“Aggressive competition” hits Sotheby’s profits

Buyers punished to entice sellers

LONDON. Increased competition from Christie’s, particularly in the fields of impressionist, modern and contemporary art, contributed to an $18.1m (or 12%) fall in turnover at Sotheby’s for the first three months of 2008, compared with the same period last year. The firm also announced a $12.4m fall in income (profits) for this period; last year its profits rose by $24.3m for the same quarter.

The auction house said that, in view of the “uncertain economic times”, it had reduced the level of guarantees offered (from $500m last year to $350m this year). However, this meant offering an alternative incentive to sellers to secure major works such as smaller auction house commissions. This contributed to the fall in profits.

Talking to analysts, Sotheby’s chief executive Bill Ruprecht said that, while demand for great works remained strong, the “competitive pressures” from Christie’s had begun to get “particularly aggressive” to secure contemporary, modern and impressionist works. Recent incentives offered by the auction houses include a rebate of a part of the buyer’s premium back to the seller. George Sutton, a Wall Street analyst, says that “we are in an era of aggressive rebating, with Christie’s taking the lead.”

Mr Ruprecht said that Christie’s had been forced to offer such incentives because Sotheby’s has a larger market share than its biggest rival. Christie’s did not respond to questions about its market share and rebating policy and said it had “no comment on Sotheby’s declining margins”.

Meanwhile, Sotheby’s has decided to raise its buyers premium once again—presumably to give more wriggle room to woo consignors. The firm is now to charge 25% on the first $50,000 of a lot’s hammer price (this level was previously charged on the first $20,000); 20% on the hammer up to $1m (this was previously up to $500,000) and 12% thereafter. The 25% level was only introduced last September.

Commenting on these initiatives, dealer Richard Feigen said: “The auction houses have jacked the commissions up so high that it will prove to be counter-productive,” adding that “excessive buyers’ commissions will probably result in more business for dealers.”

Christie’s did not comment on whether it will be also raising its premium levels but said it is “monitoring this situation”.

At May’s evening sales in New York, Sotheby’s had guaranteed 53 works with a potential value of $305.7m. These made

a total of $308.8m with only five unsold.

Melanie Gerlis

With additional reporting

by Katharine Albritton

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