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Walk into Sotheby’s or Christie’s and you enter a world that exudes exclusivity and wealth. That holds true for the clientele. Harsher financial realities apply to the auction houses themselves. News that banks have been sounding out investors for Sotheby’s, owned by billionaire investor Patrick Drahi, raises the question of how profitable these polished dealerships actually are.
There is no denying the art market has been growing, driven by increasing wealth. But headline “sales” — $8bn for Sotheby’s in 2022 — are not revenues. They are the all-in price of the items sold that year.
The middlemen only get to keep the commissions. In theory, buyers get charged 15 to 25 per cent on top of the hammer price, with lower percentages applied to bigger lots. Sellers are also supposed to pay a fee.
These are eroded by cut-throat competition. To stop a blockbuster collection going to “the other place”, as Christie’s and Sotheby’s refer to each other, auction houses might charge sellers nothing at all, or even pass through a chunk of the buyer’s premium.
Commissions as a percentage of sales at Sotheby’s have accordingly been hit, judging from public accounts to 2020 and subsequent Luxembourg filings by BidFair, the parent company for all Sotheby’s businesses. Lex calculates that fees have fallen from around 15 per cent of sales in 2017 to some 13 per cent in 2022.
True, Sotheby’s has added about $400mn of revenues from other activities, bringing the total for 2022 to $1.4bn. After paying for expansive headquarters, polished staff and the practice of carting collections around the globe, that left $203mn of operating profit – lower than the total interest cost reported by the vehicle that now owns it.
The current year may be tougher. Combined first-half sales for Sotheby’s, Christie’s and Phillips were down 18 per cent, says ArtTactic. Costs are unlikely to have followed suit.
Auction house business models are nowhere near as plush as their carpets. But that is unlikely to put buyers off. Such assets are an instrument of soft power, and an entry ticket into an exclusive world. There will always be a bid somewhere in the room.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore
