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Stocks S / Sotheby's Holdings, Inc.
|Subject: BID: Sotheby an interesting rec, but . . . ?||Date: 5/21/2008 12:59 PM|
|Author: AESpot||Number: 88 of 102|
This week’s Economist has published an article on the art market this past week (May 15th issue), titled “Signs of weakness” (in the business section. See if this link works:
A few points from this article are worth noting:
1) Even though the headline earnings of a couple of pieces have been impressive, the bidding has been spread thin. It would be interesting to see statistics on those who are doing the high-roller type of bidding, but I would suspect that, more likely than not, some of those high-rollers have oil and other natural resource wealth to help bolster their purchasing purse.
2) Approximately one third (1/3) of the pieces up for auction either met at or below their guaranteed price. Comparing this to previous years and the level of the sales’ performance has, at least temporarily, gone down. However, the article notes that they (both Sotheby’s and Christie’s) are being more reserved (no pun intended) in offering their guarantees. They are also noting with credit that it’s more difficult to have reinsurance or to spread risks properly to obtain higher margins.
3) They mention that first quarter results were somewhat flaccid due to “lower commission margins, higher expenses and fewer lucrative single-owner sales.” The single owner sales are somewhat interesting to me. One should factor in what those “single-owners” look like. Are they those on their deathbed and tend to be old? Do they tend to be individuals who are in the prime of their lives who have a strike of genius in wanting to auction off pieces to share with the open market? Are they individuals who tend to be cash strapped and need more funds and thus are raising money through auction? It would be interesting to know more demographic information on these single owners so we can further assess trends.
After reading the Fool’s review on Sotheby's, I think there are a couple of additional points to bring up that there simply isn’t enough room to address in the newsletter. (One should note that that I’m going to limit my discussion primarily to art work to mean paintings/pictures photographs, and not necessarily antiquities, jewelry, artifacts or the like.)
-Part of the reasons for such higher costs of selling such items would be authentication. With the advance of materials, technology and information, the forgery market is ever-present and is quite spectacular in reproducing faux copies of various artists. Also, with the discovery of new stashes of artwork produced by various artists, it’s no wonder that the expenses are higher in researching provenance and authenticating would increase. However, despite these increases, I think that the Fool gets it right in saying that people who tend to enter this market, would pay the premium to help ensure authenticity. As the problem of forgeries increase, the value of the brand will increase (presuming Sotheby's can continue to help ensure authenticity to the best of their ability).
--One risk that is somewhat addressed but may need more investigation is that of repatriation. Over the past several years, more museums, governments, and individuals have continued to become more legally savvy in attempting to repatriate art that was either stolen, expropriated (almost same thing, right?). There was an article recently regarding the Egyptian government is attempting to repatriate the Rosetta stone from the British museum. Although extensive provenance research should alert auctioneers of potential liabilities that may be involved with a given piece (or pieces), this is not full-proof. Another example is still that of the artwork expropriated during World War II (WWII). Examples that you will eventually see may be once the Cuban economy becomes more open for foreign investors and how artwork that was expropriated is found throughout the world (and/or attempting to get sold off immediately after the country reopens). This is merely a risk of derivative lawsuit liability; perhaps not a substantial risk, but one that should be factored into one’s analysis.
If I get around to reading the 10K, perhaps I’ll post more on this. There are some other points, but I think, for now, these are the top two that come to mind. Also, sorry for grammar and typography, but this was written somewhat "on the fly".
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