As champagne glasses clinked ahead of the Sotheby’s contemporary art sale earlier this month and the great and good of the art world gossiped about Frieze, behind the scenes things weren’t so rosy. So slim were the number of lots in one of the most prestigious sales of the year that works from the lower value day sale had to be brought upstairs and installed in the main galleries, “so they didn’t look like they’d been robbed”, according to one insider.
In fatter times, London’s marquee sales in October used to be big-ticket affairs, with several hundred million pounds-worth of art being traded at Sotheby’s, Christie’s, Phillips and Bonhams during Frieze Week. Not now.
That evening sale racked up just £37.5 million from a meagre 23 lots — compare that with £96.1m in 2022. If it wasn’t for national treasure David Hockney, whose sun-drenched tribute to the south of France, L’Arbois, Sainte-Maxime sold for £13.2m, “the Sotheby’s sale would have been a complete disaster”, says one former auction house executive.
Christie’s equivalent sale brought in £81.9m from 52 lots, and while that was up a little on the previous year, commentators point out that this was effectively two sales in one. For the first time in decades Christie’s pulled its June sales in London to focus on October — a sure sign of a market in decline. Phillips also took a hit with its October evening sale, which fell by 17 per cent in value.
The London art market has suffered particularly, blighted by post-Brexit regulations and the subsequent rise of Paris as an art centre, but there is a wider problem of a global fall in auction sales too. Ongoing wars in Ukraine and the Middle East, a depressed Chinese economy and a looming US presidential election have made the wealthy jittery about buying and selling high-value art. Some American buyers are said to be funnelling their coffers into political campaigns rather than art.
Guillaume Cerutti, chief executive of Christie’s, told a media call in July that it had been a challenging environment, the same month that figures from analysts ArtTactic showed worldwide sales at Sotheby’s, Christie’s and Phillips slumped 27 per cent in the first half of 2024. Bonhams reports a 10 per cent drop for the same period.
The New York-based art adviser Nilani Trent says smaller banker bonuses and dampened spending in Asia are among the main reasons for a floundering auction market. “When the Covid crisis ended and inflation took hold we saw bankers’ bonuses shrink substantially,” she says.
At the same time, the cost of buying art for Asian collectors has risen as currencies in the region have been devalued. “Traditionally, these two groups have pushed auction prices sky high,” Trent says. “Without these two groups as major players in the secondary market, we are seeing the auction houses falter.”
Christie’s, which belongs to French billionaire collector François Pinault, so far appears to be weathering the “challenging” climate. Cash flow is not a problem for Pinault and his elder son François-Henri, who now manages the business.
The picture seems to be more troublesome at Sotheby’s. Its owner, the French-Israeli telecoms tycoon Patrick Drahi, has amassed approximately $60bn (£46bn) of debt building his media empire over the past decade — including purchasing Sotheby’s for $3.7bn in 2019. Now creditors are pressing for payment. Leaked data revealed that Sotheby’s core earnings are down 88 per cent — though a Sotheby’s spokeswoman says this figure does not give a “holistic” view of the overall health of the company.
Meanwhile, The Wall Street Journal last month reported that the auction house has stalled payments to some creditors by as much as six months and that IOU notes have been offered instead of incentive pay. Sotheby’s denies the rumours.
Some relief is on its way. Following a deal with the Abu Dhabi sovereign wealth fund ADQ for a minority stake in the auction house, Sotheby’s is to receive a much-needed cash injection of $1bn by the end of the year, which will go some way to offsetting the $1.65bn of fixed debt tied to Sotheby’s auction business.
Despite the cash boost, 50 people reportedly still face losing their jobs in London. Christie’s has so far managed to avoid redundancy consultations, but staff at both houses are apparently feeling the pressure to perform. “There’s a lot of talk about auction houses being too competitive,” says one dealer. The battle for business means profits are falling as a result and they have to sell more “to make the margins they require to continue with the staff and infrastructure they have developed”.
Competition between the houses for lots to sell is also fierce, and reports of Sotheby’s internal troubles are likely to be affecting confidence. Last month, Sotheby’s postponed its Hong Kong sale to November after rumours it had failed to secure sufficient art works. A top lot, Yoshitomo Nara’s Agent Orange (In the Milky Lake), was instead put into Sotheby’s first so-called “Sealed” sale — a new format where collectors can discretely bid on cars, luxury goods and fine art. Crucially, prices are kept private, avoiding the chance of works being “burned” publicly at auction if the sale doesn’t meet expectations.
“There’s a lot of chatter about Sotheby’s and not about Sotheby’s sales and that’s hard for them to deflect from,” says the former executive. “Given the choice between consigning at Sotheby’s or Christie’s, reports of delayed payments at Sotheby’s could give consignors pause for thought.”
Some think Sotheby’s recent overhaul of its fee structure, which has reduced buyers’ premiums in favour of shifting more costs onto sellers, could have backfired. Other auction houses have yet to follow suit. “In this type of market, it is always a challenge for auction houses to prise away desirable works from collectors. And if Sotheby’s is truly instituting a strict seller’s premium, whereas before they had often waived or negotiated those fees, it might make that process even more difficult,” says Suzanne Modica of the New York-based advisory firm Modica Carr.
Sotheby’s disagrees, saying it’s “successfully winning business under the new fee structure and seeing high sell-through rates, increased bidding and more bidders overall”.
According to another art adviser, auction houses are now pushing back on covering other expenses such as shipping, even on private sales. This could present galleries with an opportunity to entice collectors to resell with them instead of going to the auction houses.
There may be more clashes between the larger galleries and auction houses on the horizon, with many houses expanding their private sales and dealership arms. The luxury and retail markets have become a growing focus for many auction businesses. Sotheby’s has invested tens of millions renovating new luxury and retail spaces in Hong Kong and Paris. Sotheby’s Maison, which opened in Hong Kong in July, pitches itself as a unique shopping experience where punters can buy trainers, jewellery or multi-million-pound works of art from galleries across two floors of a mall.
Stephanie Dieckvoss, an art market journalist who leads the MA in art and business at the Courtauld Institute, points out that historically Asian buyers have not trusted galleries, “so there is still an advantage for auction houses in Hong Kong”.
Sotheby’s new flagship building in Paris, which opened this month, is also geared towards private sales and bigger exhibition spaces, which have increased by almost a third on the old premises. The upper floors have been transformed into luxury showrooms where specially designated lots will be sold for fixed prices.
Dieckvoss thinks that Sotheby’s has been moving towards a “luxury and lifestyle company with a large retail element” for some years now, whereas Christie’s remains more of a traditional auction business. “Of course, Christie’s also understands that the luxury markets are growing and is investing in these areas too,” she adds.
These shifts reflect a changing of the guard among a younger generation of collector, whose tastes are more widespread and fluid. The idea of loyally building a collection hand-in-hand with a dealer no longer applies. Some rue the demise of the old ways of doing business. In recent years, expertise has been hollowed out at auction houses as longstanding executives have left to set up their own businesses or join mega galleries.
“It used to be the case that auction houses had the best clients and ‘gentlemen’ specialists, now they have turned into luxury goods departments. The notion of auction houses being crucibles of expertise is not the case any more,” says the former executive. “We are looking at a completely different universe compared with 10 years ago.”
For its part, Sotheby’s denies it is under pressure. Under Drahi’s leadership, the firm “is significantly larger, more diversified and more profitable”, the spokeswoman says, noting that the auction house is “performing well against the same cyclical market effects that everyone is experiencing”.
Behind closed doors business may be up, but the very public facing aspects of the auction industry are visibly suffering as the global economy and art trade face a sense of “permacrisis”, as the current climate is described in the latest Art Basel & UBS Art Market Report. Unlike previous, relatively short-lived market crashes — as witnessed in 2009-10 with the global financial crisis and again during the pandemic — this protracted period of turmoil is unprecedented. Auction houses may have survived centuries of change, but the current course of transformation looks set to be more painful than before.
