For years, David Nash was one of the two regular go-to quotes for the press on the evils of chandelier bidding. Now, the former auction house department head moves on to decrying another evil that it turns out he was instrumental in creating, the guarantee.
In Dan Duray’s ArtNews profile of Christie’s Loic Gouzer, the guarantee issue plays a central role because of Gouzer’s aggressive use of guarantees.
Indeed, when Josh Baer can estimate the total value of guarantees in place this week at nearly $600m, it would certainly seem that there’s a potential problem brewing in the system even if it isn’t the problem that Nash imagines:
Developed at Sotheby’s in 1974, auction guarantees were at first a tactic simply to make sure an artwork came to auction at all. Guarantees, in essence, promise that if a work should fail to meet a certain minimum price, the house will pay the guaranteed amount for it.
“In 1974, when we founded this guarantee scheme we felt that there was a real need in the market for a guaranteed result,” said David Nash, who was part of the team that first implemented guarantees at Sotheby’s. “People who were uncertain about whether to sell something at public auction or whether to take the risk could be reassured by the fact that the auction house would give them a guaranteed minimum, and it was a very straightforward system.”
One reason the guarantees seem to be necessary in a rising market is that sellers with little need for cash have little inducement to test the market. So the auction houses must lead the sellers with a strong advance against the auction house’s “superior” knowledge of the market. It’s worth noting that the renewed confidence in the art market and broader financial markets has brought about a shift this season from third-party guarantees to direct guarantees from the auction houses.
ArtNews points out that Nash is now strongly opposed to guarantees. Here he’s talking about third-party guarantees:
He said he wasn’t sure that new collectors necessarily understand the system, and that it distorts perceptions of artists’ markets.
“Did you realize if you were sitting in the sales room and you were bidding against the guarantor, that if he wins it he’s going to be paying quite a lot less than you would?” Nash said. And, he said, “It is sort of the same as insider trading, because the guarantor, the auction gallery have given them as much information as they can to induce him to be the guarantor.”
As the auction houses’ appetite for risk and need for profits overcomes their caution, the third-party guarantee issue recedes only to be replaced by another worry. With guarantees so prevalent, their are now questions and rumors about whether sales are actual sales and a general feeling that expectations are outpacing the seemingly artificially juiced results.