Something a little strange happened yesterday on CNBC. Sotheby’s held its Q1 earnings conference call that morning. The first quarter is fairly sleepy period for the auction house, it contains more activity than the death valley of Q3 when the Summer months really cut into sales but still not enough to offer much of a gauge of the business or its direction.

Sotheby’s CEO smartly chose use the conference call as an opportunity to plump for his business’s prospects. Tad Smith’s remarks included several comments on different aspects of his business including the a blizzard of stats about the company’s digital media footprint.

Smith also took the extra step of offering a pre-buttal to investors who, the CEO seemed to suggest, have been balking at the fine art firm’s price-to-earnings ratio which is currently a growth-oriented 37 times trailing earnings.

Sotheby’s management is doing what it needs to do to satisfy its major shareholders. But what was striking—beyond the stock’s performance yesterday which rose nearly 3.5% on little real news—was CNBC’s decision to run with the numbers. Here’s Robert Frank’s unfiltered take:

the numbers counter the perception that art prices have soared beyond the reach or rationale of even the wealthiest buyers.

There are not only more billionaires in the world than ever — more than 2,000 — but their fortunes have grown far more rapidly than art prices. And that could make today’s most expensive art look relatively cheap in the future.

That’s heady stuff. So what were the numbers Sotheby’s produced to show that art prices might rise categorically? Here’s Smith’s comments from the conference call notes released ahead of time:

We compared the peak, median, and lowest wealth numbers estimated for the Forbes 400 in 2006 and 2016 versus the value of the most expensive piece of art and the total value of the top ten most expensive pieces of art in those same years.

The results were extraordinary. While the #1 and the #400 on the Forbes 400 were certainly interesting, the Forbes #201 was the one we used for the analysis.

In 2006, the 201st wealthiest person on the Forbes 400 would have had to spend 10% of his wealth to purchase the most expensive piece of art sold in auction that year; in 2016 that same number was only a little over 5%.

In 2006, the 201st wealthiest person on the Forbes 400 would have had to spend over 70% of his wealth to purchase all of the top ten pieces of art sold at auction that year; in 2016 that same number was under 40%.

In other words, the median member of the Forbes 400 would have seen his personal spending power to purchase art at auction grow 75% in the past decade alone.

You might want call this anecdotal data. The median Forbes 400 member is a very isolated data point. The most expensive works and the top ten works in any give year are also wildly variable. (In Sotheby’s defense, 2006 was still a tame year for art prices. So their anecdotal case is made even stronger.)

Interestingly, JP Morgan’s Benjamin Mandel has done some work on this very issue. Mandel believes that future growth in the art market will not match the growth rates of the previous years. Part of the problem is that top prices, no matter how seemingly cheap, have risen faster than the rest of the market. “[S]ince 2000 […], the 80th and 90th percentiles of the global art price distribution grew by 6-7 percent per year, compared to 3 percent for the median price. Notably, the bottom of the distribution actually suffered, with the tenth percentile price shedding 1 percent and the 20th percentile price not growing at all.”

Will the robust growth of the 2000s continue? We argue that it likely won’t, or at least that a different adjective is in order: ‘solid’ instead of ‘stellar’ growth, ‘balanced’ not ‘burgeoning,’ and so on. The reason for the downgrade is that the sources of growth in the market since 2000 may not prove as durable as many observers believe. Rather, the narrative that emerges from the performance of the market since 2000 is one of structural one-offs that have given rise to considerable – though ultimately temporary – support for the market’s trajectory.

Finally, focusing on the top lot or top ten lots only serves to underscore Sotheby’s dependence upon a high-touch model of art trading that gives the firm very little operating leverage. It takes a lot of bodies to sell very, very expensive art to a handful of billionaires. Central to Sotheby’s pitch has been that it will be able to expand beyond that business, not expand further into it.

Nonetheless, one has to applaud Sotheby’s success in getting its message accepted without question.

Here’s why the art market could soar (CNBC)