Working both ends (ctd.)

January 21 2013

Image of Working both ends (ctd.)

Picture: New York Times

The court room travails of mega dealer Larry Gagosian continue to shed interesting light on the art dealing world. Eric Konigsberg has a fascinating article in New York Magazine on the latest revelations. Of chief interest to me is the note of a conversation between AHN's favourite 'collector', Alberto Mugrabi, Sotheby's, and Gagosian, about a forthcoming auction of a work by Warhol, Hammer & Sickle, which was in danger of failing to sell, something Mugrabi and Gagosian, as holders of numerous Warhols, were keen to avoid. It highlights the inappropriate way in which many in the art world take commissions from both ends of a deal - and how, in an auction setting, it can give rise to substantial conflicts of interest:

[...] according to a word-for-word record of Mugrabi’s end of the conversation, witnessed and transcribed by an associate who was at Claridge’s, he [Mugrabi] agreed to phone Sotheby’s again to negotiate. It appears that Gagosian told Mugrabi to try to float by Sotheby’s a price of £350,000, for one particular work with an estimate of £500,000, and then call Gagosian back.

What the two dealers were apparently attempting to do was thread the needle on the two lesser Warhols. To bid high—as much as the consignor was hoping to get—might serve to prop up values for the Warhol market at large, but would be expensive and make the paintings that much more difficult to sell down the road. When Mugrabi got off the phone with Gagosian, he immediately phoned Alexander Rotter, a Sotheby’s director. “The Hammer and Sickle will be difficult,” Mugrabi said. “This painting should be much less than that, you know?” He told Rotter that “at the height of the market,” he had sold “a painting like this” for $3 million. “But it’s insane that the market has gone down and I have to pay the same price because there is some stubborn guy?”—meaning Froehlich [the vendor] —“That’s surrealist. He’s a surrealist.” When Rotter attempted to say his piece about the consignor’s attachment to the painting, Mugrabi got agitated. “Obviously, he’s putting the painting because he wants to fucking sell it, not because he wants to, you know? If he wants to sell the picture, tell him to be realistic … Which is only better for him and better for me.”

Rotter doesn’t remember the specifics of the deal, but says that “as a rule we don’t disclose the reserve to a buyer. We have conversations with the seller throughout the process. The buyer can’t say, ‘I’ll give you this’ and make it a sure thing, but we can relay that information to the consignor and say, ‘This is a good price, you might consider lowering your reserve.’ ”

Regular readers will know that I find this practice most curious. Either the auction house can be most effectively working for the buyer or the seller, but not both? How can an auction house ever think it is appropriate to tell a potential buyer what the reserve is? That is, if the auction house's prime contractual responsibility is to the vendor, how can it ever say to a buyer, 'by the way, you don't need to make you offer higher than $x'. And then how, if a reserve is set by the vendor on the advice of the auction house, can the auction house then in good faith change its advice to the vendor, on the premise that the buyer's much lower offer is suddenly 'a good price'? In such cases it seems to me that the auction house is failing in its duty to the vendor. But then since the auction house ultimately takes most of its commission from the buyer, who can blame them?

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