The Art of the Steal
I’ve just finished reading “The Art of
the Steal”, Christopher Mason’s account of the Christie’s-Sotheby’s
price-fixing scandal that resulted in jail terms and multi-million dollar
fines. Underneath its fascinating story of greed and machinations at the
top of the art and antiques market lurks a subplot that I, at least, had
not picked up in reading the press accounts of the trials. Behind the
collusion lay an explicit and strategic attempt to squeeze dealers out
of the top of the market. The Christoby’s collusion was, in part
at least, an alliance of auctioneers against dealers.
The plot goes all the way back to 1973, the year
that saw the first (unproven) act of collusion. In that year Christie’s
shocked the art and antique world by introducing a 10% buyers’ premium.
Three days later Sotheby’s did the same. Coincidence? The Society
of London Art Dealers and the British Antique Dealers Association did
not think so. They mounted a challenge to the legality of the premium
on the grounds that auction houses were the agents of the seller, and
thus could legitimately charge a seller’s commission, but they had
no right to charge buyers as well. They discovered that the premium itself
was not illegal, but that any collusion to introduce it was. Sadly, this
all took place in London where the anti-trust laws are limp dish-towels
compared to those in the U.S. If found guilty, Christoby’s would
have faced a maximum fine of $3,000 – roughly the premium on the
first couple of lots in the new system! Not even a slap on the wrist.
Despite the paltry penalty SLAD and BADA pressed
their suit, and eventually reached a settlement of $110,000, which didn’t
even cover their legal costs. But Christoby’s must have been up
to something if they were willing to pay $110,000 in order to avoid a
fine of $3,000. What they were doing, as SLAD and BADA saw clearly, was
launching an assault on dealers. Dealers were the main buyers in the auction
market, and the 10% premium was expected to come out of their mark-ups:
it was a deliberate move to transfer a hefty chunk of dealer profits to
the auction houses.
The clock now leaps forward to 1983, the year in
which Alfred Taubman bought Sotheby’s with the money he had made
from developing shopping malls. At that time, 60% of lots were still sold
to dealers, and Taubman decided he could only make the sort of money he
wanted to by changing Sotheby’s from wholesalers into retailers.
The difference between the dollars received by all the private sellers
of antiques in any one year and the dollars paid by the private customers
who eventually bought them is the gross margin available to the business
as a whole, and Taubman didn’t want dealers to have any of it.
Two simple techniques had made Taubman his shopping-mall
millions – making the experience of shopping as significant as the
purchase, and overcoming “threshold resistance”, his term
for the reluctance of shoppers to enter a store that appeared unfamiliar
or intimidating. In his first speech to the assembled staff of his newly-acquired
company, Taubman upbraided them for allowing their expertise to make customers
feel ignorant (he had himself been a victim of their snootiness when selling
an art work at Sotheby’s.)
He also launched Sotheby’s onto the international
social scene. All major sales were accompanied by major parties that he
packed with celebrities – anyone from dusty European aristocrats
to toothy models with matchstick legs. Sotheby’s gave those who
had made new money, and lots of it, in the booming markets of the 1980s
access to high society as well as to high art. The experience meant as
much as the purchase.
Auction-room drama was another vital part of the
experience, and Taubman did all that he could to intensify it. He reasoned,
correctly as it turned out, that if a buyer would spend $100,000 on a
high boy in the calm atmosphere of a dealer’s shop, he would spend
more in the excitement of a public auction. High drama meant high prices,
and high drama was achievable only in the auction room.
Taubman encouraged his auctioneers to play the whole
repertoire of theatrical techniques, all of them well tried and tested.
They bounced bids off the chandeliers to create the impression of hot
interest in a lot when, in fact, no-one was bidding at all. They pretended
that all the lots were selling, even when many were not. Such playacting,
of course, requires the existence of a secret reserve that is known by
the auctioneer, but not by the bidder.
These theatrics had already come under legal scrutiny.
In 1985, Lord Bathurst, the then Chairman of Christie’s International,
had had to surrender his license to conduct auctions in New York for two
years because he had claimed that two paintings had sold (for $2.1 million
and $1.3 million, incidentally) when in fact they had not sold at all.
The incident almost allowed Angelo Aponte, the New York Commissioner for
Consumer Affairs, to close down Christie’s New York operation entirely.
A settlement was reached, however, that allowed Christie’s to continue
doing business in the city while sending, in Aponte’s words, “a
very clear signal to the art world that they are going to have to clean
up their act.”
There is very fine line between declaring falsely
that a lot has been sold and making it impossible for bidders to distinguish
between lots that have sold and those that have not. Aponte investigated
this deliberately engineered confusion but had to conclude, reluctantly,
that the inadequacy of the law prevented him from declaring it illegal.
He also concluded that the legality of the secret reserve was equally
The New York Department of Consumer Affairs clearly
considered that the lack of transparency in the auction room was against
the public interest and lay on the margins of legality. Aponte considered
requiring auctioneers to declare reserves, to cease chandelier bids, and
to announce unsold lots – proposals that the auctioneers opposed
vehemently and vigorously. Consumer obfuscation was the key to their theatricality:
there is no suspense and no drama if everything is known. Taubman was
adamant in his belief that robbing the auction process of its mystery
would spell disaster.
Theatricality worked. Auction prices sky-rocketed,
soaring above estimates and far above dealer prices. Taubman had found
his pot of gold at the end of the rainbow – a booming retail business
with no inventory, an entertainment business that could gross $32 million
in a single hour (as Sotheby’s did when they sold the Gould collection
of Impressionist paintings in 1984), a money machine that ran on other
The only problem facing Christie’s and Sotheby’s
in those heady days was their mutual competition for sellers. This led
them to reduce their seller’s commission to zero, to guarantee prices,
and to offer advances against reserves. All of this was fine when the
market was booming and they could make millions from the buyer’s
premium, which by now they had increased to 20%. The slowing down of the
market in the later 1990s, however, meant that the buyer’s premium
was no longer the cash cow it had once been. Competing over seller’s
commissions was costing them money that they desperately needed, so they
agreed to stop competing and to raise their commissions in parallel. Stupidly,
they did this in New York, where the strict Sherman anti-trust law applied.
And they paid the price – nearly $600 million in fines (excluding
the class action suits that were to follow), and a year in jail for Alfred
As a result of all this, sellers at the Christoby’s
duopoly are now being treated fairly, but the smoke-and-mirror techniques
in the saleroom continue unabated. As a dealer, it makes me wonder if
I’m shooting myself in the foot by putting everything I know about
a piece, including its price, on the tag. Maybe I should watch a couple
of David Copperfield specials to see if I can’t learn better sales
techniques from him!