Sotheby’s Going Private Will Change the Art Market Forever

When the Detroit shopping-mall magnate Alfred Taubman bought Sotheby’s in 1983, he set about reshaping the world’s oldest auction house, and five years later, he took the company public. Sotheby’s became the oldest company listed among the thousands on the New York Stock Exchange, and took the extremely appropriate ticker name BID.

But in the fourth quarter of 2019, after more than three decades as a publicly traded company, Sotheby’s will once again go private. In mid-June, it was revealed that French–Israeli telecom baron Patrick Drahi had made a $3.7-billion offer to buy the 275-year-old auction house outright, offering stockholders a pumped-up price of $57 per share—61 percent above the closing price the Friday before. Sotheby’s is entertaining the idea that Drahi could be outbid—the current majority shareholder, the Beijing-based insurance behemoth Taikang Life, is said to be a contender—but regardless of what happens, the auction house will no longer be beholden to public shareholders.

Even without speculating on the motivations behind Drahi’s sky-high offer, or the likelihood of someone swooping in to outbid him, here are three ways that going private will immediately impact Sotheby’s—and the entire art market.

The end of auction-world transparency

Few industries operate in the shadows as much as the opaque global art market. The secrecy demanded by collectors obscures many of the backroom market machinations at art fairs, in galleries, and on the secondary market, where masterpieces pass hands in deals crafted by advisors, far from public view. But a reliable beam of light in all this darkness has been the earnings report released quarterly by Sotheby’s, which the company has been required to make available as a publicly traded company.

Each of these reports and the accompanying phone calls with shareholders and press—which were headed up by CEO Tad Smith—helped to gauge the market’s temperature, explaining how much the house made or lost in the previous three months, the dangers of going full profligate on pricey guarantees, and the state of the market more broadly. Christie’s (which is owned by the French luxury goods baron François Pinault) and Phillips (which is owned by Leonid Friedland and Leonid Strunin, the Russian founders of the Mercury Group) have no such obligation to open their books to anyone, and thus have been able to give wealthy clients all the discretion they desire.

After Sotheby’s goes private, gone will be the quarterly missives that were occasionally accompanied by grim remarks, which could shake the market to its core. After a disastrous $515-million guarantee in November 2015—ironically for the consignment of the collection that had belonged to Taubman, the house’s former owner—Smith was forced to admit the folly of his ways, saying in the January 2016 call that the house had lost $12 million.

In August 2018, the stock price of Sotheby’s plummeted after it was revealed that the guarantees on two paintings had cost the house millions (when auctioned, both failed to attract bidding beyond the irrevocable bid). Going forward, such a “pricing error”—as Smith described the costly risk of the guarantee of the second 2018 paintings—will be kept secret.

More recently, in November 2018, Smith said that the art market would be “a bit more subdued” in 2019, sending speculators scrambling.

Vertical integration, disintegrating

There has been some speculation as to whether the Tad Smith era will end when the house’s new owner comes to town. But so far, Smith seems to be in good standing. There he was, standing at his usual perch in the New Bond Street salesroom in London during the post-war and contemporary evening auction not two weeks after the sale’s announcement. By all accounts, Smith will remain in place as the CEO of Sotheby’s—but his approach may have to shift.

Up to this point, Smith’s tenure has been marked by a relentless desire to vertically integrate, securing a bigger part of the middle market by expanding what an auction house can do beyond actual auctions. It began with the purchase of Art Agency, Partners—the advisory powerhouse started by former Christie’s rainmaker Amy Cappellazzo, critic and collection-builder Allan Schwartzman, and Adam Chinn, an investment banker who later became the COO of Sotheby’s. The price tag was $50 million, plus $35 million in bonuses to come, but Smith insisted at the time that the move would bring “significant new profit and revenue streams”—and hike up the share price at a time when it was taking a hit from the risk-heavy Taubman guarantee and a stream of high-profile departures from the house’s upper ranks.

That acquisition was followed by a raft of more vertical integration that positioned Sotheby’s as a one-stop shop for the needs of all kinds of collectors, not just the ones bidding at evening sales—a simulacrum of the whole market. In the next two years, the house acquired Mei Moses Art Indices, which is an art-market analysis tool, and Orion Analytical, a firm that spots forgeries and fakes. It also lured in Christy MacLear from her position as the head of the Robert Rauschenberg Foundation in an effort to work more closely with artists’ estates, and hired David Schrader as the head of private sales to boost non-auction action and selling exhibitions year-round. And in 2018, Sotheby’s bought Thread Genius, a set of algorithms that can recommend works of art based on perceived taste.

The buying spree was intended to focus on the middle market as Christie’s sniped the top-end consignments. But now that Sotheby’s can play that game with fewer restrictions, the vertical integration seems destined to fall off.

Room for two at the market’s peak

In the release that accompanied the bombshell news of Drahi’s offer, Smith said: “This acquisition will provide Sotheby’s with the opportunity to accelerate the successful program of growth initiatives of the past several years in a more flexible private environment.”

The phrase “a more flexible private environment” is an understatement—Sotheby’s is now privy to the same advantages that have allowed Christie’s to dominate the evening-sale wars since the recession. Once the deal clears, Sotheby’s can provide cover for consignors who previously would have gone to Christie’s for hush-hush services—protected details surrounding guarantees and the complete discretion of a single-person owner, among others. And this “more flexible private environment” also means that decisions about hefty guarantees and costly talent acquisitions no longer have to be justified to shareholders, some of whom might be perturbed by big-ticket spending.

And while Drahi is not a collector with lusty appetites on par with Pinault’s, there is still an advantage to having a single billionaire backing the auction apparatus: It provides a degree of familiarity. As the art advisor Wendy Goldsmith told the New York Times, “If you wanted to get something done, you went to the man with deep pockets.” Billionaire art collectors like dealing with billionaire art collectors. Soon, when collectors decide to part with major pictures, they’ll have to choose between one French tycoon and another French tycoon.

The Sotheby’s sale still needs to be approved by shareholders and federal regulators, and is expected to close in the fourth quarter of 2019. As soon as 2020 begins, the newly tightened race for consignments is on.