London’s June Imp-Mod market is in a tough spot; Is Dan Loeb master-minding the Sotheby’s sale? China’s museum building boom has no incentives for building collections.

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.)

The Impressionist and Modern Evening sale results last week did little excite the market. The lopsided tally between Sotheby’s and Christie’s was hardly the biggest problem. Neither house saw the kind of bidding that might encourage buyers or sellers to anticipate the next round of sales. Even though we know that there are serious buyers for Impressionist and Modern works, the London sales seemed spotty and driven entirely by the individual works, not the market or even the artists themselves.

Curiously, the combined total of the London Evening sales was almost the same as the 2016 total which had been a significant reset in overall art market volumes from the year before. In our analysis for AMMpro subscribers next week, we’ll show that the Evening sale internal dynamics were actually built upon more diverse sales middle market sales this week than they were three years prior.

One reason it is so difficult to draw any broader conclusion from these small sales is that they seem to be hand-picked as a counter-point to the much larger May sales in New York which only seem to have grown in importance over the last two years with the Rockefeller sale a year ago and Christie’s push this year with several collections as well as the huge Monet price at Sotheby’s.

The Art Newspaper spoke to advisor Mary Hoeveler who voiced a common interpretation of the sales:

“You can see the difficulty both houses have in getting material. The sales are getting smaller and smaller in London, while those in May in New York were enormous. There’s a general sense of market fatigue after all the fairs, plus the uncertainty around Brexit makes people reluctant to consign. It’s a knock on effect.”

Two quibbles with this observation: First, it’s not entirely clear that the houses are having trouble getting material. See, for example, the May sales or even Sotheby’s top Monet. Though it is true that much of the best material on the market recently has come from larger collections or estates. Those collections might not be easily sold in London’s tighter auctions and shallower economic hinterlands without a specifically English story behind it.

Second, the auction houses plan their sales. If they have a surfeit of material in New York and slim pickings in London, the problem lies not in supply but in how the houses distribute that supply across their sales.

If the clients are exhausted by the intensity of the May-to-June run of TEFAF & Frieze in New York, the May sales, Venice and Art Basel, the auction house specialists probably are too. Layer on top of that the endless political and economic background noise in both English speaking countries that host regular auctions. Add to that Christie’s recent reluctance to sell in June in London. Together it makes a recipe for weakness.

For this go round, it seems like only the works that had a plausible reason to be sold in London—the Monet could get some of the afterglow of the meules, lesser works that might get crushed in the May crush were given some breathing room, Robert Wylde’s collection of Surrealist works—were sold in London. Everything else gets held for the main event. Day sales in this category are no longer meaningful venues for solid B+ work. So these undercard events give that material a chance to shine. The point here is that stand out bidding was only for restituted works or major art by minor artists. Those make great theater but they don’t add up to headline numbers.

Unfortunately, this default strategy does nothing to address the market participants need for some rest. Whatever the cause, these sales seemed under-caffeinated. That may simply be a matter of expectations. The bidding in both auctions had the feeling of another buyer’s strike when estimates rise beyond the tolerance of buyers who respond to the previews with interest, even enthusiasm, but wait until they see counter bidding confirm the price level. If they don’t, they react by sitting on their paddles.

Here’s how Hoeveler aptly describes the phenomenon that can sink something like Christie’s Léger or leave the Sotheby’s Nymphéas selling below estimates:

“In most cases, there are only two or three people who are going to be bidding at that level on a work. That was a lesson from the Léger at Christie’s—if one person drops out at the eleventh hour and doesn’t bid, it has a big impact. The market makes a big deal out of these things, but it reality it’s not indicative of anything other than a lack of excitement in the room and one or two key people not bidding. […] It’s all very psychological. It’s like a game of chicken: you’ll have someone on the phone waiting for someone else to bid before they jump in, and meanwhile the painting is the painting is the painting.”

Sotheby’s seemed to benefit from going second this week and having persuasive evidence to show consignors that estimates were beyond the range of realistic sales. There, seven of the 25 lots were announced to have irrevocable bids at the beginning of the sale. During the auction we learned that one was a massive compromise: the Monet landscape that was part of the Argentine family collection was bought on a single irrevocable bid for £2.6m against a low estimate of £4m—that’s a one-third-off sale. In the case of the same family’s Nymphéas, the IB seemed to bring out another bid getting the buyers close to their minimal desired outcome.

Helena Newman confirmed that the wallflower bidders weren’t just at King Street. During a handful of lots Newman all but pleaded directly to specialists whom she was clearly expecting to receive bids from that they should jump in. Even on a lot that saw five minutes of dogged bidding, the Modigliani, the final outcome was to reach the low estimate. If that seems like a failure, remember that more than one lot was bought in because the seller held out for their best price even if it was only £100k above the bidding.

Credit to Sotheby’s, then, for being able to rack up £98.8m in that tricky atmosphere.

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Did Dan Loeb Shop Sotheby’s for an Irrevocable Bid?

The once very plugged-in New York Post business section is a shadow of its former self. Which makes it hard to take seriously its report that a potential buyer is making the rounds of hedge fund and private equity investors trying to put together a club deal for Sotheby’s, as the paper reported Friday afternoon. All of the heavy-weight names the Post chucks into the story are definitely not going to participate. The no-name names just look like they’re trying to get some publicity out of running to the Post with the approach.

Having said that, there is one line that leaps out from the rest of the story. The Post describes the deal for Patrick Drahi to buy Sotheby’s as a “an agreement reached under pressure from activist investor Dan Loeb.” That makes sense. Loeb has the greatest incentive to get a deal done. The Post story goes on to mention that Chinese insurance company, Taikang (which is Sotheby’s largest shareholder) has not yet indicated what it will do in response to the buyout offer.

Why is that important? Taikang owns China Guardian auction house in China. The Chinese auction houses operate under a different system. Taikang’s purchase of a minority stake in Sotheby’s was very smart move for a company that would benefit greatly from importing the best practices and international reputation of Sotheby’s.

Ever since the investment, Taikang has stood out as the most logical strategic buyer of Sotheby’s; however, two things stood in the way of that happening. One is that it is difficult for Chinese companies to buy foreign businesses due to the government’s capital controls. The second barrier to Taikang buying Sotheby’s was standstill agreement that Sotheby’s negotiated with Taikang when it bought a 15% stake.