Sotheby’s Shows The Dealmaking

The one art market innovation nearly universally remarked upon in last night’s sale was the new sales price reporting that acknowledges the effect of deals with third party guarantors (or, in Sotheby’s structure, irrevocable bidders.)

Sotheby’s deserves credit for initiating the practice of reporting fixed-fee bids accurately and seeking clarification from the NY Department of Consumer Affairs to make the practice standard operating procedure in New York auctions.

The result is that we can see on at least two lots that were sold to the irrevocable bidder the price the bidder paid. The Munch, Girls on the Bridge was sold for approximately $2m less than it would have to a standard bidder. Picasso’s Painter and his model would have cost the irrevocable bidder almost $50k more. Clearly, the fixed fee is a matter for negotiation.

In previous posts, our commentary has suggested that the netting out of fees only applied to the very few deals where guarantors received payment if there were counter bids. Last night’s results show a different practice whereby the guarantor negotiates Sotheby’s fee in exchange for making the irrevocable bid which is not the same as netting out fees that might be paid in the event of a higher bid.

That, of course, makes the argument for reporting the actual price paid by the buyer essential.