Amedeo Modigliani, Nu couché, 1917–18. Courtesy Christie's New York.
Amedeo Modigliani, Nu couché, 1917–18. Courtesy of Christie's New York.

A. Alfred Taubman.
Image: Courtesy of Sotheby’s.

In a timely and well researched auction story on Bloomberg today, art market reporter Katya Kazakina delves into the hefty level of guarantees in place for the upcoming fall auction season, concluding that $1 billion, or roughly half, of the $2 billion total value of art on offer has already been sold.

When the two-week sales start November 4, $1 billion worth of paintings and sculptures are guaranteed to sell by Sotheby’s, Christie’s, and Phillips at minimum prices regardless of what happens in the salesroom. The companies are lining up deep-pocketed backers for the guarantees or financing them with their own money—a risky proposition because they can end up owning the works if there are no takers.

It’s a sign of the times of the heated market for Impressionist, modern and contemporary buyers that the houses have extended so many guarantees, and in many cases, found collectors and dealers willing to assume risk by acting as third party guarantors.

Willem de Kooning, Untitled XXI, (1976).
Image: Courtesy of Sotheby’s.

Under such arrangements, outside parties agree to buy a particular work at an undisclosed minimum price if it fails to find a buyer in the room. In the event that the work does perform well at the auction and sells above expectations, the third party guarantor can share in the upside.

But as some observers rightly point out, the last frothy round of speculation and guarantees at the time of the market’s previous pre-recession peak, in 2007 and 2008, did not end well.

“Popular during the previous art market bubble—Sotheby’s guaranteed $902 million in 2007 and Christie’s guaranteed $800 million in 2008—the strategy of offering a minimum price to sellers to help land consignments backfired when prices plummeted during the financial crisis,” Kazakina writes. “Sotheby’s incurred $60.2 million in losses on guaranteed items in 2008, according to a filing.”

But as the market has rebounded and more in recent years, guarantees have become a key way for auction houses to win consignments amid cutthroat competition. Sotheby’s has guaranteed the estate of former chairman A. Alfred Taubman’s for $500 million, the largest ever given for a collection by an auction house.