ARTnewsletter Archive

Guarantees Rise to Record Level on Eve of Auction Season

In a filing with the U.S. Securities and Exchange Commission (S.E.C.) on April 18, Sotheby’s said the level of outstanding guarantees it had made to consignors was $253.8 million, a sharp increase from guarantee levels in previous years. Sotheby’s added that the previous high for outstanding guarantees was $165 million, on Sept. 30, 2004.

NEW YORK—In a filing with the U.S. Securities and Exchange Commission (S.E.C.) on April 18, Sotheby’s said the level of outstanding guarantees it had made to consignors was $253.8 million, a sharp increase from guarantee levels in previous years. Sotheby’s added that the previous high for outstanding guarantees was $165 million, on Sept. 30, 2004.

Amid intense competition between Sotheby’s and Christie’s to bring top- quality works to the auction block, the houses frequently offer consignors a financial guarantee—or a minimum price—regardless of the work’s performance at auction. The level of financial guarantees is viewed as a barometer of risk, since the auctioneer must meet the guaranteed minimum regardless of the price achieved by the work at auction. For example, if a work guaranteed at $2 million were to realize only $1.5 million at a sale, the auctioneer would take a $500,000 loss.

In cases where an artwork fails to sell, the auctioneer has the right to recover the amount through its future sale. In most instances, the auctioneer is entitled to a share of the proceeds if the final price exceeds the estimated level.

The guarantee level stood at $99.7 million at the end of 2005, according to Sotheby’s, which, since Feb. 28, has entered into additional guarantee agreements totaling $154.1 million—a figure the house said is related to property offered at spring auctions in May as well as auctions scheduled for this fall.According to the S.E.C. filing, the mid-estimate value of the property is $290.3 million. The house further noted that its exposure is reduced by $9.5 million owing to the sharing of agreements with unaffiliated partners.

As a publicly held company, Sotheby’s is required to disclose its level of financial guarantees. Christie’s, a privately held company, generally does not disclose details of its guarantees.

The house reports, however, that five guaranteed lots were included in its Impressionist and modern art sale held on May 2, while the postwar and contemporary art sale tonight (May 9) has 14 works under guarantee. Christie’s did not offer guidance on how its current guarantee level compares with past auction seasons.

  • Issues