I read this article yesterday and I am still confused by it.
"...carried a pre-sale estimate of over $70 million..."
"...the artwork came to the market without a minimum price guarantee from the auction house..."
"Oliver Barker, the evening’s auctioneer, began the bidding for the bust at $59 million. But his bids stalled at $64.25 million. Three minutes passed as he hunched low over the rostrum, hunting for bidders, Nosferatu-like, until announcing that the lot was a pass."
Can someone explain how these things relate? If the pre-sale estimate was $70m, there was no minimum price guarantee (a reserve?) and a bid of $64.25 million (90% of the estimate) why didn't it sell?
The article goes on to say:
"“No one who is an informed buyer who is serious in this market — billionaire or not — is going to pay what essentially amounts to a 50 percent premium on something that sold in recent memory,” said Todd Levin, an adviser in New York."
Someone was willing to pay $64.25 million, a 30% premium on the last sale, $70 million is only 40%. Where does 50% come from? Why is $64.25 million bad but $70 million is good.
This is Todd Levin, who is quoted in the NYT article you have referenced. No one was willing to pay $64.25 million. That was just a chandelier bid by the auctioneer Ollie who was trying to get somebody up to open with a minimum bid of $70 million. The owner had established their reserve price at the low estimate, meaning that the low reserve of $70 million was also the lowest bid that the consigner was willing to accept as an opening bid. And if somebody bid $70 million at the hammer, they would still be responsible for the additional Sotheby's buyer's premium, and that buyers premium would've been a bit over $10 million, bringing the total paid for the Giacometti to $80 million at a minimum (had it sold). Since the previous sales that took place in 2013 in 2010 were $50 million and $53 million respectively, had this lot sold for $80 million all in, it would've sold for over 50% more than it had when it was successfully sold previously. I hope that math maths better for you with a complete explanation...
Thank you for taking the time to visit here and share insight. Yes, that explains it. The missing pieces for me were 1) no knowledge of "chandelier bids" (I thought bids were bids) 2) the article says "without a minimum price guarantee" which I read to be describing the absence of a reserve. With knowledge of chandelier bids, and an understanding that there was a reserve, it all makes sense :)
No worries, always glad to be of service if I can! I've worked in the art world (I have a private art advisory) for about 45 years now, and worked at Sotheby's for five years in the 1990s as well, so I know this territory extraordinarily up-close-and-personal from the inside out... :-)
If I had to guess it would be something to do with this part:
"Solow, auction experts said, had a history of not seeking guarantees, choosing to negotiate for a portion of the buyer’s fees instead. Last night that strategy proved fateful."
The vendor and the auctioneer have some private agreement, which meant the sale probably ended below an acceptable price.
My understanding is that the $64.25M in "bidding" wasn’t real, as it was likely done with chandelier bids. Essentially fake phantom bids placed by the auctioneer to simulate interest and push the price upward. It’s a common tactic, but many see it as deceptive, especially when it creates the illusion of genuine demand.
Many jurisdictions have laws specifically allowing it, as long as it's disclosed, like in the terms provided by Doyle Auction House:
The auctioneer will not specifically identify bids placed on behalf of the seller. The auctioneer may further bid on behalf of the seller, up to the amount of the reserve, by placing successive or consecutive bids for a lot or by placing bids in response to other bidders.
This is Todd Levin, who is quoted in the New York Times article above. People seem to be very confused about how public auctions legally work. Here is a short lesson, being that I worked at Sotheby's for five years in the 1990s. An auction lot has a pre-auction low estimate and a high estimate that is printed in the catalogue. This is simply a guide that the experts provide - a conservative estimate as to what the experts think the auction lot might sell for based on comps of recent public sales of similar works. When an item comes to auction, the consigner and the auction house work together privately to set a reserve price (not to be confused with the pre-auction estimate which is public). The reserve price is the price at which the lot will sell, and if it fails to achieve the reserve price, it will pass and go unsold. The reserve price can be no higher than the low estimate. Traditionally most reserves are set between 80% and 100% of the low estimate, though this is not always the case for reasons I will not go into here. The auctioneer may open the bidding at any number below the reserve, and may bid up in any increments whatsoever until they hit the reserve. Once they hit the reserve, however the lot is going to be sold, and then the auction house cannot provide any more bids. Any bids called out after an item hits its reserve, must be actual bids placed in the room, on the phone, on the internet, or left in the book by verified bidders. I hope that clarifies precisely the legalities and mechanics of how things work...
There's nothing remotely deceptive. Everybody understands there is a publicly available printed pre-auction estimate, and everybody understands that there is a reserve existing, only known to the consigner and the auction house, which can be no higher than the low pre-auction estimate. This is all clearly laid out in the auction house's publicly available terms and conditions, which also lay out every single one of these terms (and everything else applicable), what all the different terms mean, and how the auctioneer may and/or may not operate under those specific and crystal clear rules when running the auction. Everything is completely transparent. Now - if you go to an auction, and you don't read the publicly available terms and conditions, then perhaps yes, something might seem deceptive to you – but the reality is you're an idiot for not informing yourself of the readily-available rules and easy-to-understand laws and regulations under which the auction operates. At that point, it's not on the auction house at all, it's on you – caveat emptor.
It's fine if we don't agree, but the only reason to play the stupid game you describe is that it ends up working to the advantage of the house.
"We disclosed our nonsense in the terms and conditions, it's your fault if you don't catch on" is a fine way to do business if that is how you want to be seen doing business.
Yes, it was a so-called "enhanced hammer" deal where the commission that the seller normally pays to the auction house is inverted to flow the other way...assuming a minimum selling price has been reached. The intent is to encourage more ultra-high-end sellers to work with that auction house instead of another. The auction house still makes money from the fee that the buyer pays btw, ie the hammer price is not the price the buyer pays: they pay an extra 20% to the auction house.
So what seems to have happened here is that the seller set a de facto minimum of $70M before their deal with Sothebys would take effect, and, seeing that there was no interest, pulled the sale.
More details here: $70 Million Giacometti Flops at Sotheby’s, as Demand for Trophy Art Softens
Just for clarity - this was not an "enhanced hammer" deal. It was a simple fact that the consigner set their reserve at $70 million, and the consigner would not lower their reserve, even knowing the risk that the work would publicly fail at that level. An enhanced hammer deal is an entirely different situation, and it applies to third-party guarantees and/or irrevocable bids (know as IBs) – and neither apply in the specific situation...
When items like this go up for auction, sellers often set a "minimum" price. If that isn't met, the item isn't sold and remains the property of the original owner.
As you've highlighted, the reserve price doesn't have to be guaranteed by the auction house. So if this price isn't met, nobody gets the item (unlike the standard which is that the auction house will buy the item for the reserve price).
The 50% is probably the guy rounding the estimate to make a point.
As for why 64.25 wasn't enough but 70 would have been, I don't know. My understanding is that a lot of pieces sell for above their high estimate, so I'd guess that the seller was expecting/hoping for that? I do also think that 35% versus 40% matters a lot more when that difference is 6 million dollars in absolute terms.
Because as people start bidding they become invested in the outcome, and can often be convinced to go higher than they otherwise would. The trick is to set it under the minimum price the right amount that you can get multiple people bidding on the same item, each topping the other by smallish amounts. That way it doesn’t “feel” like you’re crossing the right price - “I’m already in for $60m, 1 more million is like 2% more, and then I beat this other person for something valuable”
Kickstarter works like this too. If you know anything about fixed manufacturing costs, when you see hardware projects with a 4-digit goal, you cringe. Some have other sources of funding, but the reason you set an artificially low goal is that it 1) gets people more excited when they see the % of goal go to 800% or 3000%, and 2) people are more inclined to back a project that's already hit its goal, regardless of how crowdfunding works.
Ground to earth opinion, it is crazy the disconnect of our world where people might afford or spend such an amount of money for a simple sculpture that is not that much beautiful or even unique, but just because of collector FOMO or investment based on name dropping of the author.
Imagine that it is the equivalent of 7 millions McDonalds meals, or 1000 years of an average US worker salary. All of that just for a decoration object that you will put on top of a chimney.
And it is not even like that the original author is rewarded for his own work!
This is why John Stewart Mill and Adam Smith advocated for steeply progressive taxes beyond a floor. The income multiplier for the top end of the income spectrum is very low compared to the bottom 40%. From a 1980a text book, the lower income multiplier was 11x, meaning someone earning a subsidence wage will spend it quickly, locally and it will multiply. The top 10%, I dont recall exactly other than a smaller band at top that included high salary taxpayers, not just the wealthy, had a multiplier of 0.4. When one gets to such high assests and income one stops consuming quickly and the resources become stagnent. This is an example of that, this "auction" might genetate some salary for the staff but lots of these millions are just being shifted between wealthy folks with little real world economic effect. This has been slowly strangling amy growth in real income for a majority of Americans ever since the tax code was altered in the 1980s. There have been other cuts in the 90s, 2000s and 2017. The only things delaying the serious effects were the tech advances and rapid population growth, masking this economic drag.
>This is why John Stewart Mill and Adam Smith advocated for steeply progressive taxes beyond a floor.
That is not correct.
>...Smith's first maxim of taxation, from Wealth of Nations, is that the "subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state."
>Taxation in proportion to revenue is not progressive taxation. It is proportional taxation—in modern terminology, a flat tax.
In terms of Mill, I think he advocated for inheritance taxes, but in terms of "steeply progressive taxes" he wrote:
>...To tax the larger incomes at a higher percentage than the smaller is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbours.
> ...To tax the larger incomes at a higher percentage than the smaller is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbours.
Must be nice to live in a time when this either was true or when people genuinely thought this was true.
No. The “vanishing middle class” is a convenient political myth supported by anecdotes and misleading charts.
Most of the middle class that “vanished” became part of the upper classes, at least as they would have been defined in real economic terms a few decades ago. Look at college graduation rates, or # of workers above $100k comp (real, not nominal), or the net worth of retirees, or …
America is vastly richer than it was even in 1990. Those riches may be modestly less evenly distributed—though there are demographic forces at work there as well as raw economic ones—but the median American along any number of axes is much, much better off.
> The fear within the auction world is that the bust’s flop could now taint casual perceptions of the overall health of the art market, when it was Sotheby’s, and the seller, who agreed to expose an object of economic importance to the risks of an unpredictable market.
In other words: Sotheby's decided not to sell, and now people are considering that paying $70 million for a piece of art might be a crazy idea. Maybe next time a piece of art is being sold for an outrageous price, buyer will instead think: "Wait, what I am doing? Am I really going to get $70M worth of satisfaction from this? And if not, will I at least be able to resell for the same price to next person?"
You are incorrect - it was not Sotheby's who decided "not to sell", it was the consigner who set their reserve at $70 million, and would not lower it, even though Sothebys actively suggested that they do so a day or two before the sale took place, knowing that they very well might not have somebody who would be willing to bid at the hammer that high. This was entirely the seller's call, and not the auction house's. The seller simply wasn't willing to part with their artwork for less than they felt it was worth, and they were perfectly fine taking it back if it didn't achieve the desired hammer price. It was their artwork, and their decision.
Yes, these oligarchs got into conspicuous consumption oligarchic competitions on art, yachts etc. Most of this $$ was looted by resource fraud and military procurement fraud that pretty much ruined their military.
I recall reading about supposed military encrypted radio the Kremlin paid $10,000 each for were common radios(Walky-Talky types) that were worth under $100 as well as Chinese tires - Ukraine heard every word.
