Sotheby's employees pose with "Le Grand Canal", painted by Claude Monet, at Sotheby's preview in London January 28, 2015.Stefan Wermuth/Reuters
The art market is going from record to record, so why aren't the auction houses making more money?
Sotheby's reported an unexpected second-quarter decline Friday in part because it lost money on a painting that sold for less than anticipated. The news sent its shares down 7.5 per cent to $37.49 (U.S.) in New York on Friday, the lowest level in 10 months.
Fierce competition to win trophy artworks is eating into profit at the major auction houses even as paintings and sculptures by Pablo Picasso, Andy Warhol and Alberto Giacometti surge to their highest levels, fuelled by growing private wealth and a six-year rally in financial markets. To snag top consignments, Sotheby's and its rivals are offering incentives to sellers such as guaranteeing minimum prices or buying works outright in advance of an auction.
The latest quarter was "rather bumpy," Tad Smith, Sotheby's chief executive officer who took over on March 31, told investors on a postearnings conference call. "We've made a lot of progress since I joined four months ago, but there's an incredible amount of work to be done."
Annual net income for New York-based Sotheby's peaked in 2007, when global sales of art and antiques reached their previous high of €48-billion ($69-billion Canadian), according to the European Fine Art Foundation. The art market surpassed that mark in 2014 with €51.2-billion in sales. Sotheby's net income last year was about $118-million, 45 per cent less than its 2007 total.
The company's second-quarter profit fell 13 per cent from a year earlier to $67.6-million (U.S.) after it moved a London sale to the third quarter, and the stronger dollar eroded $11.3-million in auction commission revenue.
Sotheby's said it also lost money on the sale of a major painting it had acquired earlier in the year, declining to provide details about the work.
Sotheby's lost $8-million in the second quarter on guarantees, according to an investor presentation. This figure excludes auction commissions earned on these guarantees, a spokeswoman said. The auction house doesn't comment on the profitability of its guarantee portfolio, she said.