On February 8th, after The Economist went to press, Sotheby’s was scheduled to hold the first international auction in Saudi Arabia’s history. Among the 162 lots for sale in Diriyah is a painting by René Magritte, a Belgian Surrealist, depicting a building—part brick, part cloud (you realise after staring)—conservatively estimated to fetch around $1m-1.5m.
It is a fitting image: the structure and stability of the auction business are not how they appear at first glance. Despite the search for customers in new markets such as Saudi Arabia, the auction houses’ main source of growth is not public sales. Instead, it is private transactions, brokered discreetly by the auction houses. At Sotheby’s, the world’s largest auction house, these increased by 17% in value last year. At Christie’s, the second largest, they rose by 41%; private sales now account for nearly 30% of total revenue, compared with just 12% a decade ago.
There are two distinct types of direct transaction. The first is high-end retail. This trend is most evident in Hong Kong, where Christie’s, Sotheby’s and Phillips all recently moved into new customer-facing locations to attract impulsive shoppers who want to buy something immediately, rather than register to bid and wait until auction day. Christie’s has 50,000 square feet in a central skyscraper, better to showcase items such as a white Hermès Birkin bag made of crocodile and a rare camellia-shaped, diamond-encrusted watch by Chanel. Each month more than 1.3m customers pass through Sotheby’s “Maison” in a mall in downtown Hong Kong where the firm hopes to tempt new customers with luxury sneakers and a woolly mammoth skull that can be purchased on site.
The second, more profitable, type of private sale is of high-end art. When prices for the most expensive artworks fall, many sellers are wary of putting their work up for sale at auction, says David Schrader, chairman of global private sales at Sotheby’s. Private transactions offer sellers full control on price and security against lowball bids or no bids at all. A work that is “burned” at auction, meaning that no bid reaches the minimum price a seller is asking, can dent its value long-term. Private sales are also speedy: many take less than two months to complete.
Adrien Meyer of Christie’s refers to private sales as “matchmaking” buyers and sellers. The centuries-old auction houses’ most valuable assets are their little black books. The houses know who owns the item a buyer might want and which bidders lost out at recent auctions and might be keen on a similar work. Private sales are lucrative for auction houses, though many sellers try to negotiate on the commission. No planning, publicity, exhibition or catalogue are needed, as they are for live events, so costs are lower.
Recently sellers have been more keen on private sales, as geopolitical instability, including war in the Middle East, has led to less stable auction results. Last year public auctions were down by 28% (by value) from the previous year at Sotheby’s and by 16% at Christie’s. Though the volume of items sold at auction has been growing, there has been a slump at the top end of the market, according to Clare McAndrew of Art Economics, a consultancy. In 2024 the 100 most expensive lots at auction fetched less than half the equivalent group two years before.
But private sales rely on the existing base of clientele; they do not necessarily bring in new art buyers. The question of how to attract younger collectors is on every executive’s mind. The Saudi sale is the first time any international auction of physical works is open to payment with cryptocurrency for all lots; it is an attempt to entice the younger crypto crowd.
If private sales continue to rise, it will represent a big shift. Auction houses were founded on the idea that marketplaces enabled price discovery for an artwork, which has no inherent value. Now the question is whether private sales could replace a more transparent market with an opaque one, turning off newer collectors. Fair warning, as an auctioneer might say. ■
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