The Art Industry and U.S. Policies that Undermine Sanctions/Section 2C

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by the Permanent Subcommittee on Investigations
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​C. The Four Major Auction Houses

High-value art sales generally occur through a private sale or a public auction.[1] Sotheby's, Christie's, Phillips, and Bonhams are among the most well-known auction houses in the world, each dating back to the 1700s.[2] In addition to the largest auction houses, there are over 500 second-tier auction houses that play a significant role in national and international markets, and numerous small auction houses that provide services to domestic markets.[3] Since the highest value transactions are generally processed by the most well-known auction houses, this report concentrates on their role within the U.S. art market.

1. Sotheby's

In 1744, Samuel Baker established Sotheby's in London.[4] At the outset, the company became successful by auctioning books, and later expanded its business to prints, coins, medals, and antiquities.[5] After World War I, Sotheby's began to focus on "the sale of pictures and decorative works of art."[6] In 1964, Sotheby's started a period of global expansion after its purchase of Parke-Bernet, the largest fine art auction house in the United States at the time.[7] Headquartered in New York, Sotheby's currently has ten salesrooms around the world, including in London, Hong Kong, and Paris.[8] Beyond those salesrooms, Sotheby's BidNow program permits remote clients to participate in online auctions around the world.[9] Notable Sotheby's auctions include the 2012 sale of Edvard Munch's The ​Scream, as well as the collections of Jacqueline Kennedy Onassis and Andy Warhol.[10] As of 2018, Sotheby's employed 1,713 people.[11] In 2019, Sotheby's produced total revenues of $991,660,000.[12]

Sotheby's business is divided into two parts-an agency segment and a finance segment.[13] The agency segment operates Sotheby's auction and private sale business.[14] The finance segment "earns interest income and associated fees through art-related financing activities by making loans that are secured by works of art."[15] In January 2016, Sotheby's acquired Art Agency Partners which provides art advisory services and strategic guidance to art collectors, artists, and artists' estates.[16]

In June 2019, Sotheby's announced a $3.7 billion merger agreement with BidFair USA, a company owned by the French telecom mogul and art collector Patrick Drahi.[17] Prior to the merger, Sotheby's was the oldest publicly traded company on the New York Stock Exchange ("NYSE"), "predating the [exchange] itself by 48 years."[18] After the deal with BidFair closed, however, Sotheby's returned "to private ownership after 31 years of trading publicly on the NYSE."[19] Sotheby's CEO, Tad Smith, stated the acquisition "will provide Sotheby's with the opportunity to accelerate the successful program of growth initiatives of the past several years in a more flexible private environment."[20]

After Sotheby's announced the merger, two Sotheby's shareholders filed suit against the auction house alleging failure to disclose in Sotheby's proxy statement ​complete and accurate information regarding the company's valuation and background of the company's proposed sale to affiliates of Mr. Drahi.[21] In that suit, the shareholders claimed Sotheby's filed materially misleading disclosures with the SEC.[22] Sotheby's stated in response that, "the vast majority of all public company mergers over $100 million are the subject of shareholder litigation [and] the lawsuits filed were expected and routine."[23] These cases were subsequently dismissed or settled around 2019.

2. Christie's

Christie's was founded by James Christie in London in 1766.[24] Early in the company's history, Christie's benefited from the instability caused by the French Revolution as many French pieces of art made their way to the British market.[25] In 1824, Christie's gained additional notoriety with the opening of the National Gallery in London, which featured numerous pieces purchased from Christie's.[26] In 1977, Christie's entered the U.S. market, opening a salesroom in New York.[27] Today, Christie's has salerooms in London, New York, Paris, Geneva, Milan, Amsterdam, Dubai, Zurich, Hong Kong, and Shanghai.[28] Each year, the company holds roughly 350 auctions in over 80 categories, including jewelry, fine arts, photographs, and wine.[29] Notable Christie's auctions include Elizabeth Taylor's jewelry collection, George Washington's personal copy of the U.S. Constitution and Bill of Rights, and the $450 million sale of Leonardo da Vinci's Salvator Mundi.[30] In addition to public auctions, Christie's represents clients in private sales.[31] In 2005, Christie's entered the digital market allowing potential buyers to bid online through Christie's Live.[32]

​The company is now owned by French billionaire François Pinault through his holding company Groupe Artémis. [33] In 2018, Christie's led the global art market, generating $7 billion in total sales, "the highest ever in the history of the auction house."[34] In 2019, the company generated $5 billion in auction sales alone.[35]

In recent years, Christie's started its own art storage business through its subsidiary Christie's Fine Art Storage Services with facilities in Singapore and Brooklyn.[36] The company also recalibrated its business model to better accommodate Asian buyers' increased participation in the art market.[37] In 2017, Christie's sales in Asia increased 39 percent, which ultimately represented 31 percent of the global market.[38] In part due to these increases and the expansion of its online activities, Christie's closed its South Kensington branch in London and scaled back activities in Amsterdam.[39]

Beyond its substantial presence in Asia, Christie's has a longstanding relationship with the Russian market that dates back to the 1770s. In 1778, for example, James Christie sold Sir Robert Walpole's art collection to Empress Catherine the Great, and this collection remains in the Hermitage to this day.[40] The strength of this relationship has endured and in 2016, Christie's had a 62 percent share "of the global market for Russian works of art."[41] The company also holds the record for "the highest price ever paid for a Russian painting at public auction—Kazimir Malevich's Suprematist Composition, which sold for $85,812,500 in 2018."[42]

​3. Phillips

Harry Phillips founded Phillips Auction House ("Phillips") in 1796.[43] Phillips first achieved "international recognition by selling paintings from the estate of Queen Marie Antoinette and household items from Napoleon Bonaparte."[44] The company was eventually passed to Harry's son and remained with the family through the 1880s and into the early 1900s.[45] By the 1970s, Phillips expanded its catalogue to include “fine art, furniture, and estate collections."[46]

In 1999, Phillips was purchased by Bernard Arnualt, chairman of Louis Vuitton Moet Hennessey, who subsequently merged the company with the auction house of private art dealers Simon de Pury and Daniela Luxembourg.[47] In 2001, Phillips and Bonhams & Brooks confirmed they would merge all operations in Great Britain to trade under the name Bonhams.[48] This restructuring allowed Phillips, de Pury & Luxembourg to concentrate on the high end market and transfer their lower-end art sales to Bonhams.[49] In 2002, Simon de Pury took majority control of the company.[50] Six years later, Mercury Group, a luxury retail company, acquired a majority share in the company, and later obtained full control in 2013.[51]

Phillips is headquartered in London, where it conducts sales in a limited number of categories contemporary art, photographs, furniture, watches, and jewelry and advertises itself as "the most dynamic and forward-thinking auction house."[52] The company's business also includes special exhibitions, private sales, and advisory and consulting services for private estates, corporate clients, and museums.[53] Phillips has ten locations around the globe, including New York, Hong Kong, Geneva, Moscow, Paris, and Seoul.[54] In 2019, Phillips had total sales revenue of $908 million, "with private sales ending the year at $171.8 million and marking a 34 percent gain from the previous year."[55]

​4. Bonhams

Thomas Dodd established Bonhams in London in 1793.[56] In the 1850s, George Bonham formed a partnership with Dodd's successor George Jones, calling the company Jones & Bonham.[57] In 2000, after five generations, the company was re-named Bonhams & Brooks following its acquisition by Brooks auction house.[58] Shortly thereafter in 2001, Brooks acquired the British operations of its rival company Phillips.[59] A year later, Bonhams acquired the American auction house Butterfields, further expanding its global reach.[60] In September 2018, the private equity firm Epiris purchased Bonhams for an undisclosed amount.[61] Bonhams "sells more jewelry lots per year than any other international house," making up more than 40 percent of the company's sales.[62] Outside of jewelry, Bonhams specializes in low to mid-range art and antiquities as well as classic cars.[63] The company holds more than 250 sales each year at auction venues around the world including Edinburgh, Hong Kong, London, New York, and Sydney.[64]

5. Online Auctions during the COVID-19 Pandemic

In March 2020, the United States took steps to respond to the COVID-19 pandemic with a number of jurisdictions issuing stay-at-home orders to prevent the spread of the virus. Sotheby's, Christie's, and Phillips shifted to online auction formats as in-person events were cancelled.[65] To simulate an in-person auction experience, Sotheby's filmed their auctioneer "facing a fleet of television screens so ​viewers could watch as he [fielded] collectors' phone bids placed via colleagues."[66] The auctioneer also considered real-time bids placed on the Sotheby's website.[67]

These online auctions were profitable for all three houses.[68] Some 80,000 people joined Christie's July 10, 2020 auction, which sold 79 paintings and brought in $421 million in overall sales.[69] This includes Roy Lichtenstein's Nude with Joyous Painting that sold for $46.2 million to an anonymous bidder, roughly $16 million more than its expected sale price.[70] Sotheby's auction on June 29, 2020 brought in $234.9 million in total sales, including $85 million for a trio of Francis Bacon works, Triptych Inspired by the Oresteia of Aeschylus.[71] The three Bacon paintings also sold to an anonymous telephone bidder.[72]

Phillips held their own hybrid in-person and online auction on July 2, 2020 bringing $41 million.[73] Phillips CEO Ed Dolman remarked that the "sale was a resounding statement about the strength of our market, as there's a certain amount of huge pent-up demand if you think about the amount of money that would have been spent in the global art market."[74] Dolman added further, "it's quite obvious to us there's a significant amount of money on the sidelines waiting to get a chance to get back in the art market."[75]

  1. ↑ Samuel Rubenfeld, Art World's Response to Money-Laundering Concerns Draws Critics, Wall St. J. (Feb. 27, 2017), https://blogs.wsj.com/riskandcompliance/2017/02/27/art-worlds-response-to-money-laundering-concerns-draws-critics/.
  2. ↑ Charlotte Zajicek, The history of auctions: from ancient Greece to online houses, The Telegraph (Oct. 7, 2016), https://www.telegraph.co.uk/art/online-auctions/history-of-auctions/; Top 5 Auction Houses Around World, Ac. Cooper (Jun. 26, 2019), http://www.ac-cooper.com/top-5-auction-houses-around-world/.
  3. ↑ Art Basel & UBS, The Art Market 2020 131 (2020), https://d2u3kfwd92fzu7.cloudfront.net/The_Art_Market_2020-1.pdf.
  4. ↑ About Us: The History of Sotheby's Auction House, Sotheby's https://www.sothebys.com/en/about/our-history?locale=en.
  5. ↑ Id.
  6. ↑ Id.
  7. ↑ Id.
  8. ↑ Sotheby's, 2019 Annual Report 13, 57 (2019), https://www.sothebys.com/content/dam/sothebys/PDFs/Sothebys-Annual-Report-12.31.2019.pdf?locale=en.
  9. ↑ Id. at 13.
  10. ↑ About Us: The History of Sotheby's Auction House, Sotheby's https://www.sothebys.com/en/about/our-history?locale=en.
  11. ↑ Sotheby's, 2018 Annual Report 8 (2018), http://www.sothebys.com/content/dam/sothebys/PDFs/2018-annual-report.pdf?locale=en.
  12. ↑ Sotheby's, 2019 Annual Report 8 (2019), https://www.sothebys.com/content/dam/sothebys/PDFs/Sothebys-Annual-Report-12.31.2019.pdf?locale=en.
  13. ↑ Id. at 3.
  14. ↑ Id.
  15. ↑ Id.
  16. ↑ Id.
  17. ↑ Diana Wierbicki et al, Sotheby's Goes Private: What It Means for the Art Market, Wealth Mgmt. (Jun. 25, 2019), https://www.wealthmanagement.com/high-net-worth/sothebys-goes-private-what-it-means-art-market.
  18. ↑ Sotheby's Celebrates Its 275th Year With Ringing of the Opening Bell at the New York Stock Exchange, Sotheby's (Mar. 11, 2019), https://www.sothebys.com/en/articles/sothebys-celebrates-its- 275th-year-by-ringing-in-the-new-york-stock-exchange.
  19. ↑ Margaret Carrigan, Sotheby's ceases publicly trading on the New York Stock Exchange as its $3.7bn sale to Patrick Drahi closes, Art Newspaper (Oct. 3, 2019), https://www.theartnewspaper.com/news/sotheby-s-ceases-publicly-trading-on-the-new-york-stock-exchange-as-its-usd3-7bn-sale-to-patrick-drahi-closes.
  20. ↑ Diana Wierbicki et al, Sotheby's Goes Private: What It Means for the Art Market, Wealth Mgmt. (Jun. 25, 2019), https://www.wealthmanagement.com/high-net-worth/sothebys-goes-private-what-it-means-art-market.
  21. ↑ Bob Van Voris & Katya Kazakina, Sotheby's Investors Sue to Block $2.7 Billion BidFair Offer, Bloomberg (Jul. 19, 2019), https://www.bloomberg.com/news/articles/2019-07-19/sotheby-s-holders-sue-over-2-7-billion-bidfair-acquisition.
  22. ↑ Id.
  23. ↑ Id.
  24. ↑ About Christie's, Christie's, https://www.christies.com/about-us/welcome-to-christies.
  25. ↑ The History of Christie's Auction House, Christie's, https://www.christies.com/auctions/the-history-of-christies-auction-house.
  26. ↑ Id.
  27. ↑ Id.
  28. ↑ The History of Christie's Auction House, Christie's, https://www.christies.com/auctions/the-history-of-christies-auction-house.
  29. ↑ Id.
  30. ↑ The History of Christie's Auction House, Christie's, https://www.christies.com/auctions/the-history-of-christies-auction-house.
  31. ↑ About Christie's, Christie's, https://www.christies.com/about-us/welcome-to-christies.
  32. ↑ The History of Christie's Auction House, Christie's, https://www.christies.com/auctions/the-history-of-christies-auction-house.
  33. ↑ Ted Loos, Auction Houses Find New Ways to Survive, N. Y. Times (Oct. 12, 2017), https://www.nytimes.com/2017/10/12/arts/christies-sothebys-auctions.html.
  34. ↑ Christie's continues to lead the global art market, Christie's (Feb. 7, 2019), https://www.christies.com/features/Christies-continues-to-lead-the-global-art-market-9681-1.aspx.
  35. ↑ Nicky Eaton, Christie's Global Auction Channel Sales Total £3.9 Billion/US $5.0 Billion in 2019, Assoc. Press (Dec. 20, 2019), https://apnews.com/Business%20Wire/afa3d55c49974af6ac2a34f377da8c6a.
  36. ↑ Kelly Crow, The Ultimate Walk-In Closet, Wall St. J. (Apr. 26, 2010), https://www.wsj.com/articles/SB10001424052748703709804575202083586359768#.
  37. ↑ Christie's sales in 2017 total $6.6 billion, Christie's (Feb. 2, 2018), https://www.christies.com/features/Christies-2017-results-8870-1.aspx.
  38. ↑ Id.
  39. ↑ Scott Reyburn, Christie's to Close a London Salesroom and Scale Back in Amsterdam, N. Y. Times (Mar. 8, 2017), https://www.nytimes.com/2017/03/08/arts/design/christies-to-close-a-london-salesroom-and-scale-back-in-amsterdam.html.
  40. ↑ The History of Christie's Auction House, Christie's, https://www.christies.com/auctions/the-history-of-christies-auction-house.
  41. ↑ Christie's, Russian Art 1 (2016), https://www.christies.com/media-library/pdfs/2017/russian-art-market-report-2016-rev.pdf.
  42. ↑ 50 years of Russian Art masterpieces at Christie's, Christie's, (Dec. 11, 2019), https://www.christies.com/features/50-years-of-Russian-art-at-Christies-9747-3.aspx.
  43. ↑ About Us, Phillips, https://www.phillips.com/about.
  44. ↑ Id.
  45. ↑ Id.
  46. ↑ Id.
  47. ↑ Id.
  48. ↑ Julia Finch, Bonhams and Phillips confirm merger, The Guardian (Jul. 13, 2001), https://www.theguardian.com/business/2001/jul/14/6.
  49. ↑ Id; Phillips, de Pury & Luxembourg- Company Profile, Information, Business Description, History, Background Information on Phillips, de Pury & Luxembourg, Reference for Business, https://www.referenceforbusiness.com/history2/31/Phillips-de-Pury-Luxembourg.html.
  50. ↑ About Us, Phillips, https://www.phillips.com/about.
  51. ↑ Id.
  52. ↑ Id.
  53. ↑ Id.
  54. ↑ Locations, Phillips, https://www.phillips.com/locations.
  55. ↑ Phillips' Overall Sales Total $908 Million in 2019, Phillips (Feb. 4, 2020), https://www.phillips.com/press/release/phillips-overall-sales-total-908-million-in-2019.
  56. ↑ About Us, Bonhams, https://www.bonhams.com/about_us/.
  57. ↑ Id.
  58. ↑ Id.; Chris Maxwell, Bonhams auction house, Director UK (Apr. 1, 2014), https://www.director.co.uk/bonhams-auction-house-company-profile-1-april-2014/.
  59. ↑ About Us, Bonhams, https://www.bonhams.com/about_us/.
  60. ↑ The Art Newspaper, Bonhams Buys Butterfields, Forbes (Aug. 6, 2002), https://www.forbes.com/2002/08/06/0806conn.html#493a313732d8.
  61. ↑ Anthony DeMarco, Bonhams Sold To Private Equity Firm, Forbes (Sept. 4, 2018), https://www.forbes.com/sites/anthonydemarco/2018/09/04/bonhams-sold-to-private-equity-firm/#5318c8261f4b.
  62. ↑ Id.
  63. ↑ Scott Reyburn, The Art World's Elephant in the Room, N. Y. Times (Sept. 21, 2018), https://www.nytimes.com/2018/09/21/arts/design/elephant-graph-income-inequality.html.
  64. ↑ Javier Espinoza & James Pickford, Bonhams snapped up by private equity group Epiris, Fin. Times (Sept. 4, 2018), https://www.ft.com/content/9052fcee-b064-11e8-8d14-6f049d06439c; Locations, Bonhams, https://www.bonhams.com/locations/.
  65. ↑ Kelly Crow, Sotheby's to Offer $60 Million Painting Online in New Format, Wall St. J. (May 29, 2020), https://www.wsj.com/articles/sotheby-s-to-offer-60-million-painting-online-in-new-format-11590769933; Scott Reyburn, Christie's New Auction Technique: The Global Gavel, N. Y. Times (Jul. 10, 2020), https://www.nytimes.com/2020/07/10/arts/design/christies-auction.html.
  66. ↑ Kelly Crow, Sotheby's to Offer $60 Million Painting Online in New Format, Wall St. J. (May 29, 2020), https://www.wsj.com/articles/sotheby-s-to-offer-60-million-painting-online-in-new-format-11590769933
  67. ↑ Id.
  68. ↑ Kelly Crow, Roy Lichtenstein's Nude Buoys Christie's $421 Million Live-Stream Sale, Wall St. J. (Jul. 10, 2020), https://www.wsj.com/articles/roy-lichtensteins-nude-buoys-christie-s-421-million-live-stream-sale-11594419000; Contemporary Art Evening Auction, Sotheby's (Jun. 29, 2020), https://www.sothebys.com/en/buy/auction/2020/contemporary-art-evening-auction?locale=en; Nate Freeman, Phillips Scored $41 Million in a White-Glove Contemporary Evening Sale as the Auction House Got Hip to New Online Landscape, Artnet News (Jul. 2, 2020), https://news.artnet.com/market/phillips-evening-july-2020-1892250.
  69. ↑ Kelly Crow, Roy Lichtenstein's Nude Buoys Christie's $421 Million Live-Stream Sale, Wall St. J. (Jul. 10, 2020), https://www.wsj.com/articles/roy-lichtensteins-nude-buoys-christie-s-421-million-live-stream-sale-11594419000.
  70. ↑ Id.
  71. ↑ Kelly Crow, Sotheby's Brings Home the Bacon, Wall St. J. (Jun. 29, 2020), https://www.wsj.com/articles/sothebys-brings-home-the-bacon-11593489255.
  72. ↑ Id.
  73. ↑ Nate Freeman, Phillips Scored $41 Million in a White-Glove Contemporary Evening Sale as the Auction House Got Hip to New Online Landscape, Artnet News (Jul. 2, 2020), https://news.artnet.com/market/phillips-evening-july-2020-1892250.
  74. ↑ Id.
  75. ↑ Id.
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