To win business, Christie’s and Sotheby’s are sweetening the pot for certain sellers
“Enhanced” sales mean handing back commissions to collectors “They’d do anything to get the deal away from the competition”
The bids spiraled higher and higher until—bang!—the hammer fell: Sold, for $62.75 million.
A sense of relief rippled through the elegant Manhattan headquarters of Sotheby’s in November when a celebrated painting by Cy Twombly, Untitled (New York City), set an auction record for the artist. For behind the heady price was a hard business reality: Even as the crowd was sipping Champagne earlier that evening, Sotheby’s was still frantically wooing the buyer, putting together a complex deal to secure his bid. Having also made concessions to the Twombly’s seller, the auction house ended up giving up much of its own cut for selling the masterpiece, according to people familiar with the sale.
Like many works of art these days, the 1968 Untitled was sold under what’s politely known as the enhanced hammer, which means the seller got more than the price announced when the hammer fell. In essence, much of the commission paid by the buyer to the auction house ends up going to the seller. In the Moët-andbeluga auction trade, these sweet deals are telegraphed in code. A 105, for instance, means the seller gets an extra 5 percent on top of the hammer price.
Since 2009, art prices have soared and sales have more than doubled. But a war for market share has broken out between the two big auction houses, Sotheby’s and Christie’s. “They’ve been making absolutely absurd deals just to be seen selling this Koons or that Rothko,” says David Nash, co-owner of the Mitchell-Innes & Nash gallery and a former Sotheby’s executive. “They’d do anything to get the deal away from the competition.”
The Sotheby’s commission margin— revenue from commissions as a percentage of auction sales—has dwindled to about 14 percent from 21 percent in 2009, though the fees were still worth more overall, according to company filings. Christie’s, a closely held company, isn’t required to report financial results, but it’s been known to offer an enhanced hammer as well. Last May, when the house auctioned off a piece owned by Sheldon Solow—a sculpture by Alberto Giacometti that went for a $126 million hammer price—it handed much of its $15.3 million in fees back to the real estate developer, according to a person familiar with the matter. Representatives for Christie’s declined to comment on the deal, and Solow didn’t return phone calls.
Auction executives have been willing to cut deals on certain higher-profile sales in hopes of generating buzz and better prices for other works. Even if the house fares poorly on one lot in a given auction, it might still profit on “the economics of the entire
sale,” says Evan Beard, national art executive at U.S. Trust.
The enhanced hammer is only one tool the houses are using. When Sotheby’s auctioned off the Twombly, it gave the seller, Los Angeles art patron Audrey Irmas, most of its $7.8 million buyer fee, say the people familiar with the matter, on top of the hammer price. It also made a risky agreement with the buyer, hedge fund manager Daniel Sundheim: According to a financial filing by Sotheby’s with New York state and people familiar with the deal, the house let the collector pay for the Twombly largely with an art swap. Sundheim pledged to consign seven other works, including a Warhol and a Basquiat, with a combined estimated value of $50 million to $75 million. Sotheby’s guaranteed him minimum prices for the pieces— a move that would leave the house on the hook if prices fall short. Sotheby’s, Sundheim, and Irmas all declined to comment.
A new management team at Sotheby’s, led by Chief Executive Officer Tad Smith, seems less willing to trade profits for market share. In February he told analysts that the dealmaking remains “fairly significant” for highly competitive collections, but also that he’s seeing signs of fewer givebacks on single consignments. The same goes for Christie’s. “We’re trying to recalibrate the market and persuade the sellers to come to a more realistic point of view,” says Brett Gorvy, global head of postwar and contemporary art at the London-based house. “We believe that if we work very hard and create value for the consignor, we should be paid for it.”
Will collectors be willing to forgo deals that have been so lucrative? Thomas Danziger, a New York lawyer who negotiates auction sales for major dealers, advisers, and collectors, agrees the auction houses want their old commissions back. But he says that may not be so easy, especially when the art market is showing signs of cooling: “We’d ask for enhanced hammer for anything.”