Art Market Monitor

Global Coverage ~ Unique Analysis

Rauschenberg’s Buffalo II Leads Mayer Collection at Christie’s

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The first of the season’s big estates has been announced at Christie’s where Chicago’s Mayer family will be selling $125m in Pop art led by Robert Rauschenberg’s Buffalo II (1964) with an estimate of around $50m:

One of the largest of Robert Rauschenberg’s iconic Silkscreen Paintings, Buffalo II is a blockbuster painting, which unites the worlds of art and politics. At over eight-feet-tall this imposing canvas is filled with an ostensibly incongruent range of images ranging from the iconic to the mundane. Dominated by a large photograph of the then Senator John F. Kennedy, Rauschenberg assembles an eclectic range of motifs that, for him, define America; famous politicians, the space race, the military, iconic consumer products and patriotic symbols of America are interspersed with more innocuous images of the urban landscape and more personal objects. A pioneer of the silkscreen technique (along with Andy Warhol who had begun using the technique just a couple of months earlier), Rauschenberg appropriates images he collected from newspapers and magazines—along with his own photographs—to produce a portrait of a country during the social and political upheaval of the 1960s.

Yet this painting is much more than an historical snapshot of the 60s, it also marks a pivotal point in Rauschenberg’s development as an artist and bears witness to his own investigations in what it means to be an artist. By bringing together pre-existing images from popular culture with an array of drips and painterly gestures, Buffalo II also acts as a bridge between the now declining dominance of Abstract Expressionism and the new burgeoning world of Pop. Many smaller examples of the artist’s Silkscreen Paintings are included in major museum collections, making this one of the last major examples to remain in private hands. Exhibited at the XXXII Venice Biennale in 1964, Buffalo II was part of group exhibition of young American painters for which Rauschenberg was awarded the coveted International Grand Prize in Painting.

Highlights from Sotheby’s 2018 Q4 Earnings Call

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Sotheby’s Q4 earnings call with Wall Street analysts was the usual affair of signaling and interpolated information. We’ll have a more detailed analysis of what we think management is saying for AMMpro and AMMdaily subscribers. In the meantime, here are some highlights from CEO Tad Smith and CFO Michael Goss’s comments.

There have a been a number of estates on the market this year. Smith dropped a few hints that Sotheby’s might have won a couple of these for May and June:

We acknowledge that, although the base case expectation for our company in 2019 is favorable, the range of outcomes has a bit more uncertainty than when we entered 2018. On the other hand, there is a great deal of property in the marketplace that we have already won, and still much being competed for right now, especially for New York in May. And we expect the comparison of 2019 performance to 2018 to be much more favorable in the second quarter than in the first quarter

Smith also continued to send signals that the big bet for the future growth of the company lies in a technology-driven, low-touch approach to selling luxury objects. In other words, Sotheby’s big bet is that it can use its extraordinary brand power to develop a higher margin business of online sales. Last year, Sotheby’s did $220m in online sales or 3.5% of total sales. Here’s Smith again:

Moreover, we do believe that our efforts in recent years to retool the company to make it easier to do business with us will be beneficial when we next face market headwinds. The middle market, for example, is not as sensitive to the cycle as the high end and our efforts to grow there are bearing fruit. There will also be a new base of business that comes to us simply because our online consignment technology makes it easy to do so. Finally, our technology platforms will enable us to be more cost efficient and flexible in our service offering.

Going deeper into the question of margins, CFO Goss addressed the fluctuating auction commission margin:

I’d like to share a few thoughts with respect to our Auction Commission Margin. Although our Auction Commission Margin (“ACM”) rebounded to 17.1% in the fourth quarter, for the full year, we reported an ACM of 16.1% versus 17.2% last year. As many of you may recall, our margin for the year was suppressed by two specific high value paintings in the second quarter. If you exclude the effect of these two paintings and look at what happened with the remainder of our business, our ACM would have been 16.7%. When comparing this level to the 17.2% level of 2017, those last 50 basis points are explained by the greater mix of higher value lots in 2018 and the higher percentage of competitive, price driven estate and charitable sales that drove market growth in 2018.

Looking ahead to 2019, we continue to see a market dominated by estate sales that can carry lower margins, but we also anticipate fewer of the very high value paintings that impacted 2018. On balance, the guidance we made at the end of Q2 that “16% is the new 17%” is still relevant, but we also see a pathway to slight improvement in 2019. I should note that we recently revised our Buyer’s Premium schedule to help toward that end.

Goss also addressed the share repurchase program:

During the course of the year, we returned approximately $295 million through share repurchases, retiring another 6.5 million shares, or 12% of the shares outstanding at the end of 2017. Today, we currently have 46.4 million shares outstanding.

Sotheby’s 2018 Sales = $6.4bn, Private Sales up 37%

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Sotheby’s has released its 2018 earnings. Here are the highlights the company put out this morning before the earnings call. We’ll have more detail after the call and once we’ve read through the company’s filings. Those reactions will be available to AMMpro and AMMdaily subscribers over the coming days.

In the meantime, the highlights are continuing strength in private sales, up 37% and some further progress in generating low-touch online-only sales (though still a small fraction of the company’s overall sales—3.5%.) Perhaps most important, the company has now been able to buy back 30% of the outstanding shares in the firm with the company’s own cash. Sotheby’s bought those shares at a 17.5% discount to the current stock price which means the two primary shareholders have increased their stake in the firm by 30% while using none of their own money. The top ten shareholders control two-thirds of the company stock.

For the year ended December 31, 2018, Sotheby’s reported net income of $108.6 million, or $2.09 per diluted share, as compared to $118.8 million, or $2.20 per diluted share, in the prior year. Excluding certain items in both periods, Adjusted Net Income* was $128.9 million and Adjusted Diluted Earnings Per Share* was $2.48, as compared to Adjusted Net Income* of $121.7 million, and Adjusted Diluted Earnings Per Share* of $2.25 in the prior year.

Driven in part by 37% growth in Private Sales to $1.02 billion, the Company’s Consolidated Sales increased 16% to reach $6.4 billion in 2018. This growth contributed to a 9% improvement in Operating Income to $181.3 million, and an 18% improvement in Adjusted Operating Income* to $198.1 million, when compared to the prior year.

“As a result of our entire team’s efforts and the continued trust placed in Sotheby’s by our clients, I am pleased to report that in 2018 we fulfilled our objective to substantially improve upon last year’s good results,” commented Chief Executive Officer Tad Smith, continuing, “we have the potential to deliver even better results in 2019 by improving technology and processes for clients, though, as always, market conditions will be a factor.” 2018 Highlights

  • Consolidated Sales – which combine Aggregate Auction Sales, Private Sales and sales from Inventory – increased 16% to $6.4 billion when compared to prior year.
  • Adjusted Operating Income* improved 18% to $198.1 million in 2018.
  • In 2018, Private Sales grew 37% to $1.02 billion, when compared to the prior year, representing a five-year high and nearly double the level achieved in 2016.
  • Aggregate Auction Sales increased 15% to reach $5.3 billion, compared to the prior year.
  • Aggregate Auction Sales in Hong Kong reached approximately $1 billion – the highest total in Sotheby’s 45-year history in Asia.
  • Aggregate Auction Sales in key categories improved from 2017 to 2018: Watches (nearly 57%), Wine (nearly 41%), Old Master Paintings (33%), Contemporary Art (14%), Chinese Works of Art (14%), Impressionist and Modern Art (nearly 9%).
  • Sales to online buyers – which include items from our live auctions purchased online, all online-only sales, as well as purchases made on our retail websites, Sotheby’s Home and Sotheby’s Wine – totaled $220.4 million, a 24% increase compared to the prior year.
  • 37% of all lots sold at Sotheby’s in 2018 were purchased online.
  • In the fourth quarter of 2018, net income increased 12% to $85.7 million and diluted earnings per share increased 20% to $1.72.
  • Excluding certain items in both periods, fourth quarter Adjusted Net Income* increased 10% to $86.8 million and Adjusted Diluted Earnings per Share* increased 18% to $1.74.
  • In 2018, Adjusted Return on Equity* was 24.4% as compared to 21.7% in 2017, both significant improvements from the average of just over 15% between 2014 and 2016.
  • In the three years between 2016 and 2018, Sotheby’s has repurchased approximately 20.6 million shares for $689.1 million at an average price of $33.49.
  • Current total shares outstanding are 46.4 million, a 30% decrease since the end of 2015.
  • As of December 31, 2018, based on our long-term debt balance of $638.8 million, the Company’s Adjusted Leverage Ratio* was 3.1x and the Company had $578 million in available revolving credit facility borrowings.

A View from the Middle of the Contemporary Market: Charlotte Van Dercook

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Charlotte Van Dercook, left; Kerry James Marshall’s Untitled (Painter), right.

With the Mid-Season Contemporary sales upon us, we caught up with Charlotte Van Dercook, Head of Sotheby’s Contemporary Curated Department in New York, to ask a few questions about how the middle market in Contemporary art is shaping up. 

AMM: You’ve been working on expanding and integrating the mid-season sales, now called Contemporary Curated, and the Contemporary Day sales during the major auction cycles. Could you give a sense of how those sales have grown over the past 3-5 years?

CVD: We’re thrilled with the growth of the Contemporary Curated sale over the past few years. Two of our three highest-ever totals were achieved in the past 2 seasons and we are well positioned to have another top sale this season, and, looking back, it’s exciting to see how much the sale has grown in just a short period of time. The middle market, with works ranging from around $50,000 to $3 million, is experiencing some great momentum at the moment, which can be attributed in part to the pool of collectors who are actively looking for works within this more accessible price band. I think collectors are looking for the next modern masters, similar to how collectors in the 80s and 90s sought the up-and-coming greats of their day. Artworks by those who were working at the height of their career in the 80s, such as Basquiat, have now appreciated so much in value that I think collectors are now looking to discover emerging artists who have the potential to reach the same heights.

In addition, for high net worth individuals, acquiring works from our sale is relatively low risk. The Contemporary Art Online sales are also a great complement to our bi-annual offerings in the Curated auction. The wide range of accessible price points allows us to reach new audiences while considering which platform, live or online-only, is the best venue to present works on behalf of our clients.

AMM: The mid-season sales were once a venue for trading minor artists who didn’t get sold during the main auction cycles. Now the mid-season sales have become a venue where artists with developing markets get more attention amid less out-right competition. Could you give us some examples of the artists whose markets have emerged in these sales?

CVD: Sam Gilliam is a great example of an artist whose market has grown in the past few years. We’ve established numerous new auction records for Gilliam, starting in 2017, which is a combination of the quality of the works themselves and it being the “right” moment to bring his pieces to market. Gilliam has had several museum retrospectives recently, which have occurred in the midst of this larger moment where collectors, galleries and museums are rediscovering artists who have historically been overlooked.

Mark Bradford is another artist whose market has experienced growth in our sales. His incredible work, Curtis, was featured on the cover of our catalogue in September 2013 and it set a new auction record for the artist after it sold for $2.3 million against a high estimate for $700,000. While in our Contemporary Evening sales, we see new artist records that are set at the very top of the market, we see that same excitement and competition in our sales but at a lower price band. This doesn’t make the works any less important or any less in demand than those presented in our marquee evening sales. The rarity and quality of the works are what drive these record-setting prices.

Amy Sillman and Anne Truitt are two other artists whose markets we’ve seen expand in recent years through our sales.

AMM: Speaking of Sam Gilliam, can you give us a sense of how that price and sales progression happens? Do you cultivate buyers and sellers or respond to sales results?

CVD: It’s a combination of things – explaining the potential upside, the research that goes into our extensive cataloguing as well as placing the work prominently within the sale. It’s all about selecting the best platform through which the work or works can shine, and the Curated sale is a great option for many of them.

AMM: Once an artist’s market develops beyond Contemporary Curated, what happens next? Do you continue to find work appropriate to your sales’ price level or look for the next artist.

CVD: We try to find works that suit the sale—whether they’re by new or emerging artists, or pieces by artists that are regularly offered in our other Contemporary sales. For instance, Noah Davis is making his first appearance at auction in our Curated sale this season, but we also have a masterwork by Jack Whitten called Special Checking from 1974. All the other works in the 1974 Whitney solo exhibition for the artist are in museum collections. In our November 2018 Contemporary Art Evening Auction, Sotheby’s established a new auction record for the artist. In addition, it’s a privilege to offer another phenomenal work by Kerry James Marshall, Untitled (Painter). This is a great example of a work that could’ve been added to any sale, but the Curated sale this season was the best venue.

AMM: Can you name a few artists whose markets are beginning to develop?

CVD: Overall, I think we’re seeing the paradigm shift for women artists and artists of color, as more collectors are looking to fill voids in art history by acquiring works by these artists for their collections, it’s exciting to see these works get, in some cases, long overdue market attention. Some of these artists whose markets are still developing that are included in this season’s sale are Alice Neel, Faith Ringgold, Eva Hesse, Jack Whitten, Henry Taylor, Robert Colescott, Lynda Benglis, Loie Hollowell and Lorna Simpson. This has to do with a lot of factors that include strong gallery and instructional support but some of the artists mentioned above have been working since the 40s.

AMM: In the next few weeks, we have a mid-season sales pegged to the ADAA Art Show and Armory show in New York followed a week later by Contemporary Day sales in London. Are those sales conceived and run separately without regard to the contents and bidders? Or do you coordinate with your colleagues in London? If so, what are the surprising overlaps between the two sales?

CVD: We do consider the global audience of potential buyers when putting together our sales, and I also stay in close contact with my international colleagues about key works that have been consigned to their sales. Along with the input of my New York colleagues, we’re able to determine which sale is best suited for a particular work to realize its full potential on the market. The growth of online and mobile bidding has also made collaborating with our global Contemporary departments an even bigger priority for us. Naturally, with the sheer number of consignors in each region, some overlap in the sales’ contents will occur. For instance, there are works by Louise Bourgeois and Toyin Ojih Odutola in the New York Contemporary Curated sale and in our Contemporary Art Evening Auction in London next week. Pieces by Cecily Brown and Sean Scully appear across the Evening, Day and Curated sales as well.

Sotheby’s Unveils Plans for New Galleries at York Ave.

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Sotheby’s released more details on their ambitious plans to remake the building on York Ave. The new galleries set to open in may will have more than 90,000 square feet of gallery space across 4 floors. That will include 40 public galleries and 9 private sales galleries with 3,000 light fixtures and 7,228 linear feet of lighting tracks. The galleries will have an incomparable amount of wall space, 5,435 linear feet with one as large as 1,200 square feet and one as long as 106-feet-long. The space will also include two new ‘flexible’ auction spaces.

Designed in collaboration with Sotheby’s by Shohei Shigematsu, of the internationally-acclaimed architecture firm OMA New York, the redesign features vast new exhibition galleries that will distinguish Sotheby’s as the world’s premier commercial space for viewing and acquiring fine art, precious objects, luxury goods and more.

Opening with Sotheby’s marquee May exhibitions and auctions of Impressionist & Modern and Contemporary Art, the new galleries increase Sotheby’s exhibition space from 67,000 to more than 90,000 square feet – the equivalent of two acres.  Comprising 40 galleries of varying sizes spread across four entirely transformed floors, the new space rivals major museums around the world in scope, scale, quality and flexibility.

Sotheby’s galleries were designed to provide the optimal exhibition space for everything from single objects to expansive collections, and can accommodate works of art of any scale – the tallest gallery measures more than 20 feet in height, while the smallest gallery is 350 square feet.  New public exhibition spaces include:

  • Three two-story spaces that can accommodate the largest-scale works;
  • The Grand Gallery, a 150-foot-long space ideal for exhibiting full collections;
  • The Octagon Gallery, a temple-like space ideal for jewelry, watches and other intimately-scaled objects, as well as for commanding displays of paintings;
  • The Enfilade Galleries, a suite of four cascading spaces whose entryways align to create a stunning perspective;
  • A number of domestically-scaled galleries ideal for furniture, design and collections;
  • A series of L-shaped galleries for small-scale works and works on paper;
  • Nine galleries dedicated to discreet, private sale opportunities;
  • And two new flexible auction spaces.

Upon entering, visitors to Sotheby’s will be greeted by state-of-the-art digital signage designed by 2×4, and a new double-height ground-floor gallery that can hold exhibitions as well as auctions.  A new Sant Ambroeus Coffee Bar will open next to a dedicated space for collecting purchased items, joining Sotheby’s retail Wine store to complete the lobby experience.

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