Driving home tonight I heard on the radio a report about a Federal government raid on several hedge funds and included the name of Goldman Sachs (as if they wouldn’t add some cache). The alleged actions were thought to involve some sort of insider trading information. Would it make a difference if it was just “acknowledged” as a way of doing business? Meet the art market; the Sotheby’s/Christie’s duopoly has made a science of this method.
As having worked in this industry since the summer of 1969 (Woodstock anybody) I’ve seen great changes in valuation, buyers, and taste. My first real experience in the market was when my grandfather would visit our family in Philadelphia, which gave him an excuse to do some buying on Pine Street. His reputation certainly preceded my later forays down there. My grandparents took me on a “grand tour” buying trip to Europe in the summer of 1963 which was so innocent at the time. Auctions, why?
My grandfather and dealers of his kind did pretty well back then, and a heck of a lot better than dealers today. The market and supply for art and antiques has certainly taken a hit with the Great Recession, but some areas of this industry are doing just fine. Iconic 20th century artists are in great demand and Asian decorative arts are reaching staggering heights. How does that translate into insider trading? Let the negotiating begin!
Auctioneers like Sotheby’s and Christie’s operate from a different perspective than any dealer or other auctioneer. A duopoly only includes two. Other auctioneer must try to copy the duopoly, if they can. Since the time they both in due course, adopted the buyer’s premium, they stacked the deck against both the buyer and seller. Now, their legal obligation to the seller (UCC code) was pawned off to the buyer. Thus began the acceptance of their exclusive method of doing business and in a way that can’t be done as openly as in this industry. It has evolved to the point where they can actually tell you they are giving away inside information. With the availability of their irrevocable bid format or bidding up to a secret reserve, there is opportunity for trickery and deception.
It doesn’t help that fees are used as bait to entice the buyers and sellers. Cross pollinating both can only help with their eventual cut. The opportunity to work the market by their control of both the buyer and seller would be unconscionable in any other industry. Then again, to some hedge funds and investment bankers, this may sound too good to be true.
It really is disgusting to see how this auction process today is so corrupted. Smaller auctions must try to emulate the duopoly’s methods, or they will never make it. Secret reserves and the seller commission/buyer’s premium conflict are systemic in this industry. It has reached the point of convenient acceptance. This industry has the potential to be the poster child for the public’s manipulation and the government’s need for cleansing. Just remember, when the auctioneer is in control as the only insider, no one wins better than the house.