I read this article yesterday and I am still confused by it.
"...carried a pre-sale estimate of over $70 million..."
"...the artwork came to the market without a minimum price guarantee from the auction house..."
"Oliver Barker, the evening’s auctioneer, began the bidding for the bust at $59 million. But his bids stalled at $64.25 million. Three minutes passed as he hunched low over the rostrum, hunting for bidders, Nosferatu-like, until announcing that the lot was a pass."
Can someone explain how these things relate? If the pre-sale estimate was $70m, there was no minimum price guarantee (a reserve?) and a bid of $64.25 million (90% of the estimate) why didn't it sell?
The article goes on to say:
"“No one who is an informed buyer who is serious in this market — billionaire or not — is going to pay what essentially amounts to a 50 percent premium on something that sold in recent memory,” said Todd Levin, an adviser in New York."
Someone was willing to pay $64.25 million, a 30% premium on the last sale, $70 million is only 40%. Where does 50% come from? Why is $64.25 million bad but $70 million is good.
When items like this go up for auction, sellers often set a "minimum" price. If that isn't met, the item isn't sold and remains the property of the original owner.
As you've highlighted, the reserve price doesn't have to be guaranteed by the auction house. So if this price isn't met, nobody gets the item (unlike the standard which is that the auction house will buy the item for the reserve price).
The 50% is probably the guy rounding the estimate to make a point.
As for why 64.25 wasn't enough but 70 would have been, I don't know. My understanding is that a lot of pieces sell for above their high estimate, so I'd guess that the seller was expecting/hoping for that? I do also think that 35% versus 40% matters a lot more when that difference is 6 million dollars in absolute terms.
Because as people start bidding they become invested in the outcome, and can often be convinced to go higher than they otherwise would. The trick is to set it under the minimum price the right amount that you can get multiple people bidding on the same item, each topping the other by smallish amounts. That way it doesn’t “feel” like you’re crossing the right price - “I’m already in for $60m, 1 more million is like 2% more, and then I beat this other person for something valuable”
Kickstarter works like this too. If you know anything about fixed manufacturing costs, when you see hardware projects with a 4-digit goal, you cringe. Some have other sources of funding, but the reason you set an artificially low goal is that it 1) gets people more excited when they see the % of goal go to 800% or 3000%, and 2) people are more inclined to back a project that's already hit its goal, regardless of how crowdfunding works.
If I had to guess it would be something to do with this part:
"Solow, auction experts said, had a history of not seeking guarantees, choosing to negotiate for a portion of the buyer’s fees instead. Last night that strategy proved fateful."
The vendor and the auctioneer have some private agreement, which meant the sale probably ended below an acceptable price.
My understanding is that the $64.25M in "bidding" wasn’t real, as it was likely done with chandelier bids. Essentially fake phantom bids placed by the auctioneer to simulate interest and push the price upward. It’s a common tactic, but many see it as deceptive, especially when it creates the illusion of genuine demand.
Many jurisdictions have laws specifically allowing it, as long as it's disclosed, like in the terms provided by Doyle Auction House:
The auctioneer will not specifically identify bids placed on behalf of the seller. The auctioneer may further bid on behalf of the seller, up to the amount of the reserve, by placing successive or consecutive bids for a lot or by placing bids in response to other bidders.
Yes, it was a so-called "enhanced hammer" deal where the commission that the seller normally pays to the auction house is inverted to flow the other way...assuming a minimum selling price has been reached. The intent is to encourage more ultra-high-end sellers to work with that auction house instead of another. The auction house still makes money from the fee that the buyer pays btw, ie the hammer price is not the price the buyer pays: they pay an extra 20% to the auction house.
So what seems to have happened here is that the seller set a de facto minimum of $70M before their deal with Sothebys would take effect, and, seeing that there was no interest, pulled the sale.
More details here: $70 Million Giacometti Flops at Sotheby’s, as Demand for Trophy Art Softens
Ground to earth opinion, it is crazy the disconnect of our world where people might afford or spend such an amount of money for a simple sculpture that is not that much beautiful or even unique, but just because of collector FOMO or investment based on name dropping of the author.
Imagine that it is the equivalent of 7 millions McDonalds meals, or 1000 years of an average US worker salary. All of that just for a decoration object that you will put on top of a chimney.
And it is not even like that the original author is rewarded for his own work!
This is why John Stewart Mill and Adam Smith advocated for steeply progressive taxes beyond a floor. The income multiplier for the top end of the income spectrum is very low compared to the bottom 40%. From a 1980a text book, the lower income multiplier was 11x, meaning someone earning a subsidence wage will spend it quickly, locally and it will multiply. The top 10%, I dont recall exactly other than a smaller band at top that included high salary taxpayers, not just the wealthy, had a multiplier of 0.4. When one gets to such high assests and income one stops consuming quickly and the resources become stagnent. This is an example of that, this "auction" might genetate some salary for the staff but lots of these millions are just being shifted between wealthy folks with little real world economic effect. This has been slowly strangling amy growth in real income for a majority of Americans ever since the tax code was altered in the 1980s. There have been other cuts in the 90s, 2000s and 2017. The only things delaying the serious effects were the tech advances and rapid population growth, masking this economic drag.
https://archive.ph/eOsl0
I read this article yesterday and I am still confused by it.
"...carried a pre-sale estimate of over $70 million..."
"...the artwork came to the market without a minimum price guarantee from the auction house..."
"Oliver Barker, the evening’s auctioneer, began the bidding for the bust at $59 million. But his bids stalled at $64.25 million. Three minutes passed as he hunched low over the rostrum, hunting for bidders, Nosferatu-like, until announcing that the lot was a pass."
Can someone explain how these things relate? If the pre-sale estimate was $70m, there was no minimum price guarantee (a reserve?) and a bid of $64.25 million (90% of the estimate) why didn't it sell?
The article goes on to say:
"“No one who is an informed buyer who is serious in this market — billionaire or not — is going to pay what essentially amounts to a 50 percent premium on something that sold in recent memory,” said Todd Levin, an adviser in New York."
Someone was willing to pay $64.25 million, a 30% premium on the last sale, $70 million is only 40%. Where does 50% come from? Why is $64.25 million bad but $70 million is good.
I can speak to some of it.
When items like this go up for auction, sellers often set a "minimum" price. If that isn't met, the item isn't sold and remains the property of the original owner.
As you've highlighted, the reserve price doesn't have to be guaranteed by the auction house. So if this price isn't met, nobody gets the item (unlike the standard which is that the auction house will buy the item for the reserve price).
The 50% is probably the guy rounding the estimate to make a point.
As for why 64.25 wasn't enough but 70 would have been, I don't know. My understanding is that a lot of pieces sell for above their high estimate, so I'd guess that the seller was expecting/hoping for that? I do also think that 35% versus 40% matters a lot more when that difference is 6 million dollars in absolute terms.
Why even start the bid at 59 if 70 is the lowest you'll accept
Because as people start bidding they become invested in the outcome, and can often be convinced to go higher than they otherwise would. The trick is to set it under the minimum price the right amount that you can get multiple people bidding on the same item, each topping the other by smallish amounts. That way it doesn’t “feel” like you’re crossing the right price - “I’m already in for $60m, 1 more million is like 2% more, and then I beat this other person for something valuable”
Kickstarter works like this too. If you know anything about fixed manufacturing costs, when you see hardware projects with a 4-digit goal, you cringe. Some have other sources of funding, but the reason you set an artificially low goal is that it 1) gets people more excited when they see the % of goal go to 800% or 3000%, and 2) people are more inclined to back a project that's already hit its goal, regardless of how crowdfunding works.
>why didn't it sell?
If I had to guess it would be something to do with this part:
"Solow, auction experts said, had a history of not seeking guarantees, choosing to negotiate for a portion of the buyer’s fees instead. Last night that strategy proved fateful."
The vendor and the auctioneer have some private agreement, which meant the sale probably ended below an acceptable price.
My understanding is that the $64.25M in "bidding" wasn’t real, as it was likely done with chandelier bids. Essentially fake phantom bids placed by the auctioneer to simulate interest and push the price upward. It’s a common tactic, but many see it as deceptive, especially when it creates the illusion of genuine demand.
That sounds like wash trading. How is this legal?
Many jurisdictions have laws specifically allowing it, as long as it's disclosed, like in the terms provided by Doyle Auction House:
The auctioneer will not specifically identify bids placed on behalf of the seller. The auctioneer may further bid on behalf of the seller, up to the amount of the reserve, by placing successive or consecutive bids for a lot or by placing bids in response to other bidders.
https://www.doyle.com/terms/
A sculpture is not a security.
Many see it as blatantly deceptive and wonder how someone would argue otherwise.
Yes, it was a so-called "enhanced hammer" deal where the commission that the seller normally pays to the auction house is inverted to flow the other way...assuming a minimum selling price has been reached. The intent is to encourage more ultra-high-end sellers to work with that auction house instead of another. The auction house still makes money from the fee that the buyer pays btw, ie the hammer price is not the price the buyer pays: they pay an extra 20% to the auction house.
So what seems to have happened here is that the seller set a de facto minimum of $70M before their deal with Sothebys would take effect, and, seeing that there was no interest, pulled the sale.
More details here: $70 Million Giacometti Flops at Sotheby’s, as Demand for Trophy Art Softens
https://news.artnet.com/market/70-million-giacometti-flops-a...
That article makes it clear that the 64.2 million bid was a chandelier bid; there were no real bids on it.
Ground to earth opinion, it is crazy the disconnect of our world where people might afford or spend such an amount of money for a simple sculpture that is not that much beautiful or even unique, but just because of collector FOMO or investment based on name dropping of the author.
Imagine that it is the equivalent of 7 millions McDonalds meals, or 1000 years of an average US worker salary. All of that just for a decoration object that you will put on top of a chimney. And it is not even like that the original author is rewarded for his own work!
This is why John Stewart Mill and Adam Smith advocated for steeply progressive taxes beyond a floor. The income multiplier for the top end of the income spectrum is very low compared to the bottom 40%. From a 1980a text book, the lower income multiplier was 11x, meaning someone earning a subsidence wage will spend it quickly, locally and it will multiply. The top 10%, I dont recall exactly other than a smaller band at top that included high salary taxpayers, not just the wealthy, had a multiplier of 0.4. When one gets to such high assests and income one stops consuming quickly and the resources become stagnent. This is an example of that, this "auction" might genetate some salary for the staff but lots of these millions are just being shifted between wealthy folks with little real world economic effect. This has been slowly strangling amy growth in real income for a majority of Americans ever since the tax code was altered in the 1980s. There have been other cuts in the 90s, 2000s and 2017. The only things delaying the serious effects were the tech advances and rapid population growth, masking this economic drag.
Slowly strangling any real growth?
https://fred.stlouisfed.org/series/MEHOINUSA672N
Is there a way to add cost of living increases to that graph?
That’s what “real” means, it accounts for increased costs due to inflation.
If you’re worried that more income is being consumed by necessities, real disposable income is also on a steady upward trend:
https://fred.stlouisfed.org/series/A229RX0
A better title:
$70M bust busts.
Russian fools, AKA 'oligarchs' are thin on the ground these days
https://www.theguardian.com/us-news/2024/jan/31/russian-bill...