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”

Bloomberg Businessweek (North America) - - Con­tents -

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-and-bel­uga 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

Twombly’s Un­ti­tled (New York City)

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