Arguably the most buzz during this buzz-filled couple of weeks in the art world has been about the initial round of sales of works from the estate of late shopping center and auction house magnate Alfred Taubman. With $377million premium inclusive racked up at Sotheby’s- the saleroom he purchased, took public, chaired, and then spent 10 months in prison for- there is still a long way to go to cover the $500 million net of premium guaranteed by Sotheby’s to Taubman’s estate. Will that guarantee be reached? This must come under the waiting with baited breath category, as the works sold to date did not sell all that well, yielding slightly more than the cumulative low auction estimate. One wonders to what extent Sotheby’s, whose loss on the quarter just concluded totaled nearly $18million can weather a charge for an unrealized guarantee.
It is interesting to note that Sotheby’s loss was less than the $28 million in red ink engendered in the same quarter last year, moderated, it seems, by the earnings booked in its finance unit. In fact, interest income is growing and commission revenue is declining. As I had written a few blog entries ago, if the objective was to achieve revenue enhancement in its core auction business by freeing up cash for potential additional purchases with the hypothecation of clients’ owned artworks, that strategy hasn’t worked.
However, if as it appears the objective was, with the addition of accrued but unrealized finance revenue the dilution of the operating loss, this hasn’t worked too well either. Skate’s has accurately characterized Sotheby’s strategy of a huge and liberal guarantee and ostensibly liberal credit extension in its finance wing as ‘all-in’, and ponders the scrutiny the company’s board audit and risk management committees are giving this. Other people are apparently concerned as well- Sotheby’s stock declined nearly 7% in yesterday’s trading.