Sotheby’s, the Russian billionaire — and the art of the deal

Sotheby’s, the Russian billionaire — and the art of the deal

What a controversial court case involving a Leonardo reveals about the risks and rewards of private art sales for auction houses

Two people, seen from behind, look at Leonardo’s painting ‘Salvator Mundi’, showing the figure of Christ, smiling gently and holding up a hand in blessing
Leonardo’s ‘Salvator Mundi’ at Christie’s in London in 2017, ahead of its New York sale © Carl Court/Getty Images

When Sotheby’s announced its sales results for 2023 this week, the bright spot came not in the activity for which the auction house founded in 1744 is best known, but in a less public place. While auction sales fell slightly to $6.5bn, revenues from private deals that it arranged for collectors away from the auction room rose by nearly 8 per cent to $1.2bn.

It was good timing for Sotheby’s because on Tuesday it was cleared by a New York jury of aiding and abetting fraud in the most controversial private sales case of recent years. It was accused by Dmitry Rybolovlev, a Russian billionaire, of having helped the Swiss art dealer Yves Bouvier to overcharge him by about $1bn for works including Leonardo da Vinci’s “Salvator Mundi”.

The auction house was absolved of any wrongdoing in having assisted Bouvier to buy the works and in providing him with valuations. The case, related to a long-running battle between the two men, highlights how global auction houses have been increasingly drawn into the kind of hidden dealmaking that used to be the preserve of private art galleries and dealers.

Indeed, Sotheby’s rival Christie’s is keen for more attention to be paid to the activity because it wants to keep on diversifying into what Adrien Meyer, Christie’s global head of private sales, calls “in essence, matchmaking”. A billionaire in search of a masterpiece need not wait for an auction but can ask Christie’s to find one in a private collection and make a discreet approach.

“Auctions are primarily generated by sellers of works of art, but private deals are mainly triggered by buyers . . . it is a hunting expedition,” Meyer says. This was the service that Sotheby’s originally provided to Bouvier in procuring works that he went on to sell to Rybolovlev. While this case was explosive, the activity has become increasingly common.

It has a long history in the art market, reaching back to Joseph Duveen, the famed art dealer who prowled around European collections and English country houses to identify the best masterpieces for American collectors in the early 20th century. The New York gallerist Larry Gagosian revived Duveen’s tactics from the 1980s onwards, creating a secondary market in high-end contemporary art.

But auction houses only followed as the art market became more transactional in the 21st century, with hedge fund collectors treating art as just another asset to be traded. They were prompted by some senior figures leaving and setting up as art advisers, offering to find prized works for collectors directly. After a gradual start, Sotheby’s broke through $1bn in revenues from private sales in 2018.

“It was a natural extension for us because collectors want to buy Picassos, Rolexes or handbags at the moment they want them and not have to wait until the next auction,” says David Schrader, chair of global private sales at Sotheby’s. He is a former banker at JPMorgan who joined it in 2017, and is credited with its recent growth.

“David is highly transactional and the antithesis of the scholarly art specialist of old. He just gets the deal and brings finance professionalism into the sleepy backwaters of art,” says one art adviser who deals with both houses. Meyer, who is among Christie’s top auctioneers, is meanwhile renowned for his “highly discreet selling to the high end” of the market.

While auction houses were later to the game than galleries such as Gagosian and Pace, they have advantages. One is that they hold, quite legally, a lot of inside information on potential clients. Not only do they know the buyers of the works they auction, which is often not publicly disclosed, but they also know the disappointed underbidders for every transaction.

“They are ideally placed because they have all the information both on who bought and who was trying to buy,” says Simon de Pury, an art adviser and auctioneer. The auction business provides them with leads on collectors who may still be hankering after a work, or others by the same artists, and a trove of information on where to bid on a privately held masterpiece.

Private sales are not always initiated by a dealer or auction specialist approaching an owner on behalf of a potential buyer. They also happen if an owner decides to sell a work privately rather than putting it up for auction. That often appeals to those who want to ensure privacy, given that sales are famed for being triggered by the “three Ds”: death, divorce and debt.

“People tend to know who owns certain objects at the top of the market, and discreet owners of major objects may not want the attention of a public sale,” says Jussi Pylkkänen, who stepped down as president of Christie’s last year to set up his high-level art advisory firm Art Pylkkänen. Auctions can also take time to arrange when an owner wants a quick transaction, and private sales offer a greater degree of control.

As with high-end, off-market property deals, some private sales on behalf of sellers can reap surprising results — even exceeding the price from an auction. Meyer of Christie’s summarises the pitch to the potential buyer as: “Only you have the chance to buy it. You have the right of refusal and it is not being offered to the rest of the world, so there is a premium.”

But that only works sometimes, notably when there is really only one collector in the world who covets an object and will pay an exceptional price to get it. There are more such cases in art than in some other financial markets because it is a small and specialised world. But when there are several potential bidders for a work, an auction still tends to fetch the highest price.

“If you are confident that two or more people will bid, an auction is unbeatable. They may compete on the day with disregard for a sensible market value, and you can get a great price,” says Hugo Nathan, co-founder of the art advisory firm Beaumont Nathan. That is the strength of auction houses, and the competitive edge they ultimately hold over other brokers.

Auction houses can, and often do, offer both options to collectors wanting to sell. Indeed, they will sometimes try out both: first sounding out the most likely buyer for a piece and only proceeding to auction if they fail to get a knockout price. But it is hard to keep a secret entirely and word sometimes gets around that a private sale was on offer before a work is auctioned.

That is most likely to happen if an auction house transports a work around the world for collectors to view privately in cities such as Singapore and Hong Kong, and can have a depressing effect in any later auction. “The most successful things at auction tend to be those that come fresh to the market, and if they have been offered privately in advance, it can flatten the bidding,” Nathan says.

More generally, galleries point to the scale of auction houses as not just a strength in private sales but as a potential drawback. “Their business model is pushing work through in very high volume. What we lack in comparable scale, we compensate for in depth and attention to specialised markets,” says Greg Hilty, curatorial director of Lisson Gallery, which has spaces in London, New York, Los Angeles and other cities.

Galleries that represent not only living artists but the estates of many postwar artists compete directly with auction houses for the business. They try to ensure that collectors who sell do it through them, both to make a cut and to control where the works are placed. Their pitch is that they are deeply versed in the works of their artists and have a list of potential buyers.

“We understand our artists and their markets better than anyone,” says Stefan Ratibor, senior director of Gagosian in London. “A gallery has this scholarly expertise and also knows what collectors are looking for by talking to them all the time.” The largest global galleries have some reach themselves: Gagosian has 19 exhibition spaces around the world.

Galleries also try to protect the interests of the figures who can be forgotten amid the private financial bargaining: artists. If a work by a living artist is poorly displayed while being offered, or a deal is struck at a weak time for their market, it rebounds not only on values of other works but their career. Their gallery tends to care more about that than an auction house does.

All of this competition among dealers, auction houses and some art advisers means that the profits on private sales are under pressure. In theory, auction houses cap their fees on private sales at the premium paid by auction buyers, which has been about 14 per cent on the highest value sales. In practice, Sotheby’s commissions on private sales tend to be around 9 or 10 per cent.

The court case illustrates the other side of the equation: there are risks attached to those returns. While auction houses act as brokers, they can easily come under scrutiny in deals among demanding collectors. It is hard to quibble with the price in an open auction, but easy to question a private transaction. Despite the outcome of the Rybolovlev case, that is one lasting lesson.

Meanwhile, the publicity shows little sign of dampening the ambitions of Sotheby’s and Christie’s. “The average [level of private sales] is about 20 per cent of auction numbers, but I don’t see any reason why it would not grow to 30 per cent, given how compelling it is to clients who get to know about it,” Meyer says. The trick is to make the private option more public.

John Gapper is business columnist of FT Weekend

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