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The Gavel Drops at Sotheby’s

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Bill Ruprecht  

Martinez, a tough negotiator, was looking for concessions. He wanted the entire seller’s commission waived, which was no problem for Meyer—consignors of works above the million-dollar mark almost never pay such fees anymore. But Martinez also demanded a piece of the buyer’s premium, the extra fee on top of the hammer price. Once, the premium was considered untouchable, but in recent years, major consignors have been successfully demanding what auction-house employees call an “enhanced hammer”—or, in unguarded moments, a kickback. The two sides signed a contract that gave Martinez a large percentage of the premium if the Rothko sold for less than $25 million.

In addition, Martinez wanted a loaned advance of $15 million, which he would apply toward buying his new Rothko. Sotheby’s financial-services department is one of the lesser-known facets of its business; since few banks will take art as collateral, it is a crucial lending source for private dealers and collectors. Art loans are tricky, though, because they depend on the valuations of Sotheby’s specialists, who are trying to induce consignors. The Martinez loan was much larger, as a percentage of the estimated price, than Sotheby’s internal guidelines call for, but Meyer pressed for a quick approval.

“I do not want him to change his mind and not sell it in the end,” Meyer wrote in an email to finance-department executives. “He is mercurial.”

In the end, Meyer got his painting, which became a centerpiece of a Sotheby’s sale in May 2010, and it sold for $31.4 million. The only unhappy participant was Hoffman, the previous owner, who claimed to have sold the painting under a binding confidentiality agreement, assuming the painting would disappear into a private collection, not end up being flipped at a highly publicized auction. Her claims against Meyer were dismissed, but a jury last December found Martinez and L&M Arts (which was aware of the confidentiality agreement) liable for damages of $1.2 million.

It’s safe to say that the machinations surrounding Martinez’s deal with Sotheby’s for the red Rothko are unusual only in that they were exposed to scrutiny. Before Christie’s huge sale in November, the auctioneer read a legal disclaimer so long and confusing that the hall broke into laughter. The disclosures included guarantees that were financed by third parties who might also be bidding—an obvious conflict of interest, since the guarantors would have an incentive to drive up the price. Christie’s also disclosed an unexplained “financial interest” in many lots, including the Bacon triptych. Multiple sources said at least one piece, a Christopher Wool that sold for $25 million, came from Pinault’s own collection (though Christie’s denies this). Koons’s orange Balloon Dog—the marketable sculpture that Christie’s touted on tote bags—was consigned by the super-collector Peter Brant. After it sold for $58 million, the highest price ever for a living artist (to Jose Mugrabi, another super-collector), Brant revealed to the Times that because the dog had failed to hit an even higher target, Christie’s had given him the entire buyer’s premium. Once marketing, shipping, and other costs are figured in, Christie’s almost certainly lost a fortune on the consignment.

“That’s not abnormal,” collector Michael Shvo says of the Brant deal. “It is something that is done on a daily basis with both auction houses.”

The Balloon Dog may simply have been a loss leader, and Christie’s claims the November sale was profitable overall. But many market participants say Christie’s has been the more aggressive party in the price war. “Brett’s job is to mortally wound Sotheby’s by assembling the best auctions for Christie’s,” Levin says. Sotheby’s says its star lot last fall, the Car Crash, was one of its three most profitable sales of the year. But overall, it has responded by spending more on marketing even as it gives deals to consignors. As a result, its public filings reveal an erosion of profit margins. In 2010, Sotheby’s total sales of $4.8 billion yielded a relatively meager $160 million profit. Last year, total sales were $6.3 billion, but its profit was almost 20 percent lower.

Some argue that in order to compete, Sotheby’s needs its own Pinault: someone with a taste for beauty, little need for quarterly profits, and a desire to be the master of a slippery game. David Schick, a research analyst with the firm Stifel Nicolaus, has argued that the company is an ideal candidate for a leveraged buyout. “It’s a perfect trophy asset,” he says. “Like the Yankees or Manchester United.” But the company’s current stock-market value, $3.2 billion, is probably too expensive for a plaything, and takeovers aren’t Loeb’s style, anyway. He’s not a buyer; he’s a trader.

As pressure mounts, both auction houses have become more aggressive in scavenging for inventory. London dealer Kenny Schachter recently wrote a column for Gallerist about the lengths Sotheby’s went to in trying to secure access to a deceased in-law’s collection, which included offering a bounty to a family friend. Afterward, the dealer heard from Loeb. “He said to me that it was an epic tale of insensitivity,” Schachter told me. “I said, ‘The wolves are huffing and puffing.’ And he said, ‘We’re not trying to blow the house down; we’re trying to resurrect it, to build a better business.’ ”


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