"Pooling" Hammer Comes Down on Sotheby's
With the possible exception of its historically biggest competitor, Christie's International, no business exerts more influence and lands bigger headlines than that of Sotheby's Inc.
- SOTHEBY'S 25TH ANNUAL SALE OF MAGNIFICENT JEWELS IN ST. MORITZ TOTALS $10, 437,181
- SOTHEBY'S RECORD-BREAKING SALE OF AMERICAN PAINTINGS TOTALS $67.7 MILLION - GEORGE BELLOW'S POLO CROWD SELLS FOR $27.5 MILLION, A NEW RECORD FOR AN AMERICAN PAINTING AT AUCTION
- MARILYN MONROE'S WEDDING SUIT, WORN WHEN SHE MARRIED JOE DIMAGGIO, SELLS FOR $33,350 AT SOTHEBY'S COCKTAIL SALE.
Recently, though, not all headlines have been positive. Sotheby's stock prices have plummeted almost 70% from an April 1999 high of $47 dollars per share to a February low of $14.5 per share. On February 21, 2000 their board of directors announced a number of management changes including their Chairman and Chief Executive Officer.
The news came after more than 250 years of growth since Baker held his first sale on March 11, 1744. In 1964, Sotheby's acquired America's largest fine art auction house, Parke-Bernet. When Sotheby's offered stock publicly for the first time in 1977 share-value doubled in 18 months. In 1989 their Impressionist and Modern art sales amassed a staggering 1.1 billion dollars for the company, which has primary locations in New York, London, Hong Kong, Geneva, and 16 other cities and hold offices in 50 other locations worldwide. In 1999 the auction company reported their best sales results in nine years, made a major commitment to the Internet and expanded physical facilities and premises globally.
But troubles began in 1997 when art and antiques were just coming out of a long recession and reaching new highs. Sotheby's, Christie's and more than two-dozen of New York's largest art dealers received subpoenas "seeking documents relating to the conduct of the U.S. art market." Subsequently, Christie's cut a deal with the Justice Department for "conditional amnesty" in exchange for insider information they had on alleged price fixing. Eyebrows may have been raised because in January 1992 both houses raised their buyer's commission to 15% on the first $50,000 of a purchase and in March 1995 the auction houses adopted near parallel seller's commissions based on a sliding scale.
Among other matters Sotheby's was being investigated as to whether it had "any agreement regarding amounts charged for commissions in connection with auctions." Potentially, this is a violation free trade regulations contained within Sherman Anti-Trust act. Not unlike the scrutiny that Microsoft and Bill Gates have recently suffered. And not unlike the same kind of governmental scrutiny antique dealers have come under for "pooling." Pooling's intention is to limit bidding competition. One member of the pool bids for the entire group, and once purchased, the item is then privately reauctioned among the pool members and the difference between the auction hammer price and the pool auction price is dived-up among its members.
A July 1997 article in the Maine Antique Digest reported, "A two year probe by a grand jury into the actions of antiques dealers in Pennsylvania began in 1985 and resulted in the conviction of a dozen Pennsylvania dealers in 1987 for violating the Sherman Anti-Trust act by not bidding against each other at auctions. Instead they designated one dealer to bid for them. Those who pleaded guilty in a plea bargain paid fines and each of them performed 500 hours of community service while on probation."
Now, the country's two biggest auction houses are being investigated for their own kind of "pooling." I hope our government treads carefully. A 266 year old business has lost sufficient equity that they might well be gobbled up by a competitor in the coming weeks or months-causing exactly the opposite kind of economic effect that the legislation intended.