Sotheby’s advisory business’s flat revenues; Christie’s uses 1st Dibs for leverage; Bidding up a Raphael drawing at Druout.

This commentary by Marion Maneker is available to AMMpro subscribers. (The first month of AMMpro is free and subscribers are welcome to sign up for the first month and cancel before they are billed.)

Sotheby’s Advisory Strategy Quietly Stalls

Buried in Sotheby’s annual report released in late February and synopsized in Kelly Crow’s story in the Wall Street Journal about Gagosian Gallery establishing an advisory firm are the revenues for Sotheby’s Art Agency Partners advisory division.

• “Sotheby’s is in the art-advisory business, having paid up to $85 million three years ago for Art Agency, Partners, a firm founded in 2014 by a trio of art advisers. But the jury is still out on the long-term effect of its performance. In its latest financial disclosure, Sotheby’s said the firm made $6.1 million last year, up from $5.8 million the year before but down from $6.6 million in 2016.”

The WSJ goes on to include Sotheby’s positioning on the division; namely, AAP was able to drive significant auction and private sales through its client base that made the company real money from the buyer’s premium in addition to the advisory fees outlined above.

Leading with the $85m purchase price, the WSJ seems to want to weigh the immediate financial value of the AAP acquisition. In balance, it is probably a wash. Sotheby’s got more than revenue from AAP and art to sell from AAP’s clients when it bought the firm. It acquired talent that played an important role in the company over the last three years (although one of the AAP principals has now left.)

What these numbers reveal is that AAP has no visible path toward growth. AAP’s flat revenues suggest the strategy to expand Sotheby’s into a new line of business advising collectors, artists’ estates and institutions has made little progress. That’s a shame. The original concept, that Sotheby’s could become more like a financial services company with a trading floor (auctions), advisory services (private bank), credit facility (art loans) and proprietary trading desk (direct and third-party guarantees), seemed like a good one designed to capitalize on art having become an asset for many collectors.

Valuable assets breed advisory industries. Sotheby’s was making a play to acquire a substantial share of that market and grow the firm’s global revenues. Three years ago, it looked like AAP would open offices in wealth centers around the US, Europe and Asia. The firm came into Sotheby’s already boasting important South American collectors as clients. Three years later, AAP has one satellite office in Los Angeles.

The failure to grow doesn’t seem to be from a lack of resources. Art Agency Partners has a staff of 23. Half of those bodies provide advisory services. The rest do business support and development or work for the division’s dedicated media operation.

When a large corporation acquires a smaller company, one of the advantages is usually the synergies that allow the smaller firm’s expertise to be amplified by the larger corporations infrastructure and resources. The reverse seems to have happened here. AAP grew internally with more bodies and costs without a commensurate rise in revenue.

AAP did try to grow into new fields like representing artists’ estates. The firm made some noise hiring the president of the Robert Rauschenberg Foundation, Christy MacLear. That didn’t work out. But instead of trying again, AAP seems to have retreated into quieter efforts.

Meanwhile, Sotheby’s is opening its massive new galleries in just a few weeks. Although they were planned and developed under the guidance of AAP, these galleries also point to the company’s new direction away from being a manager of art as an asset and toward becoming a technology driven platform.

Christie’s x 1st Dibs = a Design & Furniture Strategy

Christie’s announcement this week that it would take space in 1st Dibs’s new Terminal Stores design facility and offer a collection of objects from consignors in a 1st Dibs store curated by designer Juan Montoya. The initiative reveals a strategy from Christie’s that addresses Sotheby’s recent launch of Sotheby’s Home in the same market but looks to expand in a very different way from its rival.

• “The collaboration with 1stdibs, the leaders in ecommerce luxury goods, is an exciting opportunity for Christie’s,” comments Matthew Rubinger, Deputy Chief Marketing Officer, Christie’s.  “Through offering a buy it now option for this specially curated group of furniture and objects beautifully designed by Juan Montoya, we are providing more options for our discerning collecting base. In addition, we are thrilled to introduce Christie’s to a whole new group of collectors, many of whom are based in New York as well as connect with new buyers entering our market digitally.”

In setting itself up as a vendor on 1st Dibs, Christie’s is following Sotheby’s into the lower-value furniture and design market. Sotheby’s Home is a tech-heavy initiative that hopes to generate sales commissions with much lower handling costs than traditional auctions.

With 1st Dibs, Christie’s is on the same field but playing a fundamentally different game. Instead of building a whole business with development and marketing costs, Christie’s is tapping into 1st Dibs’s network. On the in-bound side, 1st Dibs brings new customers to Christie’s who might be intimidated by the fancy name or exclusive offices in New York, London and Paris. On the out-bound side, Christie’s can expand client touch points by selling their household objects efficiently without adding much in the way of staff.

If all of this turns into a significant business, Christie’s can invest in the technology and marketing that will get it in the game.

Did Someone Just Find a Raphael Drawing?

Hotel Druout sold a drawing attributed to Giovanni Penni that was estimated at €5000 for €1.4m on Friday April 12 during its classic sale. The image of The Holy Family with John the Baptist child was alternatively attributed to Raphael. At least two bidders believe there’s a good chance it is by Raphael. Even so, that’s quite a price for this work.