Late last week, two journalists who cover the art market enthusiastically retweeted Lee Rosenbaum’s exposé on the slow payment by the buyer of Sotheby’s massive pink diamond that was sold twice in Asia, once in 2013 and again, after the original bidder backed out of the deal, in 2017.
Although it is understandable that after an embarrassing turn of events for the auction house, which guaranteed the stone for the 2013 sale and then brought in financial partners to reduce the balance sheet load until the diamond could be sold again four years later, Rosenbaum might want to look closely at the sale. After all, the buyer seems to be having trouble paying just like the one before.
Here’s how Rosenbaum tells it:
The specific time limit to “collect the money from the [April] buyer” is disclosed in Sotheby’s latest Form 10-Q quarterly report, filed yesterday with the SEC: It reveals that “the purchaser of the Pink Diamond, who is one of the largest jewelry retailers in the world [identified in the sale’s press release as Chow Tai Fook], is legally obligated to pay the purchase price by no later than Apr. 4, 2018.” The previous quarter’s 10-Q, dated May 10, did not mention the possibility of a year-long payment delay.
The key words in Rosenbaum’s own report are “legally obligated to pay.” In other words, there’s always a chance that Sotheby’s will have to go to court to try to obtain the payment but it is more likely than not that Chow Tai Fook will pay for the stone. They’ve agreed to do it. That’s a far cry from what happened in 2013.
From the information provided, there’s no way to know why Sotheby’s gave the dealer extended payment terms. At the eight-figure end of any trade, there’s limited number of buyers. Dealers often acquire these items with specific buyers in mind. Those buyers often want to see the expert in the field put their own money at risk as a form of validation.
That buyer may have fallen through. Or the dealer could simply be using Sotheby’s to finance the purchase until a buyer is found (or other financing replaces Sotheby’s in April of 2018.) The point is that rather than viewing the delayed payment as an aberration, it should probably be seen as a not-uncommon occurrence that normally doesn’t get disclosed.
A good dealer uses capital sparingly and pays for the opportunity not to have to use his or her own capital.