Issue #13  3/15/2000
Sotheby's Hikes Buyer's Commissions to 20% On Items Below $15,000; Changes Seller's Structure

It took less than a week for William Ruprecht, new President and Chief Executive Officer of Sotheby's Holdings, Inc., to make good on his promise that he wouldn't be "outbid" by Christie's.  He has hiked the salesroom buyer's commissions to 20% on the first $14,999.  The range for the 15% portion has been extended to the next $85,000 up to $100,000 (60,000 pounds) (from $50,000/30,000 pounds).  Above $100,000, the commission remains at 10%.  The internet buyer's commissions--not that this is bringing in any big bucks to Sotheby's--will stay at 10%.

By setting the rates differently than Christie's, Ruprecht obviously hopes to avoid adding fuel to antitrust charges, while raising funds to pay off all those lawsuits.  Christie's had previously hiked their buyer's rate to 17-1/2% on the first $50,000.  Both Christie's and Sotheby's new rates will be in effect for the next round of photograph auctions this spring.

Ruprecht also announced a new Seller's schedule.  I've posted up a listing of these rates at: http://www.comcat.com/~anovak/Sotheby'snewsellerrates.htm .

The seller rates seem to drop mostly by 1-2 percentage points--not exactly a big deal, considering the house could get those back by harder lines on illustration fees, buy-in fees, etc.

In other news, eBay denied late yesterday that it would seek to buy Sotheby's.  As I noted in the last newsletter, there are other more likely suitors.

Sotheby's stock dropped 1-5/8 points today to settle back down to 19-11/16, virtually where it was on Friday.

As I note later in this story, times could be rough for auction sellers at the two big houses, although these events could prove a boon for the smaller ones.

Amanda Doenitz of Butterfield's says, "I know of no plans to change Butterfields' buyers or sellers commissions. I learned that Christie's had raised the buyer's commission to 17.5% while I was at AIPAD. I understand they lowered their seller's commission."

When told of the Sotheby's increase in Buyer's premium she remarked, "This is the first I've heard of it.  I think it's a mistake.  I think it's important to keep in mind that in addition to such a high commission, there's sales tax--often at 8-1/4%, shipping expenses and then there's the expense of framing, so it adds A LOT to their bill. You don't want to discourage buyers and I don't understand this move."

George Lowry, CEO at Swann, also says Swann has no plans to raise rates.  But then Lowry runs one of the most profitable auction houses in the business and, as he indicated coyly, he didn't need to raise rates. 

Except for their problems, Sotheby's and Christie's seem to have no rationale for the hikes.  Prices at auction have soared and catalogues have grown thicker in number of lots, bringing in lots more dollars for the auction houses.  No hike in the fees was warranted.

Over at Phillips, a spokesperson told me there was no change planned for that auction house's rates.

After my last few newsletters one dealer (who requested anonymity) emailed me the following: "Thanks for interpreting the madness surrounding Sotheby's and Christies. Reminds me of a quote, 'How the Mighty have fallen!' Unfortunately, you and I both know people will still flock to those houses, get screwed one way or the other, and end up loving the experience. Will they be dispensing Vaseline before each auction?"

The same dealer suggests, "Don't participate and send a succinct message to the auction houses that their systems are pure BS and should be thoroughly regulated. If enough buyers don't participate over a period of months (and sure, someone would get some 'steals' in the short term) sellers would begin to doubt the logic of consigning great material."

While this "boycott" idea might not be all that workable and I doubt any "steals" would be made, the impact on the spring sales should be very interesting to watch, considering the smaller houses for once aren't going along with the two giants.  The increases will probably hurt hammer prices for Christie's and Sotheby's, even if the net to the auction houses themselves may actually go up--something I'm sure their managements are counting on.

The level of frustration and anger towards the two houses by dealers and collectors I've talked with today was stronger than I expected.  I wouldn't be very happy if I were a seller at the next sales of these two houses.  Buyers can always reduce their bids to compensate for the extra premium (when they remember), but lower hammer prices and higher buy-ins hurt sellers and the market in general.

Perhaps a better alternative is to avoid the larger houses for anything that isn't rare that you could get elsewhere, like later prints.  Dealers and the smaller houses should be able to provide better pricing on this type of material while all of this sorts out. 

Check your prices elsewhere first before bidding at a price that may now include a 17-1/2% to 20% buyer's premium, an increasingly outrageous shipping/packing fee and usually a sales tax (NYC-based Christie's and Sotheby's have nexus in many states due to their wide-flung office system, and you'll have to pay your local sales tax, or worse, NYC's 8-1/4% sales tax if you pick up at the house.).  Remember to include all of these "extras" in planning your maximum bids.

If this industry resembles the airlines, we may even see a pullback because of the resistance at other houses. 

My personal plaudits to the managements of those smaller houses for recognizing an opportunity to capture market share and for their continued positive support of the photography marketplace.  They might ironically provide Sotheby's and Christie's a way out of their antitrust dilemma by taking away a fairer share of those houses' markets.  My condolences to the fine photographic people at Sotheby's and Christie's who have to deal with a management out of touch with its markets and more focused on "making the numbers" the easy way.  Hopefully, you'll be able to convey some of the market "sentiments" to your new bosses.

By the way, just to be clear: I do not own and have never owned any individual shares of any stock mentioned in any of my newsletters, and, God knows, this information shouldn't be construed as stock advice.