After nearly 300 years of doing business the old-fashioned way, the venerable auction house has rewritten its playbook during the pandemic and continued,…
In In the fall of 2020, a young employee of Sotheby’s contemporary art department took a bold step to explore a new asset class, hoping to score points with Charles Stewart, the company’s new CEO. Stewart hadn’t heard of NFTs – non-fungible tokens now famous for giving birth to Bored Apes and CryptoPunks – but he was intrigued. Perhaps there was something there for the venerable auction house founded in 1744.
“I certainly didn’t anticipate what was going to happen over the next 12 months,” says Stewart, 52.
Indeed, few could have predicted that within a year, NFTs would become as coveted as a Picasso or a Porsche for a new generation of young, crypto-obsessed collectors. Sotheby’s sold nearly $100 million worth of NFT art and other digital collectibles in 2021 — admittedly a small fraction of the $17.6 billion bought globally last year — and less than the roughly 140 million sold by its main rival, Christie’s. (Although about half of that came from a record sale, the $69.3 million auction last March of a collage by the artist known as Beeple.)
Sotheby’s expects to increase its share of this market this year, even taking into account the hyper-volatility of NFTs, against which it has hedged with sales in other new markets and its main sales of contemporary art. and modern. OpenSea, the largest NFT marketplace, had a record January, with $5 billion in sales. By the end of March, trading volume was down more than 20% from the previous month.
Two forces pushed Sotheby’s to modernize: the pandemic and the change of ownership. In 2019, French telecommunications magnate Patrick Drahi (net worth $6.6 billion) took the house private in a $3.7 billion deal. The transaction concluded a two-decade period in which Sotheby’s shares fell more than 40% from June 2018 to June 2019 (while the S&P 500 remained flat), revenue fell 4% during its final year as a public company and a price-fixing scandal sent its chairman, Alfred Taubman, to prison in 2002.
In 1744, Sotheby’s hammered its first lot at auction when founder Samuel Baker sold several hundred rare “Polite Literature” books for £826 (about $288,000 today). Here are the first items sold at other famous auction houses.
Stockholms Auktionsverk (founded in 1674): The oldest in the world, Stockholm Auction House’s earliest recorded sales included Bibles and a black velvet saddle (worth $119 today).
Christie’s (1766): James Christie’s first sale featured household items, including a “beautiful needle-worked rug” for 50 guineas ($13,000).
Heritage Auctions (1976): A $4 gold coin was the top lot at the Dallas house’s inaugural event, selling for $17,000 ($84,000).
eBay (1995): First transaction on the site, known at the time as AuctionWeb: a broken laser pointer sold for $14.83, or about $28 in 2022 dollars.
Clever Gateway (2018): The site began selling NFTs in 2020. The first “drop” included digital versions of artist Lyle Owerko’s depictions of vintage stereos, known as the Boombox Project, for up to $2,500.
Sotheby’s image is considerably brighter these days. Much of this is due to Stewart, a former investment banker who left the post of chief financial officer at Altice, Drahi’s Dutch telecommunications company, to join Sotheby’s. Since joining, the house has focused in part on NFTs and other nascent markets — luxury sneakers, rare teas — and made more use of big data to guide sales and customer management.
Sotheby’s posted revenue of $7.3 billion last year, up sharply from 2020 (a 38% increase) and 2019 (22%). “The pandemic has allowed us to rethink the conventions of the art market, which run deep,” says Stewart.
OOne of the first things Sotheby’s needed to do in the age of Zoom was change the way it conducted its auctions to avoid the perils of other in-person events. (“Like the opera,” says Stewart.) While telephone bidders have long been a staple of most sales, the higher-profile auctions had largely viewed the internet as “an afterthought,” says- he. “It would have been like a high school production with a webcam.”
When Sotheby’s auctions went live in June 2020, their live streams looked like a cross between Downton Abbey and an energetic show on CNN. (With the easing of Covid restrictions, live audiences are returning.) Sotheby’s chief auctioneer Olly Barker has been fitted with a presenter’s headset to ensure the production stand can transmit to him the latest offers. The set featured six flat screens showing rooms in New York, Hong Kong and London responding to phone calls, with the telecast alternating between Barker and phone rooms like a news anchor might with reporters on the ground. Sotheby’s high-profile auctions now attract nearly 2 million views online, up from a few thousand in recent years. Last year, 92% of all auctions came via the web, about triple the share of 2018.
Stewart also leveraged the company’s extensive customer database, including its FYEO (For Your Eyes Only) system, which tracks private sales, to learn more about who’s buying and what might interest them. Sotheby’s is currently experimenting with predictive algorithms. which work much like Netflix’s movie recommendations, tracking a customer’s interests and offering suggestions to Sotheby’s salespeople. Stewart would also like to see the company’s art marketers build their personal brands online to attract young web-focused buyers: “There’s a place on social media for someone to be an expert of Contemporary Southeast Asian Art.
What are these experts selling? Some of them are quite traditional. Last year, Sotheby’s scored big with a $676 million sale of prime 20th-century artworks (Rothko, Pollock, Twombly) by New York real estate magnate Harry Macklowe and his ex wife ; a second part of their collection, including pieces by Andy Warhol and Gerhard Richter, will go under the hammer in May and could break the $832 million record for a sole proprietor collection set by the David Rockefeller estate in 2018.
Much of Sotheby’s revamped business, however, is less conventional. Last October, he sold a pair of Nikes worn by Michael Jordan for $1.5 million (a record for sneakers). Two months later it moved over $1 million worth of rare tea to Hong Kong, its first such auction and one of many concerted efforts to cater to the increasingly wealthy Asian clientele. .
NFTs, of course, remain a big part of winning over the next generation of collectors. Sotheby’s may have missed out on the Beeple sale in March 2021, but it hit back a month later, selling $16.8 million worth of works by anonymous artist Pak that attracted some 3,000 buyers. Then came record prices for two of the most popular cartoon NFTs: $11.8 million for a single CryptoPunk (a rare alien) in June 2021 and $3.4 million for a Bored Ape (a primate with golden fleece) in October.
“It’s kind of funny,” says Michael Bouhanna, co-head of digital art at Sotheby’s, “but sometimes when I’m selling an NFT they ask me, ‘What should I do with it?’ ”
Sotheby’s is now planning a third iteration of what it calls its digital-native sales, a name meant to recall the industry’s majestic biannual evening sales.
To further woo the cryptocurrency crowd, in May 2021, Sotheby’s began accepting payment in bitcoin and Ethereum, the two most popular cryptocurrencies. Last July, an anonymous bidder paid over $12 million in crypto for a 101.4 carat pear-shaped diamond. In November, the auction house guided ConstitutionDAO, an investment group originally formed on Twitter, through the auction process as it attempted (unsuccessfully) to purchase a rare copy of the US Constitution. after outsourcing over $40 million into Ethereum. The document was eventually sold to billionaire Ken Griffin (see article, page 122) for $43.2 million. To minimize its exposure to wild swings in the value of crypto, Sotheby’s has a policy of converting into fiat currency within weeks of a sale.
Eventually, Sotheby’s hopes to convert these cryptopians into collectors of art, wine and jewelry, creating a flying effect. To some extent, the strategy is already working. After amassing a sizable NFT collection, Justin Sun, the 31-year-old founder of crypto platform Tron, bought a $78.4 million Giacometti sculpture at the Macklowe sale. “I’m open to all artistic trophies,” he says. “Sotheby’s definitely tries to be our best friend. Their philosophy is, basically, they’ll do whatever they can to be the favorite.
While NFTs are a great way for Sotheby’s to reach the young and new rich, they are also high risk. In February, a highly publicized Sotheby’s sale of 104 CryptoPunks was expected to fetch up to $30 million. But the evening ended before it even really started, with the seller canceling the auction 30 minutes after the set start time, likely triggered by a 35% drop in Ethereum’s price in three months. When the auction house announced that the sale would not take place, several people present gasped. Sotheby’s tried to make up for the embarrassment with more trays of champagne and an exuberant after-party featuring a DJ wearing CryptoPunk headphones, a la Marshmello.
Then there is the matter of an NFT learning curve for some investors. “It’s kind of funny,” says Michael Bouhanna, vice president of Sotheby’s and co-head of digital art, “but sometimes when I’m selling an NFT, they ask me, ‘What should I To do with that?’ “In truth, NFTs are mostly displayed as social media profile pictures on a computer or phone, although some hope to use these purchases as avatars in future digital realms, such as Facebook’s proposed metaverse. “It’s not like with a painting. It’s very clear. You hook it.