Don't be Fooled by the High Prices

Guarantees, withdrawals and billionaires bidding at their own auction houses

The art market has been hit hard by the economic downturn caused by the COVID-19 pandemic. Auction houses have seen a decline in sales and an increase in withdrawn lots, as collectors and investors become more cautious with their spending. In this challenging environment, some players in the market are turning to guarantees and billionaire bidders to keep things afloat.

A guarantee is a financial commitment made by an auction house, a third party, or even the seller, to ensure that a work of art will sell for a certain minimum price. This can give buyers and sellers more confidence in the market and help to ensure that a work will sell at a reasonable price. However, guarantees can also lead to inflated prices and can skew the market in favor of certain works or sellers.

In addition to guarantees, some auction houses are also turning to billionaire bidders to keep the market going. These individuals, who often have a personal interest in the work being sold, can bid on and purchase works at high prices, helping to prop up the market. However, this can also lead to a concentration of wealth and power in the market, and can create a sense of exclusivity that can be off-putting to other buyers and sellers.

This also means that the high prices seen at top-tier auctions may not be an accurate reflection of the true value of the artworks being sold, but rather a result of the guarantees in place. Without these guarantees, the prices may drop significantly as there would be less demand for the works. Additionally, if third-party guarantors begin to realize that they are paying over the market value for works, they may pull back on their guarantees, leading to a decrease in prices.

Patrick Drahi, the French billionaire owner of Sotheby’s, has bolstered sales at the company he owns. Hacked emails, pertaining to Drahi’s attempts to get around paying 7.7% Swiss VAT, have revealed he owns art valued at more than €750m. At least 25 of the works were bought at Sotheby’s. According to the emails, Drahi used a number of different companies and trusts to purchase the art, in an attempt to avoid paying the VAT. However, it is not clear if these actions were illegal or if any charges will be brought against Drahi.

Image: Patrick Drahi, the French billionaire owner of Sotheby’s

Drahi, who is known for his love of art and has a personal collection of over 1,000 pieces, has also invested in the company’s infrastructure and technology, which has helped to drive sales.

Withdrawals have also increased in recent months as sellers become more cautious in this market. Withdrawn lots are works that were originally consigned for sale but are withdrawn before the auction. This can happen for a variety of reasons, such as a lack of interest from buyers or a change in the seller's circumstances. Withdrawals can indicate a lack of confidence in the market, and can also lead to a decline in sales and revenue for auction houses.

Overall, the art market is facing significant challenges in the current economic environment. Guarantees, billionaire bidders, and increased withdrawals are all strategies being used to help keep the market going, but they also have their drawbacks. As the market continues to evolve, it will be important for all players to consider the long-term consequences of these strategies and to work together to find sustainable solutions.