Going, Going, Gone: Explaining Auction Houses’ Executive Exodus

It’s been a memorable year in the art world, not for what happened, but for who left.

On Monday, Christie’s announced that Loic Gouzer, its innovative co-chairman of postwar and contemporary art in New York, would be leaving the auction house by the end of the year. Mr. Gouzer said in a statement that he intended to spend the next few months “concentrating on conservation and climate issues before coming back to the art world with a new project.”

Mr. Gouzer is the third prominent auction house executive whose departure has been announced recently. On Nov. 21, Christie’s said that Francis Outred, its head of postwar and contemporary art in Europe, would be leaving. On Dec. 3, Sotheby’s said that Adam Chinn, its chief operating officer, would also be stepping down, with his role eliminated.

Guillaume Cerutti, chief executive of Christie’s, said in an email to The New York Times that the auction house would “primarily count on our existing teams in Europe and in New York” to replace Mr. Gouzer and Mr. Outred. “I strongly believe the real stars are the brand and the team,” Mr. Cerutti added.

Mr. Gouzer’s leaving Christie’s represented the biggest shock, given that he was the architect of the mold-breaking $705.9 million “Looking Forward to the Past” auction of 20th-century art in 2015, as well as the inclusion of a $450.3 million Leonardo da Vinci in a contemporary art sale in New York in 2017. But the abrupt departure of three such senior figures reflects the intense competitive pressure that deal-makers are under at the top end of the auction market.

“The equation is more complex today than ten years ago and even than five years ago,” said Mr. Cerutti. “Winning deals or convincing the owners to sell has become more sophisticated.”

Christie’s and Sotheby’s, as well as their would-be rival Phillips, frequently find themselves competing to offer the most generous possible terms to finance-savvy owners of multimillion dollar artworks.

Sellers at this level are not charged commission, leaving the auction houses to tempt them with higher valuations and bigger percentages of the fees they charge buyers. Increasingly these complex arrangements are pegged to a minimum price guarantee, with the guarantor earning a share of the profit if the work sells above that figure. It is a risky business, and auction houses like to pass on that risk to a third party, who guarantees the sale with a so-called “irrevocable bid” at the auction.

This leaves auction houses making meaningful returns on high-value lots only when they sell significantly over estimate. But demand at the very top end of the market has cooled. The two highest-selling auction lots of the year — a $157.2 million Modigliani nude at Sotheby’s and a $115 million Picasso at Christie’s — both failed to surpass expectations, selling to single bids from their third-party backers and so yielding no upside to the auction house. Competition for the best available works has pushed up the value of guarantees, but this often discourages competitive bidding at the auction itself.

Ed Dolman, chief executive of Phillips, said that third-party guarantees have “changed the dynamics” of big-ticket auctions. “You prearrange the sale and execute it at the auction. Buyers are locked into deals, so they don’t have the flexibility to bid on other lots,” he added.

Because of this, the risk of offering high-value lots that don’t have guaranteed bidders has risen. In October, at Christie’s in London, a Gerhard Richter skull painting and a Jeff Koons “Cracked Egg” sculpture — both seemingly “blue-chip” contemporary masterworks, one estimated at $15 million and the other at $13 million — failed to sell.

Things get even riskier when the auction house guarantees a work with its own money. At last month’s sales in New York, Sotheby’s couldn’t find a buyer for “Prewar Pageant,” one of an admired group of abstracts by the early American modernist Marsden Hartley, which the house had guaranteed for about $30 million.

Sotheby’s also took financial hits on third-party guarantees in May, when the $157.2 million Modigliani sold below its published estimate, and in June, when a Picasso undersold at $36 million.

The auction house, explaining a 26 percent decline in net income in the second financial quarter, said its margins had been “negatively impacted” by “auction guarantee shortfalls” on two paintings. In other words, Sotheby’s had to use its own cash to top up the amounts promised to the sellers.

Yet thanks to all those guarantees, and to prestigious estate auctions, such the David and Peggy Rockefeller ($832.6 million) and Barney A. Ebsworth ($323.5 million) sales, both of which were guaranteed by Christie’s, and the Pierre Bergé ($32.4 million) sale at Sotheby’s, the overall numbers for 2018 will be impressive enough.

Official figures have yet to be released. However, Christie’s (which, being a private company, doesn’t have to report profits or losses in the way a listed company would) said it raised a total of $6.2 billion at auction in 2018, a 6 percent increase on the previous year. Total auction sales at Sotheby’s were at least $5.2 billion, 13 percent up on 2017.

With economic indicators looking ominous in America, China and Europe, 2019 could be a more difficult year for the art world.

“Next year we’re going to see a lot of recalibration,” said Evan Beard, an art adviser in the wealth management unit of Bank of America. Mr. Beard said that the auction houses were already “dampening down” the expectations of sellers.

But the “three Ds” of death, divorce and debt will keep supplying the market. Last week a divorce judge ruled that the $2 billion fortune of the New York real estate magnate Harry Macklowe and his estranged wife, Linda, should be split. That means the Macklowes’ collection of modern and contemporary art, valued at about $700 million, will have to be sold.

And while auction house executives come and go, there also remains a select group of ultrawealthy collectors whose buying and selling keeps the machine churning. The Irish businessman John Magnier, who sold that $157.2 million Modigliani, was one who oiled the wheels in 2018. The Bahamas-based financier Joe Lewis, the seller of a $90.3 million Hockney, was another.

“They’re uninfluenced by interest rate rises and other things that happen in the wider economy,” said Mr. Beard. “Their arbitrage unlocks the capital that allows the top end of the market to continue,” he added, estimating that the most influential “mega-collectors” amounted to a group of about 40 individuals. “It’s a small club.”

And that club isn’t going anywhere.

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