning. The piece is framed as a tour d’horizon of speculation about who bought the Leonardo da Vinci painting Salvator Mundi for $450m.
It opens with a self-deprecating absurdity—connecting the purchase to Vladimir Putin—but doesn’t progress from there to solid ground. Speculating that Kenneth Griffin might be the buyer because he recently purchased two paintings for a similar amount of money hardly seems worth making public.
What we’re left with is the strange attempt to give a not unheard of auction practice—the arrangement of cross guarantees by two frequent art sellers—a term of art that no one seems to use. Here we’re referring to the article’s use of the term ‘double bind guarantee.’
If true, the arrangement, whereby sellers guarantee one another’s works within the same sale (effectively stabilising the auction), is “extraordinary”, says the art-market commentator Georgina Adam, the author of Dark Side of the Boom, out this month. “I’ve never heard of it. If this type of deal is common, it’s unknown to the wider market, and it only reinforces the impression that the system of guaranteeing or pre-selling work is totally opaque. It belies the myth that auctions are transparent marketplaces,” she says.
There’s a melange of different ideas and issues conflated into this paragraph that are worth unpacking.
First, auctions offer price transparency. They are not ‘transparent marketplaces.’ In other words, the auction house vouches for a great deal about the work so that the buyer and seller may anonymously reach a fair price in public. Only the price is transparent, not the marketplace participants.
Secondly, how extraordinary is this practice of having two consignors guarantee each other’s works? There’s no good way to know except to have followed the auction market for some time. A good guess is that it happens on occasion among a group of buyers and sellers who often do business with each other or share common interests in artists. You can think of it as the auction equivalent of a 1031 exchange.
Beyond the art business, the real estate and private equity businesses also see this kind of asset swapping behavior. Those kinds of deals are usually not conducted through an auction with some of the buyers and sellers providing guarantees but the broader behavior of assets being sold back-and-forth between like-minded speculators is similar.
Finally, the question Georgina Adam is trying to raise here is legitimate. How valid are auction prices if the guarantees are coordinated between sellers? There’s no good answer to this question. It may be better answered by saying that there’s no good way to prevent the practice. Banning sellers from being guarantors would punish active market participants with legitimate reasons to be on both sides of transactions in the same auction.
More to the point, as long as the guarantors fulfill their obligations, there’s no untoward behavior.
Was a ‘double-bind guarantee’ behind the $450m Leonardo sale? (The Art Newspaper)