Sotheby’s swift reversal of its recently overhauled premium structure is an admission of how the auction house read the runes wrong. To remind, from May 2024, Sotheby’s cut its buyer fees from between 13% and 27%, to 10% on works above $6m, and 20% on those below. Sellers, however, accustomed to negotiating and even negotiating away their fees, instead faced a more consistently applied 10% charge and more fixed incentives. In December, the auction house reversed the structure back to pretty much where it was.
Evidence of the advantages to buyers had been clear, particularly at the higher levels. Take for example two of the top lots of November’s season of New York evening sales. At Christie’s, Ed Ruscha’s Standard Station, Ten-Cent Western Being Torn in Half (1964) hammered for $59m, the same price that Claude Monet’s Nymphéas (around 1914-17) was knocked down at Sotheby’s the previous evening. Once the premium was applied though, the Christie’s buyer paid $68.3m while at Sotheby’s the final cost was $65.5m—you do the maths.
But when it came to getting supply, it seems that consignors were sticky.
Terrible timing
Fundamentally two things caused the Sotheby’s stumble. The first was that the timing was terrible. The pre-election US market was jittery and so would-be sellers were already sitting on their hands without the added disincentives.
More concerning is that the changes demonstrated a miscalculation of not just the economic dynamic of the art market—for which supply is harder to stimulate than demand—but also its psychology. As has been seen countless times at auction, buyers get infected by the mysterious throes of passion, so what is another $2.8m? Conversely, for sellers—the auction house’s clients—getting the best deal is all they can control. And in a duopoly situation, there is a convenient alternative.
While all the major auction houses saw their evening sale totals fall again in 2024, Sotheby’s dropped the deepest, and lost market share to Christie’s, according to ArtTactic. Sotheby’s chief executive Charles Stewart insists that its overall profitability has not been affected, but there is no way to verify this. Meanwhile, we do not know all the incentives agreed with consignors and, in Christie’s case, the effect of its third-party guarantee deals—this auction house does not adjust its final numbers to show what was actually paid when a guarantor buys a work.
Positive signal
Such secrecy suggests Sotheby’s had valid reason to try and shift the status quo. Caroline Sayan, the chief executive of the advisory firm Cadell, notes the attempt towards more transparency sent a positive signal, particularly to new buyers, who were also attracted to the lower fees. Plus, she says, “The model of continuing to raise the buyer’s premium is not sustainable, and I personally think it is a distraction to re-evaluate [selling structures] every season.”
The best that can be said is that Sotheby’s did well to remedy its misjudgment so quickly. But the auction houses start 2025 with the same unenviable challenges to their bottom lines as in 2024.
