Author: Michael Chappell

News reports indicate Sotheby’s long time CEO Bill Ruprecht will leave the company as soon as a replacement is found. Although it is reported to be by his own choice, his contentious relationship with board and major shareholders makes his ‘consensual’ departure appear not ulike the prescient maidens of the village who offer themselves to the advance guard in order to seek protection from the ravages of the invading horde.

Up to this point, and presumably at the prompting of activist board members, Sotheby’s has established once again an online partnership with eBay- despite the dismal failure of a similar partnership some years ago, established a bricks and mortar presence in China, and offering aggressive advances to would be consigners in an effort to attract the  best consignments. This begs the question, to descend to the vernacular, how’s that working for you?

Not well, I have no doubt. As well as the experience with eBay, Sotheby’s nearly sunk itself not so many years ago by offering inordinate advances, only to find on sale day the consigned item fell well short of achieving a hammer price above what was advanced against it. Hard to explain this profound a misstep to the bank that provided the financing, hard on the operating statement of course, and, ultimately, hard to explain to shareholders.

We do trade with Sotheby’s from time to time, and as it happens attended a round of sales in New York just a couple of weeks ago. Although certainly not privy to any aspect of the saleroom that cannot be garnered by anyone else who reads their financial statements, I can tell you that the premises are crawling, absolutely crawling with staff. I would imagine that Sotheby’s does its best to mine the available cadre of interns from the art history departments of Columbia, CUNY, and as far afield as Princeton and Yale, but for the most part, staff are paid- not well, perhaps, but enough to earn their daily crust and exist without undue privation in one of the most expensive cities in the world. I know for a fact that the ax has fallen on the necks of a fair number of senior staffers over the last couple of years, but their departure has not made any noticeable dent in the legions of folk there earning a living.

I suppose what I mean to get at is, while profitability is achieved through a confluence of revenue and cost control- what we call pouring cash in at the top at a faster rate than it can leak out the bottom- the auction house business is an extraordinarily expensive business to be in. Moreover, it is an aspirational business- Sotheby’s is not a provisions market. It has never, nor have we for that matter, ever sold anything anyone actually had to have to get along in life. What they sell, and what we sell, are luxury goods offered as only one of a number of discretionary purchases by which the wealthy may indulge themselves.

A few years ago, and apropos of our tenth year in business, Keith and I spent some little while working up an economic and demographic profile of our client base. While I’ll coyly tell you that the precise components of our typical buyer are proprietary information, I can tell you that, based on our findings, we estimated that those individuals who fit it numbered around 50,000- in the world! To say that we, and Sotheby’s, and Christie’s, and Bonham’s, and every other member of the accredited art and antiques trade access a limited buyer pool is to make an extreme understatement. And do I have to say that this class of buyer is savvy? Believe me, they know what they want, what they want to pay, and where- anywhere in the world- it is available. I don’t think a local bricks and mortar outlet or dumbed down accessibility through eBay is necessary for the buyer who can travel anywhere in their Hawker 4000 and whose PA’s earn more than President Obama.

While of course any business wants to always appear to be in and ready for business, the efforts of Sotheby’s activist board and investors that ultimately resulted in the resignation of Bill Ruprecht will amaze me if they prove successful.  In the short term, I suppose they have, however- Sotheby’s stock rose 7% the day Ruprecht’s departure was announced.

The longest lived member of the retail trade, with roots extending well back into the 19th century, surrenders its independence through acquisition by the Fine Art Auction Group. Certainly, with Mallett’s operating statement so awash with red ink it resembled the floor of an abattoir, it is a wonder that they were able to continue to carry on in business. Their capital structure was replenished through sales of premises locations in the West End and a number of stock reduction sales (‘rationalizing inventory’ this was called- doubtless a less pejorative phrase than ‘dumping stock’) but one wonders, at this stage, what Mallett really has left to offer. Presumably the acquisition price includes an expansive view of financial blue sky.

Arch comments aside, most of us in the trade, while sniping at Mallett as the tony province of oil sheiks and Russian oligarchs and all other manner of the parvenu, will under a modest amount of grilling admit that, to a very great extent, Mallett amounts to the gold standard in the trade. I can think of very few items resold within the time at least since we’ve been active that did not prominently mention a Mallett provenance if there was one, which mention invariably resulted in a sale for a premium price.

With all that, Mallett has been first and foremost a retail dealer, prominent in the West End, albeit now removed from Bond Street, and on Madison Avenue. As well, they’ve been notable participants in all the best fairs, and are one of the founders of Masterpiece, arguably London’s premier fair. What, then, makes this inherently retail dealer an attractive acquisition target for a company that is essentially an aggregate of salerooms? Hard to fathom, but presumably there remains some drag left in the Mallett name, but how that contributes to the bottom line is impossible to assess. Moreover, with the core business of Mallett continuing to leak cash out the bottom at a much faster rate than it could be poured in at the top, a more patiently pursued acquisition might have been able to strike a deal with the eventual receivers.

And is there any other? What an astonishing performance- that they held on to that one run lead the entire sports population including myself has to have bar shaped bruises across the posterior from bouncing up and down on the edge of the seat. I cannot think of a time when the series MVP was more clearly defined as it was last night in Madison Bumgarner.  What can one say about his performance through the season, and certainly the post season that hasn’t already been said? And humble? What a gracious young man, who seems to have taken a number of leaves from Buster Posey’s book. I can’t help but include some kind of cliché about the graceful courtliness of the South, made manifest in the demeanor of these supremely talented young men.

Contrast this, sadly, with the hash Fox made of its post game coverage. Mind you, I think Joe Buck is likewise a class act, and enjoy him as much as the greats of my youth, Curt Gowdy most prominently among them. But the color commentators? Where’s Joe Garagiola when you need him? And the trophy presentation? How crass! An extraordinary performance by an extraordinary group of men, tarnished by a tawdry ceremony MC’d by an inept announcer in a cheesy little room. Come on Fox- spend some money. And what about that boob from Chevrolet, babbling on about the glories of the latest thing to roll off the line, and forcing into the hands of a confused looking Madison the keys to a new car. A Price is Right moment, clearly out of place.

Well, I suppose the afterwards were at best comic relief, but certainly a come down and dissonant with the precision and ultimate glory of the scene we’d witnessed for the preceding three hours. I suppose all of us, including the players, can laugh off the post game, but for me, next spring can’t come soon enough.

London’s Daily Mail is reporting that the front runner to acquire international auction house Bonhams is Poly Culture, an auction house owned by the Chinese government, and a subsidiary of the Poly Group, whose interests range from property development to arms exports. The why of this acquisition may be known in the fullness of time, but for the moment, seems rather surprising as it would likewise prove surprising to find that Bonhams has been operating with any pronounced degree of profitability and, with its recent bricks and mortar expansion on Bond Street, without a fair bit of debt. Moreover, as is endemic with any auction house, its revenue and profitability must vary wildly, depending on consignments the acquisition of which is hard to predict or control, but yet a business whose substantial monthly overhead expenses carry on regardless of the quantity or quality of consigned items sold through its salesrooms. There has been a bit of ‘rationalizing’ over the last couple of years at Bonhams, with reductions in sales, and sales venues. Bonhams has not, however, been precisely leading the pack when it comes to online sales activity, behaving in this regard more like a regional salesroom, which with its single Knightsbridge location until its acquisition a decade and a half ago of the Bond Street and regional salesrooms of Phillips, it largely resembled.

Still, we do see a number of Chinese nationals participating in sales at Bonhams, certainly in the well attended Asian art sales in San Francisco. Interestingly, our experience has been that Chinese buyers will often pay more at auction than they will for comparable pieces offered for sale through the accredited trade. Presumably the Chinese buyers have divined that the auction house is a wholesale resource, and consequently, so the received wisdom goes, the best buys will necessarily be made there. That may once have been so, but in this age when online marketing makes all things transparent to both buyer and seller, everyone in the trade in art and antiques has to be price competitive.

But one other thing occurs to me, and this has to do with the nature of the Poly Group itself.

Few people will remember, although it was only a few years ago, that Butterfields, the old line San Francisco auction room acquired by Bonhams, was formerly owned by investor Bernie Osher, who used the salesroom not just as a profit center but as an adjunct to his own collecting interests. The best consignments, if they were pieces that were within his collecting ambit, were purchased by him by private treaty. It may be that that is part of the motivation of the Chinese government, the Poly Group’s alter ego, in an effort to flesh out Chinese institutional collections, and do it on the quiet.

Perhaps that’s a strategy that will pay off. Perhaps- but one wonders whether, with the ongoing operating expenses and debt servicing requirements of Bonhams, whether the Poly Group won’t find, at the end of the day, that they have paid a premium price, very far removed from a wholesale price, for acquisitions.

An interesting facet of spending more time in the local berg after an absence of nearly 20 years is to find and gauge the level of dynamism in the arts community. Sadly, arts organizations around the world are suffering from a lack of funding, brought about by a dearth of societal and consequently governmental interest. What used to garner even occasional public interest is now co-opted by the internet, social media, and 157 channels of cable TV in every home.

With all that, arts organizations are soldiering on. Locally at least, not very many new on the scene, but those with which I was familiar either through participation or financial support, are surviving, even if in a reduced state.

And, even 20 years on, very many of them continue to be reliant on a familiar cadre of names, for financial support and also for governance. Familiarity with a number of those who over time have wormed their way into positions of influence with many of the arts organizations, moving from one to the other and then back again, is a worrying phenomenon. Although probably not unique to Fresno, that a very few people seem to control what goes on in the arts functions to exclude participation by very many others, and goodness knows, with the meteoric growth in population locally, the pool of talented potential board members and active participants has doubtless increased. Not everyone is home watching TV.

‘Give, get, or get off’ is, or should be, the simple by word of non-profit boards of any stripe, but not subscribed to by very many local board members. It was the other evening at dinner out my misfortune to sit, by happenstance, at a table adjacent to one of these serial board members, whose financial contributions have always been, shall we say, limited. He is convinced, as he has repeated to me many times, that the boards he sits on would be unable to function without the valuable advice he provides to the professional management. Hmmm… He once told me he would clandestinely approach management below the executive director level to let them know that, if they had any problems, they could approach him directly for an assist and guidance. As well, this fellow will gleefully tell new board members that, since they’re new, their contributions to the board may not be as useful as his, given his long tenure. Divisive, dismisssive and interfering, he would hardly be considered a dream director, yet he’s served on at least half dozen prominent local boards.

I suppose what one has to get over is that, while arts organizations need money, endemically, they don’t need all that much advice, and certainly not much from those who are not arts professionals. This hasn’t occurred to my ‘dream director’, or to a number of others, nor has it occurred to any one that direct outreach to potential directors can’t be limited to just one’s circle of board cronies.