Complex Made Simple

Who gains the most from a booming art market?

Auctioning art is one of capitalism’s older professions and recent sales have shown that it’s a robust one, with the ultra-rich prepared to pay ever-higher prices for trophies that enhance their status. But does that make mean auctions are a profitable business?

New figures released last week confirmed that the top end of the art market is booming, yet it was widely noted that individual sellers, not auction houses, are benefiting most from the dazzling sales.

The Christie’s auction house is privately owned by the French billionaire François Pinault and does not include information on profits or losses in its financial data. Sotheby’s, however, is publicly listed – the only international auction house that is – and thus declares profits in its Securities and Exchange Commission filings in the United States.

The two historic auction houses are in many ways unrecognizable from what they were at their founding in the 18th century. Sotheby’s, created in 1744 in London and an American company since 1983, and Christie’s, founded in 1766 in London and still based there, continue to conduct public sales at which an auctioneer takes bids from a rostrum. But nowadays it is postwar and contemporary art, not Rembrandt or Italian Renaissance painting, that fetches the biggest money, and most of the bids are taken from international clients on telephones.

Yet for all this transformation, new figures released last week indicate that the domination of the art auction market by the two houses remains unchanged.

Sotheby’s said Tuesday that it sold $6.7 billion of art and collectibles in 2014. Christie’s said on January 20 that it had £5.1bn, or nearly $7.7bn, of sales last year. These figures, which combine auctions and private transactions, were the highest ever for both companies.

Equivalent figures were not available for Phillips and Bonhams, two smaller houses also founded in London in the 18th century. But these too had high points in 2014: Philips sold a Mark Rothko painting for $56.2 million in New York in May and Bonhams achieved a record $38.1m for a 1962 Ferrari 250 GTO racer in California in August.

The two leading houses generate roughly 94 per cent of fine art auction sales of more than $1m, according to the art market industry analysts Skate’s in New York.

But profits are another matter. Sotheby’s had net income of $117.8m on its $6.7bn of sales in 2014, down nine per cent from the previous year. Profits were hurt by the $21.4m cost of a long-running dispute with the activist shareholder Daniel S. Loeb, founder of the hedge fund firm Third Point, who is now on the board, and by a $7.6m severance package for the company’s chairman and chief executive, William F. Ruprecht, according to the latest S.E.C. filing.

Mr. Ruprecht announced his departure on November 20. A replacement has yet to be appointed.

“I don’t think it’s a good return for that level of turnover,” said Alan Hobart of the Pyms Gallery in London, who has been a prominent bidder on high-value Impressionist and Modern paintings at Sotheby’s and Christie’s. “But there is a lot of money out there and these are the only two players. Christie’s is just the smarter operation at the moment.”

In recent years, Christie’s has gained a clear edge over Sotheby’s at New York’s all-important biannual auctions of contemporary art. That less-than-stellar performance at Sotheby’s may well have hastened Mr. Ruprecht’s decision “by mutual agreement” to depart.

On December 2, Steven P. Murphy, Christie’s chief executive, also stepped down, suggesting to art world insiders that the most expensive auction in history might have been an expensive exercise in buying market share.

In other words, more expensive works were being auctioned and because of competition with Christie’s to lure sellers, Sotheby’s was taking less money. Owners of works valued at more than $10m are now almost invariably not charged commission and can play one house against the other to be given a bigger cut of the house’s buyer fees. Sellers can also negotiate guaranteed minimum prices. Works that had essentially been “bought” by the auction house generated more than 60 per cent of the total at Christie’s record-breaking sale in November, according to the analysts ArtTactic in London.

“Private sales are at a high price level,” said the New York art adviser Todd Levin, who was a specialist in Sotheby’s contemporary art department in the early 1990s. “The transaction is streamlined. Fewer people handle things and there’s no catalogue or essay. If Sotheby’s can make a more strategized position for private sales, that really will bring home the bacon.”

© 2015 The New York Times