Charlotte Burns reveals an interesting new wrinkle to the guarantee game.  She has discovered that on a handful of lots in the May sales in New York’s Contemporary Art Evening sale, Christie’s offset a portion of the guarantee by selling a stake to another party.

Burns tries to suggest there’s something nefarious in the house hedging its risk but only disclosing this hedge if the outside party decided to bid on the work. Art lawyer Donn Zaretsky disagrees:

“If I’m a prospective bidder, it shouldn’t matter to me how the auction houses are arranging their financial affairs to offset their risk, unless the interested third party is bidding against me,” says Donn Zaretsky, who practises art law at John Silberman Associates in New York. “Christie’s is complying with the law as it’s written, although there is an interesting debate to be had about whether the law should be updated to reflect changing practices.”

Unfortunately, Burns wants to further cloud the issue with some imaginary complications:

The financial journalist Felix Salmon says: “Historically, people haven’t thought about auctions in complex financial terms. People have just thought about them as in-house or out-of-house guarantees… but the question is: how can you sell risk to a third party? If a work fails to sell, then who owes whom what?”

Since many works in the art market are owned by groups of collectors or dealers, the process for reconciling a failed work is fairly standard and well-known. If one of these consortiums of buyers puts a work up for auction and it fails to sell, the work is returned to the owners who either put it in storage or consign it to a dealer. Their internal accounting is their business.

There’s no reason to think a Christie’s guarantee partner would be treated any differently. In fact, given Christie’s greater wingspan, the opportunity to realize the value of the work and pay the appropriate shares is simply a matter of the guarantor and Christie’s patience and/or appetite for a loss. Surely Christie’s lawyers have foreseen these issues in the agreement that allows a third-party partner to participate in the guarantee.

How ‘third-party partners’ helped Christie’s record-breaking New York auction (The Art Newspaper)