This week the world’s only publicly-traded auction house announces plans to goes private. Israeli-French telecoms billionaire Patrick Drahi purchased the company at a premium of 61%, or $3.7 billion altogether. Sotheby’s stock jumped from the mid-$30 range to the mid $50s almost immediately.
You know that it’s an auction house, but there is a lot more to Sotheby’s history. It was founded by Samuel Baker, a successful bookseller who held his first auction under his own name in 1744 (“the dispersal of ‘several Hundred scarce and valuable Books in all branches of Polite Literature’ from the library of Sir John Stanley — which fetched a grand total of £826). Sotheby’s always maintained a reputation for being fairly in-touch with culture, auctioning everything from Napoleon’s library at St. Helena to one of the first major selections of Impressionist works in the 1950s. Soon after they also opened a contemporary art department featuring the likes of Andy Warhol. They went public in 1988 and in recent years began purchasing forensic science firms and a notable art index in order to, presumably, maintain a firm grip on the pricing and perceived authenticity of their works.
Yet Sotheby’s stock has always struggled to surpass the $50 mark and has fluctuated quite a bit over the years. It lost $7.1 million in the first quarter of this year alone and faces tough competition from the likes of Christie’s and Phillips in a brutally cut-throat industry. The acquisition of Sotheby’s by BidFair USA, which is owned by Mr. Drahi, marks a major turning-point in the history of this centuries-old brand as well as an opportunity to bring the auction market on the whole into the 21st Century (beyond band-aid attempts like, you know, enlisting art historian Drake to help curate).
One key of going private is the ability to maneuver more quickly and operate in an innovative fashion. Despite a rush of IPOs this year, many start-ups and established companies alike are staying private for longer and can even issue what is referred to in the industry as “Private IPOs” where massive amounts of money can be raised from Venture Capital firms and private investors with insider connections. There is a valuation problem in today’s market and many fear another tech bubble due to companies like Uber which, according to their first-ever public quarterly earnings report, cannot ever become profitable without raising fare prices or replacing all their drivers with robots (seriously). Therefore, it’s simply safer and more nimble to be private. From NYU Stern professor and serial-entrepreneur Scott Galloway:
“There are half as many publicly traded firms as there were 20 years ago, and most new economy firms have found the private markets have all of the taste (liquidity, rich valuations) without any of the calories (disclosures, reporting, SEC filings, transparency, analysts using rational valuation models, etc.). Unregulated monopolies kill/acquire promising young firms in the crib, resulting in scant IPOs.”
One point of note. Going private can also help bolster Sotheby’s against competition in a more dubious way: by continuing to break down the façade of morality and conflicts of interest. The auction industry is notoriously opaque, as Michael Lewis explores on an episode of his podcast regarding the maybe-probably-fake-Saudi-prince-yacht-dwelling Da Vinci painting “Salvator Mundi,” which Sotheby’s was in fact sued over after potentially misrepresenting its value. A larger trend in every industry these days — from editorial to fashion to advertising — is the breakdown between the “integrity” of the product offered and the influence of those who seek to benefit from positive news and forced trends. In the art market, this almost always rears its head in the form of fake paintings or even wine going to auction at exorbitant prices, as well as attempts to inflate the value or “create a market” around previously-unknown new artists or even, yes, Supreme tschochkes. As a private company, Sotheby’s will have more control over how they sell, and I could imagine more influence will be peddled behind the scenes than ever before.
Sotheby’s now has a lot more maneuvering room to do things that shareholders might not have allowed it to. It can also readily lose more money in the short term in order to create long-term benefits, which is good for the house and potentially consumers alike depending on what vision Mr. Drahi pursues for his new brand. Some things to look out for include:
More Aggressive Price-Fixing
Auction houses benefit when they sell very expensive things. Sometimes, there is debate around price-fixing in the industry. Normally it is the dealers or galleries who drive up prices at auction, however the auction houses themselves are sometimes supposedly involved in the process. Phillips, for example, gets a lot of flack in the world of horology for their watch division — which is definitely the most successful in the industry. It has set some completely astronomical prices as of late, including a Patek Philippe Ref. 3974 for over $1 million and a more modern “Big Crown” Rolex submariner for a world-record $588,967. Whether these time pieces will retain their newly-anointed value, only time will tell. However, with the help of the right team of experts and some good PR, Sotheby’s could expand their own areas of expertise into similarly-collectible spaces that were previously considered niche (like, I don’t know, sneakers?).
From Furniture to Supreme, auction houses are diversifying. There are only so many masterpieces to be found and sold. In-between the mega-auctions, it’s imperative to find and even create new categories of covetable stuff to sell paraded as hard-assets. As a private company, Sotheby’s can be a major market-maker and experiment in all kinds of new spaces for collectibles (old computers, anyone?).
Content is another space that none of the auction houses have successfully branched into. Imagine a Netflix show or a series of movies produced by Sotheby’s, all quietly bolstering their own brand and introducing them to a new swath of consumers along the way. No one’s made a No Reservations for art yet. (Sotheby’s — If you need a host, I’m available. I don’t know much but I’m photogenic).
Finally, in 2017 Sotheby’s began to “advise” (aka manage) artists on their careers, a role typically played by a gallery or manager. This is a massive growth opportunity now that the brand is private. Having a global network of brand connections for collaborations, museum shows and ultimately auctions can allow Sotheby’s to literally create value for artist clients while presumably profiting off of their exploits themselves. In an age when artists like Sterling Ruby are launching their own clothing brands and Alex Israel is collaborating across-portfolio at LVMH, there’s no reason why Sotheby’s can’t become CAA for fine art.
One point of note. Going private can also help bolster Sotheby’s against competition in a more dubious way: by continuing to break down the façade of morality and conflicts of interest. The auction industry is notoriously opaque, as Michael Lewis explores on an episode of his podcast regarding the maybe-probably-fake-Saudi-prince-yacht-dwelling Da Vinci painting “Salvator Mundi,” which Sotheby’s was in fact sued over after potentially misrepresenting its value. A larger trend in every industry these days — from editorial to fashion to advertising — is the breakdown between the “integrity” of the product offered and the influence of those who seek to benefit from positive news and forced trends. In the art market, this almost always rears its head in the form of fake paintings or even wine going to auction at exorbitant prices, as well as attempts to inflate the value or “create a market” around previously-unknown new artists or even, yes, Supreme tschochkes. As a private company, Sotheby’s will have more control over how they sell, and I could imagine more influence will be peddled behind the scenes than ever before.
Sotheby’s now has a lot more maneuvering room to do things that shareholders might not have allowed it to. It can also readily lose more money in the short term in order to create long-term benefits, which is good for the house and potentially consumers alike depending on what vision Mr. Drahi pursues for his new brand. Some things to look out for include:
More Aggressive Price-Fixing
Auction houses benefit when they sell very expensive things. Sometimes, there is debate around price-fixing in the industry. Normally it is the dealers or galleries who drive up prices at auction, however the auction houses themselves are sometimes supposedly involved in the process. Phillips, for example, gets a lot of flack in the world of horology for their watch division — which is definitely the most successful in the industry. It has set some completely astronomical prices as of late, including a Patek Philippe Ref. 3974 for over $1 million and a more modern “Big Crown” Rolex submariner for a world-record $588,967. Whether these time pieces will retain their newly-anointed value, only time will tell. However, with the help of the right team of experts and some good PR, Sotheby’s could expand their own areas of expertise into similarly-collectible spaces that were previously considered niche (like, I don’t know, sneakers?).
From Furniture to Supreme, auction houses are diversifying. There are only so many masterpieces to be found and sold. In-between the mega-auctions, it’s imperative to find and even create new categories of covetable stuff to sell paraded as hard-assets. As a private company, Sotheby’s can be a major market-maker and experiment in all kinds of new spaces for collectibles (old computers, anyone?).
Content is another space that none of the auction houses have successfully branched into. Imagine a Netflix show or a series of movies produced by Sotheby’s, all quietly bolstering their own brand and introducing them to a new swath of consumers along the way. No one’s made a No Reservations for art yet. (Sotheby’s — If you need a host, I’m available. I don’t know much but I’m photogenic).
Finally, in 2017 Sotheby’s began to “advise” (aka manage) artists on their careers, a role typically played by a gallery or manager. This is a massive growth opportunity now that the brand is private. Having a global network of brand connections for collaborations, museum shows and ultimately auctions can allow Sotheby’s to literally create value for artist clients while presumably profiting off of their exploits themselves. In an age when artists like Sterling Ruby are launching their own clothing brands and Alex Israel is collaborating across-portfolio at LVMH, there’s no reason why Sotheby’s can’t become CAA for fine art.
Artist Alex Israel’s partnership with LVMH-owned luggage brand Rimowa.
Sotheby’s also operates an online “Institute of Art” where people can learn all about the business behind the gavel. A Sotheby’s-branded trade publication, educational app or Master Class-style program would make sense, as well as allow the brand to control first-contact with the next generation of art’s movers and shakers.
Finally, as a private company Sotheby’s can also more easily scoop up competitive or new-market economy brands like the beleaguered Paddle8 or Artsy, crowd-investment platforms like Masterworks or even Alain de Botton’s wonderful The School of Life.
No one can predict what will become of Sotheby’s now that it’s in private hands. The move is important to consider for anyone involved in the art market, however, and most likely will create a multitude of exciting stories to come. Auction houses like Sotheby’s wield an impressive power — the ability to define and create value. We can only hope Mr. Drahi will use it responsibly.