In Faltering Economy, Auction Houses Crash Back to Earth
By CAROL VOGEL | Published: November 16, 2008

It was easily the worst two weeks of high-end Impressionist, modern and contemporary art auctions in more than a decade. Night after night, collectors and dealers tentatively watched as paintings by Monet and Matisse, Bacon and Warhol went unsold. Each time the hammer fell, it seemed to signal a new era in sales, one that featured the return of the seasoned collector and more-sober business practices. Still, given the depth of the global economic crisis, auction house experts were expecting worse.

Christie’s Images Ltd., via Bloomberg News
Francis Bacon’s “Study for Self-Portrait” didn’t sell. More Photos »
Multimedia Fall AuctionsSlide Show Sotheby’s

This Kazimir Malevich work sold for $60 million, a record for this artist at auction.

So when a painting by Kazimir Malevich brought $60 million, and a Cubist canvas by Juan Gris fetched nearly $21 million — both record prices for those artists at auction — there was an audible sigh of relief. Dealers and auction house experts said it was proof that some high rollers still had the cash and the appetite to buy art. “In a period as frightening as this, it is still amazing to think that over $600 million worth of art changed hands over the past two weeks,” said William Ruprecht, Sotheby’s chief executive.

But timing was not kind to the auction houses. The sales were put together in summer, well before the financial picture darkened, and were overloaded with works from sellers trying to cash in on the last several seasons’ wave of inflation. To win their business the highly competitive auction houses bankrolled them with guarantees, undisclosed sums promised to sellers regardless of a sale’s outcome.

Late Friday afternoon Sotheby’s, the a public company, reported that it had lost $28.2 million from guarantees at its contemporary art auctions last week. That brought its total losses to about $52 million this fall, all from guarantees. Executives at Christie’s, which is a private company and therefore not obligated to release its finances, also admitted to having lost millions of dollars.

More fancy financial footwork compounded their losses. For several years now Sotheby’s and Christie’s have given sellers a cut of fees they charge buyers. The companies also spent a lot of money producing lush vanity catalogs and had become the art world’s equivalent of Avon, taking previews of the art coming up for sale across the globe to clients as though they were shop-at-home services.

The winners of the last two weeks were savvy veterans like the financier Henry Kravis and his wife, Marie-Josée, who parted with a Degas pastel that sold for less than the guarantee they received from Sotheby’s. And the prominent lawyer Aaron Fleischman was said to have been given $5 million by Christie’s for a 1973 Warhol, a Mao portrait that failed to sell.

Guarantees like these may seem like folly today, but at the time auction house experts were concentrating on collectors thought to be interested in specific works. That was in the summer. By November the trophy hunters — Russian oligarchs and oil-rich Middle Easterners as well as Americans — had for the most part fled. So had many Europeans who embraced the New York auctions a year ago when the weak dollar made their purchases seem comparatively cheap.

In their place were seasoned collectors who sat out the boom years and were now returning for what seemed like bargain prices. The Los Angeles financier Eli Broad, for example, could be seen near the front of the Sotheby’s salesroom last week and bought more than $8 million worth of art by Jeff Koons, Donald Judd, Ed Ruscha and Robert Rauschenberg at an auction he called a “half-price sale.”
Tobias Meyer, head of Sotheby’s contemporary-art department and the company’s chief auctioneer, said prices for contemporary art had fallen to around 2006 levels and in some cases 2004 and 2005 levels. “Over the past 18 months we’ve had a super market due to the new buyers from Russia and other parts of Europe who hadn’t bought art before,” he said. “But it’s a new world now.”

Going forward, he said, “works are going to be priced far differently.” In trying to determine the new price levels for sales next year he and other auction house executives said they were beginning to evaluate the history of prices artist by artist. (Art dealers too are slashing prices, in some cases as much as 50 percent.)

To say the party is over is an understatement. Edward Dolman, Christie’s chief executive, said his company would, for the most part, give guarantees only in “exceptional circumstances” and it would not be rebating any of the buyer’s fees back to the seller. Mr. Ruprecht of Sotheby’s expressed similar sentiments: “We’re preparing for a different market. We are out of the guarantee business at least for a while. It’s too hard to predict what tomorrow looks like.”
Both companies said they would be also be cutting back on general expenses like lavish dinner parties for clients, extravagant catalogs and travel that takes art around the world. Staff cuts are inevitable too, auction house executives said.

“We’re predicting volumes to fall,” Mr. Dolman said of next year’s sales.

Without guarantees, gone will be the sellers trying to turn a quick profit. “We’re going to be a more traditional business,” Mr. Dolman said and quoted the adage about relying instead on “the three D’s — death, divorce and debt” — to get business.

The manner in which art is purchased will probably become more conventional too. In the flush years it was common for auction houses to sell to people who never actually saw a work live but bought simply based on an e-mailed image or a picture in a catalog.

“The jpeg market is over,” Mr. Meyer said. “We’re getting back to selling art you really have to look at.” As an example he pointed to the top seller in his contemporary art auction, a signature blue sponge relief by Yves Klein that brought $21.3 million. The work is so abstract it can only be appreciated in person.

Tastes are changing too. Prices for works by artists like Takashi Murakami, Richard Prince and Peter Doig, who were considered hot just a few months ago, softened considerably. Damien Hirst, who might have looked like a gravity-defying artist in September when he staged a landmark sale in London, seemed like yesterday’s news, with few of his works selling at all. The Warhol market fell flat this season too. “We are going to see a lot of young art being very difficult to sell, at least for a while,” Mr. Ruprecht said.

Instead established, reasonably priced artists like Alexander Calder, for example, whose works never appealed to new buyers are once again bringing high prices. And seasoned collectors are eagerly waiting to see what will come on the market next. In February, for instance, Christie’s is holding a much-anticipated sale of art and objects that belonged to the fashion designer Yves Saint Laurent, who died in June.

“Now might be a good opportunity to acquire really great things,” said Mr. Fleischman, the collector. “Works that haven’t been around before.”