Stephen Brooks started his new position as Chief Executive Officer at Phillips auction house this month. He previously served as Chief Operating Officer at Christie’s auction house for more than a decade. Prior to joining the auction world, Brooks had a career in London’s financial markets as Chief Financial Officer at an investment bank and at a major asset management firm. Brooks spoke to Marion Maneker over the phone about the success of his predecessor Edward Dolman, as well as his hopes to continue the firm’s rapid growth, the need to attract new buyers to new markets, and the role financial guarantees (the minimum sum a consignor receives for selling property) are now playing in the industry.
Stephen, you’re taking over from Edward Dolman who has transformed Phillips over the last seven years as CEO. Dolman, who brought you into Christie’s 11 years ago, is becoming Chairman of Phillips’s holding company. He’s hardly exiting the scene. In fact, I’m told Phillips had its best first half of the year ever in 2021. How are you going to top all of this?
Before I started at Phillips, I recall seeing an employee survey of Ed as CEO—with a rather daunting 97% approval rating! So you are right—it’s a tough act to follow. There were many who thought the mission Ed embarked on was going to be a very difficult one, and to the credit of Ed and his team, it is. The business has been through such a significant transformation. It’s three times the size it was 5 years ago. They opened in Hong Kong, built a new headquarters in London—it’s a vastly changed organization.
When I was talking with the owners of Phillips and Ed—in the first conversation I had with them—I said I won’t come in just as a caretaker. I want to have a growth agenda. I asked them, ‘Are you committed to a further growth agenda?’ So, I think he’s done the really tough thing in building a team with real depth. You can build infrastructure; you can work on marketing plans; you can do the big scaling up thing. But you have to start with the best people.
The joy for me is that Phillips has got 6 collecting categories, not 70 collecting categories. The agenda is very focused. So you’re able to evaluate where is the growth potential. It’s a very clear that the prospect of double digit growth is possible from here. My job is to figure out how to do that.
It sounds like Phillips’s growing market share has changed the dynamic in your business. Rather than fighting over finite market share, the focus seems to be an expansion into new markets. The huge rise of Asia is one part of that. The other part of it is new buyers in all sorts of different categories.
It’s about new markets. But it’s also about new kinds of clients. Phillips is talking to a different audience, an audience of new collectors that can expand and is expanding in a way that the more traditional houses are not able to do.
I do think there are new products in terms of watches, sneakers, more design material, different artists, different types of artists. It’s always been an auction house that emphasized breaking and developing new artist’s markets. It’s the place people love to go for experimentation. That’s a fabulous brand identity. It feels very organic.
You rightly started this by referring to the first six months of the year. I have to say that was quite a surprise off the back of a pandemic. It is quite one thing to go back to sort of pre-pandemic levels, but it’s pretty impressive to get 15-20 percent higher than your highest sales ever. The warmth toward Phillips and the appetite for what is being offered is unbelievable. This kind of consumer-led desire to participate in auctions is very much there. Phillips has grown incredibly fast. It’s probably five hundred employees now where it was one hundred and fifty people and five years ago.
Going back to new clients and new players, it seems one of the very clever things that Ed did was create this Poly Auction alliance. It supercharged your Hong Kong sales. Is there more to be done there? Is there a way to integrate that further into the non-Hong Kong sales?
It’s a slight wait and see for me, to be honest. There’s a nice sale coming together for the fall season which looks like that cooperation with Poly Auction is again working very well. But it’s early days. It will be good to see how that particular sale works. It’s a stunning beginning. Once we get through the next sale, we’ll see whether that partnership has got broader resonance for the organization. Will it extend to consignments as well as buyers?
And what about hybrid sales?
I think it’s going to evolve from here. Hybrid sales are with us. But I think this year we’re in the middle. Why would you go back and retrench on some of these great developments? This is a much more participative, accessible form of engagement with the art market.
When you reintroduce live bidders, even if they are auction house representatives, will it stay in the TV studio? Will people come back? Will there be an advantage to be seen bidding?
My suspicion is that we will try and bring all of those component parts together in one experience, and we’ll get better and better as we go through it. It’s demanding for an auctioneer to juggle live and internet bidders. But our auctioneer is very good at this stuff. I think it will just get more and more engaging.
I think what’s interesting, if a part of all of this is that cultural property has become a store of value, it needs to be traded in more of a real time market. That would allow owners to mark to market more efficiently.
Why would you have a marketplace that seems to be closed most of the year? You want to expand it more consistently across the calendar to make it more accessible because that’s the whole business model. I mean, at the end of the day, we’re just intermediaries connecting buyers and sellers. The more often we do that, the more financially viable it is. But that requires infrastructure development. It requires capability to be on throughout the year. And there are logistical requirements that need to be addressed.
So the other big change has been the way guarantees have been financed on large collections. Your time at Christie’s coincided with the switch from direct guarantees to third-party guarantees. That has become the standard rather than the exception.
When I started at Christie’s, it was off the back of the 2008 financial crisis and credit lines were being pulled all over the place. It was the Lehman’s crashing with the whole credit crunch. The auction houses wanted to protect their balance sheet risk. They wanted to make sure that that risk was managed in a much more sophisticated way and that process began around that time.
Since then, financial engineering has become a key part of the art market. The role the auction houses play is using the skill set of being able to navigate one’s way through complex compilation of deals and risk management processes. That has become a central competence of the staff within these organizations.
I think Phillips is as well placed on deal construction as anybody. My own background, as you know, is very much in that space, and I was fortunate to be involved in some of the most complex and important transactions in the art market during my time at Christie’s, including the incredible Rockefeller collection that was sold in 2018.
Traditionally, Philips hasn’t been able to compete at that level. When you’re 150 employees and a private company, it’s very hard to set up the financing to do a Rockefeller collection. It’s a lot to swallow. By financial engineering, I think you mean creating a stack of risk so that the transaction can take place and the risk can be assigned to the various parties over time, rather than having to get all the moving parts together at once.
This is something that’s done in real estate, corporate takeovers, and pretty much all markets because you’re ultimately providing a service that the art market is in need of. When the value of these objects is so high that if you are selling the family silver, metaphorically, so many participants in the art market feel the need to get a guarantee or insure the outcome before they go into it. It is very much of the financial services mindset, but it’s actually providing a service to those who need it.
In 2009, you arrive at Christie’s. You came from an institutional background in the city. Those players are still there. But now there’s a wide variety of sources of capital, some institutional, some private, some semiprivate.
It would be lovely if there was some kind of standard way of doing this, but the reality is there aren’t standard pieces of art and there aren’t standard ways of tapping into capital. It’s everything you described configured in a bespoke way for the circumstances that you face.
It’s quite difficult to predict how this will evolve over time. But the financialization of the art markets is a path that I see becoming more and more sophisticated. Maybe we will see some kind of institutional solutions to this. People have talked about insurance companies playing the role. The issue becomes whether you can manage the risk. The goal is to get a standardized return over the whole thing. It is a nice notion. But, in practice, it becomes very difficult to do so.
Dealing with the complexity is a core skill set of the organization’s ability to provide the right kind of financial package for our clients and managing that service.
Is it safe to say that we to go back to where we started, that one of the key factors of Phillips being able to have its next leg of double-digit growth is providing this kind of sophistication and professional service on the third-party guarantees?
I wouldn’t distill it down as much as that. I think that there is definitely a next phase of Phillips, which is multifaceted. I would like to have much bigger evening sales. To be honest, the evening sales are pretty much the same size as they were four or five years ago. They’ve changed in quality and they’ve changed in product mix, but they need to grow further. And that requires several things—in my view, amplification of brand marketing capability. But yes, one’s ability to construct the right kind of financial constructs for clients is also central to that growth.