In an earnings call earlier this week, Sotheby’s CEO Tad Smith didn’t name which two paintings created the financial problem for the auction house, but analysts with a knowledge of recent art sales have identified a painting by Amedeo Modigliani which sold in New York for $157.2 million and another by Pablo Picasso that went for $36 million in London as the likeliest culprits. In the art auction world, sales are made with guarantees by auction houses like Sotheby’s for a certain amount that’s adjacent to the painting’s estimated value. So, for example, the Modigliani sold in May was estimated to be worth about $150 million, and was in all likelihood guaranteed for somewhere around that amount. When the bidding concluded, the winning bid was only for $139 million, and with the buyer’s fee the difference reportedly “only slightly” made up the difference when it came to Sotheby’s actual profit. A similar situation arose when the Picasso went up for auction. The 1932 Picasso entitled Buste de Femme de Profil (Femme Ecrivant) was estimated to sell for somewhere around $45 million, with a guarantee for something close to that amount. But due to a “pricing error” it went to the “irrevocable bidder” (a buyer found by the auction house to make a guaranteed minimum bid on the painting in question). This time, instead of just barely breaking even, Sotheby’s reportedly lost between $6 million and $7 million on the sale of the painting. CNBC points out that overall, the art market is strong, and two bad sales don’t necessarily make a trend. But it does illustrate how it can be possible for an auction house to lose money even when it closes a deal for tens of millions of dollars.
