Risk and Return: Lessons from the Major Auction Houses in the Current Art Market

Image: Ajay Suresh, Sothebys CC commons.

The sale of significant single-owner collections has traditionally been a cornerstone of strategy for major auction houses, prominently including Christie's and Sotheby's, with Phillips also playing a role, though to a lesser extent. These institutions routinely engage in fierce competition, vying for substantial sums that can range from tens of millions to several hundred million dollars, all in an effort to secure valuable consignments from noteworthy living collectors and the estates of celebrated patrons.

However, the outcomes witnessed in the year 2023 prompt a re-evaluation of this established approach by decision-makers within the auction houses, at least on a temporary basis. Despite conventional expectations that major single-owner collections would represent a secure investment during a tumultuous and uncertain business year, the actual results have cast doubt on the wisdom of committing substantial upfront investments to secure such collections.

A noteworthy case in point is the autumn auction held in New York, dedicated to the collection of Emily Fisher Landau, a distinguished patron of the Whitney Museum of American Art. Sotheby's, in securing the privilege to offer the 31 lots, provided the estate with a significant but undisclosed guarantee. These lots were anticipated to fetch up to a combined total of $430.1 million. However, the sale only realized a hammer total of $351.6 million ($406.4 million with fees), marginally exceeding the $344.5 million low estimate (excluding fees). Sotheby's decision to secure third-party guarantees for an overwhelming 80.6% of the lots further curtailed its financial gains.

Phillips, in a parallel scenario, adopted a notably risk-averse stance in its evening sale featuring works from the Triton Collection Foundation, a Dutch non-profit organization. To offset the guaranteed minimum price extended to the foundation, the auction house enlisted third-party guarantors for each of the 30 lots. Despite these precautions, the hammer total of $69.9 million ($84.7 million with fees) fell short of the $73.3 million low estimate, prompting a critical examination of the return on investment in this instance.

The cautious and risk-averse strategies employed by Sotheby's and Phillips, while seemingly extreme, pale in comparison to the underwhelming performance of two major single-owner auctions held earlier in the year. Sotheby's Hong Kong auction, featuring works from the holdings of Chinese entrepreneur Liu Yiqian and his wife, significantly undershot its presale target. Similarly, Christie's New York sale of works from the collection of Gerald Fineberg underperformed, signaling potential challenges in the market for single-owner collections.

These instances underscore the realisation that, in a soft market and an uncertain economic climate, the advantages of offering a major single-owner collection can be compromised, if not overshadowed, by the considerable costs involved in securing, derisking, or both. The experiences of 2023 necessitate a thorough reassessment of the conventional wisdom surrounding the profitability of major single-owner collections in the current landscape of the art market.