This article is taken from the February 2024 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

---

The global art market is worth about $60–70bn annually, and the two major international auction houses turn over about $12bn between them each year: there is usually a few million dollars’ worth separating each.

Christie’s turned over $6.2bn last year and Sotheby’s — which won the right to sell the late Emily Fisher Landau’s collection of modern art which totalled $406.4m — will no doubt claim the top spot in 2023.

Auctions are often considered the most open and transparent form of art transaction, and many purchases rely on auction sale prices as valuation evidence. But how does the often shady and unregulated world of the art market really operate? Who is buying all of this art, and why, and where and what should savvy readers of The Critic buy in 2024? I hope to cover all of this and more in this regular column.

First, how do we really assess the state of the market and is there a true barometer of the various art markets? Many of the huge “marquee” auctions of modern art, held biannually in London and New York, are underwritten either by debt raised by the auction house or by a “third-party guarantee” or “irrevocable bid” — where the minimum selling price of a work is agreed before the auction.

How does this practice affect the market? The art market is self-regulating, and since 2010 the practice of offering works at auction with third-party guarantees has seeped into almost every sale category where objects sell above $500,000.

Does this matter? The practice has been condemned by some as distorting the concept of the open marketplace of a public auction, seen as distinct from the secretive world of private sales conducted behind closed doors with dealers in plush galleries.

Auction houses make much of the public nature of an auction but if many of the lots in a sale have been “sold” before the sale takes place, how can the auction be a true or fair reflection of a work’s value?

Auction houses defend the practice as a way to encourage, indeed to literally guarantee a sale, bringing a feel-good factor to the market, whilst reassuring collectors of the resilience of that collecting category.

When most of the pictures sell to the guarantor — how real is that market?

The auction house acts as an agent for the vendor, but by either underwriting the sale itself (auction house guarantee) or by accepting a pre-sale guaranteed bid from a third party, it is both running with the hare and hunting with the hounds. It’s no wonder the opaqueness of this market practice leaves new buyers vulnerable to manipulation.

De-risking sales of works of art in this way may seem like a good idea from the auction house’s standpoint, but how transparent is a marketplace where a reserve figure (minimum selling price) set by an auction house (which has possibly been inflated by a vendor playing off rival auction houses against each other and to reduce selling fees) finds a third party who commits their art finance loan to guarantee the sale at the low estimate?

The wrinkle is that someone else — it is hoped — comes in at the auction proper and bids above the reserve, with auction house and guarantor sharing a pre-agreed per centage of any amount above the reserve figure. But when most of the pictures sell to the guarantor — how real is that market?

Furthermore, how should we react if the guarantor happens also to be the owner of the auction house, understood to be the case when a cache of documents leaked by hackers revealed that Patrick Drahi, owner of Sotheby’s, acquired the most expensive work sold at Sotheby’s in 2022 — Francis Bacon’s Triptych inspired by the Oresteia of Aeschylus — for $84.5m.

Finally, does it matter if the guarantor is in the market purely for financial gain or for a gambling rush? Rumours suggest Sotheby’s lost tens of millions on the Emily Fisher Landau sale as the results were disappointing, with the collection guaranteed by Sotheby’s and third parties but with few outside bidders coming in.

With a market in decline due to high interest rates (a surprisingly high number of collectors finance art purchases) and the margins when selling at auction notoriously thin, the days of guaranteed sales may be numbered. Indeed, is this part of the art market, as some have suggested, just a billionaires’ playground detached from reality?