Christie's Is Ready to Share the Risk in Art Market Recovery

Christie's International (CRUPF) expects to have a better year in 2010 than it did in 2009, a goal which shouldn't be too difficult for the auction house to achieve. Following a dismal year for art sales, there's nowhere to go but up. Yet there are degrees of recovery: Though the practice of guaranteeing minimum prices is poised to return, sellers won't see a swift return to the prices objects fetched at auction in 2007.Dragged down by the dismal economy and a hefty decline in the contemporary art category, Christie's saw its sales drop 24% in 2009 to 2.1 billion pounds ($3.4 billion at the current exchange rate). Only four of 13 categories posted year-over-year gains, with the Old Masters good for a 1% increase, and 20th Century Decorative Arts leading the pack with a surge of 149%. Wine and jewelry sales also cushioned Christie's from the severe declines of the contemporary art market, where its sales plunged 59% to 244.3 million pounds. Rival auction house Sotheby's (BID) struggled with the same issues in 2009.

Christie's CEO Edward Dolman told Bloomberg News, "These figures were much better than we expected. The art market is vulnerable and we thought we'd be down 50%, as we were in the last recession in 1991." The current slump in sales has often been compared to market conditions in the early 1990s, the last major period of retreat for the art market.

In fact, the 2009 numbers at Christie's would have been much worse had it not been for the Yves Saint Laurent sale it held in Paris in February. The company moved $480 million in inventory as it auctioned off most expensive single-ownership collection ever to go under the gavel. According to Dolman, "It showed us the reality of the new masterpiece market." He noted, "People are looking for exceptional objects." Six of the highest-priced pieces that Christie's sold last year were from the Saint Laurent collection.

If the art market does recover this year, which seems increasingly likely but is far from assured, the gains will actually be greater than they appear for Christie's, given the disproportionate influence of the Yves Saint Laurent sale on 2009's numbers. The auction house is clearly expecting a strong rebound, as it has raised the issue of bringing back guaranteed minimum pricing.

Along with rivals Sotheby's and Phillips de Pury & Co., Christie's generally stopped guaranteeing minimum prices for art at auction toward the end of 2008. Too many pieces were failing to move at that time, given the uncertainty and anxiety caused by the financial market meltdown in September 2008. The houses were stuck paying for them, at a time when sales were suffering and they could ill afford to add to their own "collections."

Throughout 2009, the absence of guarantees likely prevented many impressive or high-value pieces from going on the block, as sellers turned to private transactions instead. As a result, auction houses lost opportunities to bring in revenue, and prices at those auctions which did occur may have been skewed by sales that were conducted without the transparency of the auction process.

An improvement in art market conditions that makes a return to guaranteed minimum pricing possible could thus have a disproportionate impact on Christie's recovery, as it will attract more inventory with the potential for high performance. Christie's is already engaged in talks with some sellers about guarantees.

"You will see guarantees coming back," Dolman told Bloomberg, though he cautioned that it won't look like the situation collectors saw in 2007, at the height of the contemporary art boom. "We'll be looking to share the risk much more. The contemporary market will recover."

The return of guaranteed minimum pricing, in any form, would mark a substantial change in art market sentiment, and ultimately activity. Nothing is quite so compelling as the assumption of risk.
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