Charles F. Stewart spent most of his career as an investment banker. Now the co-President of Altice USA and Chief Financial Officer is CEO of an fine art auction house.
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 announced Monday morning that one of Patrick Drahi’s trusted executives, Altice USA co-president and Chief Financial Officer, Charles F. Stewart would become CEO effective immediately. The news was hardly a surprise to those who were waiting to hear whether former CEO Tad Smith would stay on with the firm. Weeks had passed since Smith’s rumored decision day; several of the executives he hired were transitioning out of the firm; new faces with deep ties to Drahi were being appointed in their place. If Smith had stayed, he would have been surrounded by a team with loyalties and ties directly to Drahi.
With such strong signals that Smith was not re-upping, all that was left was the white smoke to tell us Sotheby’s would have a new pope. That plume came early Monday morning but the surprise twist was that Smith who is owed a hefty $28m success fee for getting the company sold to Drahi (the fee is couched in the language of a change of control but the real intent is to align executives self-interest with a sale of the firm) would be rolling some of that $28m (possibly the nearly $17m in equity owed to Smith) or even all of it (another $11m in cash was due Smith) into a stake in the now-private company. To formalize his position, Smith would take the title of Senior Advisor.
That solution splits the baby nicely. Drahi’s new team is reported to be eager to pull up a chair to the deal-making poker game that drives the very top of the market. No matter how smart they are, these new executives are at a disadvantage to anyone who already has table stakes in the form of deeper knowledge or experience in the unique brand of art deal-making. With Smith invested in the firm’s future performance, Drahi gets the benefit of his experience without impeding Smith’s desire to find his next CEO gig.
The New York Times made much of Stewart’s role in the communications and entertainment business quoting an executive at rival Christie’s suggesting Sotheby’s is about to become media company. That’s a bit silly. The Wall Street Journal’s Kelly Crow was more sanguine about the former investment banker becoming an art world CEO: “The move is unlikely to rattle an auction industry newly accustomed accustomed to being run by corporate bankers rather than clubby, connected art lovers.”
Two Weeks
Both the Times and the WSJ make mention of the timing here suggesting that the change in leadership taking place two weeks before the November auctions is significant. But the significance may be more about giving Stewart face time with clients and media. Most of the important decisions for an auction cycle are made two months, or more, before the sales. That’s when the pitches happen and the guarantees get negotiated. That’s when the specialists get their marching orders on what type of property to seek out and what risk tolerance the firm is prepared to accept.
These are things a CEO can influence.
Two weeks out, there’s little left for the boss to do but hope the team can reel in the bids. From now until the hammers clap against the rostrums, senior management is taking a big step back to let the specialists and business getters run.
Is Sotheby’s In the Entertainment Business?
What Stewart and Smith are probably going to talk about on the sidelines over the next few weeks is how the business works right now and how it is likely to work in the near future. That discussion will likely inform how Drahi, Stewart and the rest of the new team view the future of the auction house.
It hardly seems worth considering the idea that Sotheby’s is going to become some sort of media company. Sotheby’s already tried a bit of that under Smith. Not to mention that Smith was getting advice early on from Daniel Loeb’s adviser Michael J. Wolff who first rose to fame in the late 1990s as a consultant who predicted all companies would eventually become media companies. If becoming a media and entertainment company was in the cards for Sotheby’s that day has already passed. (Let us not forget either that Christie’s was led not so long ago by an executive who had spent the bulk of his professional career in the media business.)
Nor does it make much sense to imagine that Stewart will use Sotheby’s new freedom as a private company to engage in a battle for the very top of the art market. Market share as the gateway to profitability has lost its allure even to deep-pocketed Christie’s. There management is had tried to avoid the inherent asymmetry of risk at the top of the market by turning toward a strategy of renting its platform to its best-advised clients, most market savvy clients. When a preternatural trader like Joe Lewis or a market pro like Tobias Meyer is running a sale, Christie’s plays host but not backer preserving its perceived market position without assuming unprofitable risk to maintain it.
Even though it is private now, and owned by a French billionaire, Sotheby’s isn’t going to suddenly replicate Christie’s strategy from 2013 to 15. It doesn’t have the same balance sheet advantage that Pinault’s Christie’s had. The lack of public reporting might make it easier to engage in the guarantee game but the absence of a buyer of last resort working behind the scenes makes that strategy even less likely or viable.
Surely there are a number of other ways for Sotheby’s to go that we less imaginative outsiders cannot see. And it will be interesting to see where Drahi takes the auction house. But the secret to Stewart’s role here might be closer to his experience. Resumés are not destiny. Yet it seems noteworthy that Stewart is former banker, a dealmaker. He recently led Altice’s $200m acquisition of a small media company, Cheddar. He also led cable company’s $2.1bn public listing on the NYSE.
The impressive feat of financial engineering that allowed Drahi to swoop in and buy Sotheby’s isn’t entirely done. A strong banker at the helm will help the rabbit get digested by the python.
Having a deal-maker in charge might also be an indication that Drahi has plans to acquire more businesses. But what? Too much of the attention in the fine art and auction business focuses on the duopoly of Christie’s and Sotheby’s. But that duopoly has changed substantially in the last several years. Phillips plays significant swing role as a viable alternative for some consignors. Various parts of the art market that lie outside the reach of the firms that sell in New York, London and Hong Kong are beginning to look more valuable. Regional firms are consolidating. In the past, auction houses have looked at private dealers and art fairs as potential areas to grow. The art fair business seems ripe for a consolidation after so much expansion. There are surely other ideas that might come into play.
If Sotheby’s does grow through acquisitions, it will have to restructure its capital stack at some point in the future. It helps to have a banker in charge there too. Stewart’s success in spinning off Altice USA to raise cash for Drahi might someday come into play again. Drahi wouldn’t be the first rich guy to take Sotheby’s private as a way to eventually take it public again.
