Sotheby's Stock Plunges After Disastrous Auction

After a disastrous Impressionist and Modern art sale at Sotheby's on Wednesday evening, the art world is looking to next week's postwar and contemporary sales to answer a burning question: Was Wednesday an aberration, or are we headed for a serious correction?

Shares of Sotheby's stock fell 28% yesterday, presumably on investors' fears that Sotheby's had overextended itself in guarantees — prices the house promises to pay the sellers, whether or not their art sells. Sotheby's has offered an even higher total of guarantees for next week's sale.

"Next week is crucial to the auction houses and will be very telling as to the market," the art dealer Asher Edelman said. But he added: "I think the craze in the market probably capped itself last night. I think it's over."

"The one thing that's been propping up the art market has been the [weakness of the American] currency, and the thing that's been overlooked has been the deep, deep problems in the economy," Mr. Edelman continued. "We are heading into a 1970s economy: 10 years of recession and inflation and high interest rates."

The total hammer price at Sotheby's sale Wednesday was $238.8 million, or 67% of the pre-sale low estimate of $355 million. Several of the top lots failed to sell, including Vincent van Gogh's "The Fields (Wheat Fields)," which was estimated at between $28 million and $35 million.

By contrast, Christie's Impressionist and Modern art sale the night before was considerably stronger, bringing a hammer-price total of almost $350 million, just above the pre-sale low estimate.

To many in the art world, the difference between the sales was straightforward: the quality and freshness of the material on offer.

"No one in the art world expected [Sotheby's sale] to be nearly what Christie's was," the chairman of PaceWildenstein Gallery, Arne Glimcher, said. "Clearly Christie's got the lion's share of the good material, and Sotheby's was struggling to catch up."

David Nash of Mitchell-Innes & Nash, who is also a former worldwide head of Impressionist and Modern art at Sotheby's, said that the van Gogh, while "a fantastic painting," had already been on the market privately for a while. "A lot of collectors who one would normally expect to buy a van Gogh had already been offered the painting," he said. "And Sotheby's couldn't overcome that problem."

To Mr. Edelman, however, the difference between the two sales was not the material, but the fact that the Dow Jones industrial average fell 360 points on Wednesday, aggravating fears of a recession.

"That market crash was a call to be a little more careful with one's money," Mr. Edelman said. "People are looking around and saying, 'Do I really need that?'"

A week ago, Mr. Edelman said, "I was chatting with a very good friend of mine, who buys great paintings, and [I invited him to come look at a painting], and he said, 'I don't think I want to see that painting, because I might like it, and I don't think this is really the time to buy paintings.' And this is a billionaire."

Mr. Nash said he didn't think the stock market could be blamed for the results of Sotheby's sale. "I think a lot of people had made their decisions about buying or not buying more than a day before," Mr. Nash said. "It might have affected one or two people to back out, but I can't believe it was more than that."

The van Gogh that didn't sell on Wednesday was guaranteed, which means that Sotheby's now owns the painting. Sotheby's had also guaranteed George Braque's "L'Echo," which was estimated at $15 million to $20 million and also failed to sell, as did three other guaranteed works.

Three analysts downgraded Sotheby's stock yesterday, triggering the sell-off.

Mr. Nash said he didn't think the analysts understood the art market very well. "There's a misperception, I think, that if Sotheby's guarantees a painting for $30 million, and it doesn't sell, that Sotheby's has lost $30 million," he said, whereas in fact, after a sale like this, dealers and collectors will approach Sotheby's with offers to buy the work at a discounted price. But he acknowledged that "[a]t this level of price, I don't think it's going to happen that quickly."

Mr. Edelman said he didn't blame Sotheby's for making guarantees. "You couldn't not do it — you had to still be in the game until it stopped," he said. "To have one loss before the wheels stop turning, after years of these big gains, is fine." But he predicted that neither of the auction houses would offer many guarantees for the spring sales.

But Mr. Glimcher remained optimistic, particularly about next week's sales. "You're going to see very, very strong auctions next week," he said. "The art market never turns around with the stock market. There's always at least a year lag." He added: "It's been an amazing fall."