How Much Have Guarantees Aided Christie’s Dominance at the Top End of the Auction Market?

Demand from collectors has undeniable influence over the heights to which art prices—and the art market as a whole—can climb. But this is only one side of the coin. The auction houses, too, have cards to play when sourcing works and competing for consignments. As with any industry, when demand is high, the major players will go to much greater lengths and in some cases much further out on a limb to deliver particularly hard-to-obtain consignments.

In this very upper portion of the auction market, the major players are mainly Christie’s and Sotheby’s. Christie’s currently tops the portion of the sales that set the 100 most expensive artists’ auction records, at 47% of the total. That margin goes up to 80% when looking at the 10 most expensive artists’ records. Sotheby’s follows with 36% of the whole. But across the past quarter century of sales, that hasn’t always been the case. “Each auction house has been stronger or weaker at given points in time,” explained art adviser Todd Levin, owing to shifts in strategy and numerous changings of the guard at each house.

Christie’s currently enjoys more freedom in its ability to negotiate top-level consignments. “The reason is because Sotheby’s is publicly held and Christie’s is privately held,” Levin told Artsy. Two main tools are at houses’ disposal when trying to pry a work from a private collection and thus improve the quality of artworks they supply to their buyers: guarantees and business terms.

In the former case, the auction house may personally pledge a minimum price to a collector for a work (or in rarer cases an entire collection) it believes will attract particularly fervent interest from buyers. Or it may solicit a third party to share the risk in such an arrangement—and the profit in cases where the guarantee is exceeded. In the case of business terms, a house can leverage a host of different variables, from the amount of marketing and promotion given to a lot to, perhaps most effectively, the portion of the buyer’s premium (usually 12% for these most expensive works these days) charged on top of the hammer price that it might share with the consignor.

Not only is Christie’s privately held and thus not subject to investor scrutiny and activist investors’ activities that shape its business practices, but it is also held by a major collector, François Pinault. As Levin explains, “If something great is coming up and he wants it, he can just basically buy it and guarantee it. Sotheby’s can’t do that. They have to respond to shareholders’ concerns. So they have to be a little more careful and responsible about their guarantees, giving away chunks of potential profit.”

New York’s spring and fall sales in 2015 were a particularly notable time with regard to Christie’s use of guarantees. Thanks to the risk-hungry dealmaking of Christie’s deputy chairman of postwar and contemporary Art Loïc Gouzer, among others, the house was able to wrest from collectors’ hands the world’s most expensive painting ever to sell at auction,

Pablo Picasso

’s Les Femmes d’Alger (1955; $179 million) and the world’s second-most-expensive painting to sell at auction,

Amedeo Modigliani

’s Nu Couché (1917–18; $170 million).

Gouzer, acting under Christie’s chairman and international head of postwar and contemporary art Brett Gorvy, pioneered the use of curated sales. These sales tout top-notch material across market segments rather than placing works into the typical slots of Impressionist and modern and postwar and contemporary evening sales, as has been the custom for some time and remains so at Sotheby’s. The initial sales were are also highly reliant on guarantees, with 47% of the lots in “Looking Forward to the Past” in May 2015 carrying guarantees. The method scored a world’s first: a single house selling over $1 billion worth of art in just three days.

That trio of works at the top of our list of the world’s most expensive artists at auction represents something of a grand finale to what had been a growing use of guarantees and aggressive business terms by both houses in the years since the 2008 recession. By the time those sales rolled around, in fact, guarantees were already on the decline. This was due to, among other reasons, a softening of the art market in 2015 to the tune of 7%, a slide that has continued in the first two quarters of 2016.  

“Until two years ago, probably until 18 months ago, Christie’s was being much more generous with guarantees. A higher percentage of their works carried guarantees than Sotheby’s,” explained economist and author of The $12 Million Stuffed Shark Don Thompson. He noted that the use of these financial instruments continues, but that previously Christie’s “appeared to be willing to give away a higher percentage of return for the guarantee than Sotheby’s was.”

This means they were better able to attract third parties to provide the financial backing to guarantee works. But it also means they received less profit when those works sold, leading to speculation over recent years that the dazzling figures achieved on Christie’s New York’s auction block doesn’t equate to significant returns for the house. Sotheby’s relatively lower performance may actually be driving a better bottom line.

Experts tend to agree that regardless of auction house strategy, we shouldn’t expect to see Picasso’s high—or much else in the upper half of the 100 most expensive artists—broken in the near future, at least not at auction. Where the major houses’ public sales are concerned, “now is not the time to get into ultra-high-ticket items,” said Levin. “For the moment, that time has passed.”

That’s not to say that astronomically high deals are not taking place. Among other recent notable purchases, Chicago hedge fund billionaire Ken Griffin paid $500 million for two works by and . But he didn’t purchase them at auction. “The best material is now going privately again, where before it was coming up publicly,” explains Levin. Both Christie’s and Sotheby’s have undertaken efforts to bolster their private sales divisions, the latter notably through the $85 million purchase of Art Agency, Partners in January 2016.

Private sales allow for much less risk and much greater privacy for all parties involved. So it makes sense that houses, collectors, and consignors alike would prefer these arrangements in less-stable economic times. Unfortunately, however, for those outside of those transactions, it means a decrease in transparency at the highest end of the art market—at least until the next upcycle.