After nearly 300 years of doing business in old-fashioned ways, the venerable auction house rewrote its playbook during the pandemic—and kept going, going...
In the fall of 2020, a young staffer in Sotheby’s Contemporary Art department made a bold pitch to explore a new asset class, hoping to score points with Charles Stewart, the company’s new CEO. Stewart hadn’t heard of NFTs—nonfungible tokens, now famous for birthing Bored Apes and CryptoPunks—but he was intrigued. Maybe there was something in it 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 to a new generation of young, crypto-obsessed collectors. Sotheby’s sold nearly $100 million of NFT art and other digital collectibles in 2021—admittedly a small portion of the $17.6 billion purchased worldwide last year—and less than the roughly $140 million sold by its chief rival, Christie’s. (Though about half of that came in one record-setting 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 that market this year even considering NFTs’ hyper-volatility, against which it has hedged with sales in other new markets and its core Contemporary and Modern art sales. OpenSea, the largest NFT marketplace, had a record January, with $5 billion in sales. By late March, trading volume had decreased more than 20% from a month earlier.
Dual forces have pushed Sotheby’s to modernize: the pandemic and fresh ownership. In 2019, French telecom 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 stock dropped over 40% from June 2018 to June 2019 (while the S&P 500 stayed flat), revenue fell 4% in its final year as a public company and a price-fixing scandal sent its chairman, Alfred Taubman, to prison in 2002.
QUITE A LOT
In 1744, Sotheby’s hammered down its first lot at auction when founder Samuel Baker sold several hundred rare books of “Polite Literature” for £826 (roughly $288,000 today). Here are the first items sold at other famed auction houses.
Stockholms Auktionsverk (founded 1674): The oldest in the world, Stockholm Auction House’s first recorded sales included Bibles and a black velvet saddle (worth $119 today).
Christie’s (1766): James Christie’s earliest sale featured home goods including a “beautiful needle-worked carpet” for 50 guineas ($13,000).
Heritage Auctions (1976): A $4 gold coin was the star lot at the Dallas house’s inaugural event, selling for $17,000 ($84,000).
eBay (1995): The 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.
Nifty Gateway (2018): The site started selling NFTs in 2020. The first “drop” included digital versions of L.A. artist Lyle Owerko’s depictions of vintage stereos, known as the Boombox Project, for as much as $2,500.
The picture for Sotheby’s is considerably brighter these days. Much of that is thanks to Stewart, a former investment banker who left the CFO job at Drahi’s Netherlands-based telecom, Altice, to join Sotheby’s. Since his arrival, the house has shifted some of its focus to NFTs and other nascent markets—luxury sneakers, rare teas—and made greater use of big data to guide how it manages sales and clients.
Sotheby’s rang up $7.3 billion in sales last year, up substantially from 2020 (a 38% increase) and 2019 (22%). “The pandemic allowed us to rethink the conventions of the art market, which run deep,” Stewart says.
One of the first things Sotheby’s needed to do in the age of Zoom was change how it conducted its auctions to avoid the perils of other in-person events. (“Like the opera,” Stewart says.) While phone bidders have long been a staple of most sales, the highest-profile auctions had largely viewed the internet as “an afterthought,” he says. “It would’ve been like a high school production with a webcam.”
When Sotheby’s auctions went online in June 2020, their livestreams felt like a cross between Downton Abbey and an energetic CNN broadcast. (With Covid restrictions easing, live audiences are returning.) Sotheby’s chief auctioneer, Olly Barker, was fitted with a newscaster’s earpiece to ensure the production booth could relay the latest bids to him. The set featured six flat-screens showing rooms in New York, Hong Kong and London fielding bids over the phone, the telecast switching back and forth from Barker and the phone rooms as a news anchor might with reporters in the field. Sotheby’s highest-profile auctions now attract close to 2 million views online, up from a few thousand in recent years. Last year, 92% of all bids came via the web, roughly triple the portion from 2018.
Stewart has also leveraged the company’s extensive database of clients—including its FYEO (For Your Eyes Only) system, which tracks private sales—to learn more about who is buying and what else they might be interested in. Sotheby’s is now experimenting with predictive algorithms that operate a little like Netflix’s movie recommendations, tracking a customer’s interests and offering suggestions for Sotheby’s salespeople. Stewart would also like to see the company’s art market specialists build their personal brands online to attract young, web-focused buyers: “There’s a place on social media for someone to be an expert on contemporary Southeast Asian art.”
What are those experts selling? Some of it is quite traditional. Last year, Sotheby’s scored big with a $676 million sale of blue-chip 20th-century art (Rothko, Pollock, Twombly) from New York real estate mogul Harry Macklowe and his ex-wife; a second portion 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 single-owner collection set by the David Rockefeller estate in 2018.
Much of Sotheby’s revamped business is less conventional, though. Last October, it sold a pair of Michael Jordan–worn Nikes for $1.5 million (a record for sneakers). Two months later, it moved more than $1 million worth of rare tea in Hong Kong, its first such auction and one of several concerted efforts to cater to Asia’s increasingly moneyed clientele.
NFTs, of course, remain a big part of winning over the next generation of collectors. Sotheby’s might have missed out on the Beeple sale in March 2021, but it countered a month later, selling $16.8 million worth of work by the anonymous artist Pak that attracted some 3,000 buyers. Then came record-setting 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 golden-fleeced primate) that October.
“It’s quite funny,” says Michael Bouhanna, Sotheby’s co-head of digital art, “but sometimes when I sell an NFT, they ask, ‘What should I do with it?’ ”
Now Sotheby’s is planning a third iteration of what it calls its Natively Digital sales, a name meant to recall the industry’s stately, semiannual evening sales.
To further court the crypto crowd, in May 2021 Sotheby’s started accepting payment in bitcoin and Ethereum, the two most popular cryptocurrencies. Last July, an anonymous bidder paid more than $12 million in crypto for a pear-shaped, 101.4-carat diamond. In November, the auction house shepherded ConstitutionDAO, an investment group originally assembled over Twitter, through the auction process as it tried (unsuccessfully) to purchase a rare copy of the U.S. Constitution after crowdsourcing more than $40 million in Ethereum. The document eventually sold to billionaire Ken Griffin (see story, page 122) for $43.2 million. To minimize its exposure to crypto’s wild swings in value, Sotheby’s has a policy of converting to fiat currency within weeks of a sale.
Eventually, Sotheby’s hopes to convert these cryptopians into collectors of fine art, wine and jewelry, creating a flywheel effect. To some extent, the strategy is already working. After amassing a sizeable NFT collection, Justin Sun, the 31-year-old founder of the Tron crypto platform, purchased a $78.4 million Giacometti sculpture in the Macklowe sale. “I’m open to all the trophy art,” he says. “Sotheby’s is definitely trying to be our best friend. Their philosophy is, basically, that they’ll do whatever they can to be the frontrunner.”
While NFTs are a great way for Sotheby’s to reach the young and newly rich, they are also high-risk. In February, a much-publicized Sotheby’s sale of 104 CryptoPunks was expected to fetch as much as $30 million. But the evening ended before it ever really began—with the seller canceling the auction 30 minutes after its set start time, probably triggered by a 35% drop in Ethereum’s price in three months. When the auction house announced that the sale wouldn’t go forward, several people in attendance audibly gasped. Sotheby’s tried to make up for the embarrassment with more trays of champagne and a rambunctious after-party featuring a DJ clad in a CryptoPunk helmet, Marshmello-style.
Then there’s the matter of an NFT learning curve for some investors. “It’s quite funny,” says Michael Bouhanna, a Sotheby’s vice president and co-head of digital art, “but sometimes when I sell an NFT, they ask, ‘What should I do with it?’ ” In truth, NFTs are mostly displayed as social media profile pics 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. That’s very clear. You hang it.”
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