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The buyer’s premium bolstered the bottom line and was tolerated in Switzerland and France. One possible downside to the buyer’s premium was the theory that it would inhibit bidding. According to Robert Lacey, author of Sotheby’s Bidding for Class, The bidder who kept an eye on his budget might be expected to trim his bids by 10 percent. But in practice, even hard-headed dealers seemed to forget about the premium once the bidding got serious. The extra 10 percent was tolerated, albeit ill-humouredly, as a sort of additional tax.”
Christies instituted the Buyer’s Premium in England on May 30th 1975. Sothebys followed suit on Monday June 2nd 1975.
Christies’ reason for going to a buyer’s premium stems from the fact that they were a public company that was about to declare a 23 percent downturn in their figures. To offset this bad news they incorporated the announcement as a strategy for recouping the loss.
Unlike the tolerance to the buyer’s premium in Switzerland and France, the announcement of the buyer’s premium in England was not accepted lightly. The London dealers were outraged. Dealers made their living buying at auctions for their own stock as well as on behalf of collectors. The dealers felt the buyers premium was cutting into their profit margin and would have to be passed on to the clients they were bidding for. The dealers reacted publicly with resistance.
When the new auction season opened in the fall of 1975 the dealers attempted to make their point and squash the buyer’s premium in its infancy. Both silver dealers and book merchants walked out of the auctions in protest. (Note: Sotheby’s witnessed no loss in sales since most of those that walked out had made secret arrangements to bid through representatives in the room. Others went home and bid by phone.)
Some years later, the British Antique Dealer’s Association brought a lawsuit that charged both Christies and Sothebys with collusion over the introduction of the 10% buyer’s premium. Although there were rumors of letters between the two auction giants, none could be produced and the lawsuit died for lack of evidence.
The successful introduction of the buyer’s premium in England was credited with moving the auction industry to a position of strength as the “master” in the market as compared to being thought of as a “servant” to the dealers. The auction galleries were marketing more directly to the public, providing user-friendly catalogs with price estimates and providing experts during exhibition to answer questions. (Note: Auctions were once dominated by dealers in England who controlled selling prices through “pooling”. Collectors had dealers represent them at the auctions or simply bought from dealers).
In June of 1977 Sotheby Parke Bernet Group Ltd. was preparing to go public. The offering document cited the buyer’s premium as the reason for Sotheby’s turning a profit. The buyer’s premium was the driving force to a successful stock offering.
While Sotheby’s was going public in the summer of 1977, Christies was invading America with their gallery opening on Park Avenue at the Delmonico Hotel. One million dollars was invested to improve the building making it worthy of charging a 10% buyer’s premium. Charging commission to buyers as well as sellers had never been done in America before. The New York City Department of Consumer Affairs that regulates auctions and auctioneers approved the buyer’s premium after much heated debate.
Even John Marion, chairman of the board of Sotheby, Parke, Bernet, New York joined in on the outrage and protests that greeted this initiative. Marion compared the premium to the British tax that caused the Boston Tea Party some 200 years earlier. Further, Marion stated that the premium would “never be levied in any auction room in his care”. A statement he probably wishes he had never made publicly.
The buyer’s premium immediately gave Christies the advantage over Sothebys. Christies was able to lure many major consignments with the promise of low seller commissions. One example was the auction of Henry Ford II’s finest Impressionist paintings to pay for his latest divorce. Christies secured the auction by capitalizing on the buyer’s premium and only charging 4% seller’s commission. Did the buyer’s premium hurt the auction? Well, 20,000 people visited during the five-day Exhibition and thousands more inquired by phone. According to John Herbert, author of Inside Christies, Speculation regarding the total began with a conservative $7 million, which grew to $10 million, but there were more imaginative fantasies of $11million or even $12 million”. The fact is the auction grossed $18.30 million dollars in 30 very exciting minutes of bidding.
Sothebys leadership back in England did not understand John Marion’s strong stance against the buyer’s premium use in the United States. Everyone knew that the premium had proved itself in Switzerland, France and England. The leadership saw the buyer’s premium as an unbeatable business getting tool.
“John kept digging himself deeper and deeper into the trench”, remembers Peter Spira (Comptroller), “It was just like the Americans in Vietnam. But everyone in London had this “hands-off” attitude towards him because of the history of him and his father, and all the grand traditions of Parke-Bernet. It was an article of faith”.
Faith or not, Sothebys was losing consignments. They were forced to cut sellers commissions to try and stay competitive. This cut deep into profits. In October of 1978 John Marion announced that the U.S. operation of Sothebys would begin charging a 10% buyer’s premium. It was an embarrassing announcement, a complete reversal from “never a buyer’s premium”.
According to Robert Woolley, former Sotheby’s auctioneer, in his book Going Once, “An auction house such as Sotheby’s will try to take a cut from both sides of the activity. From the seller, 6% to twenty percent is usually taken from the gross receipts. Then there is the buyer’s premium, which is set in stone and never changes: the buyer is charged 15% of the purchase price up to $50,000, 10% there after. Sometimes, if the idea of doing a certain sale is prestigious enough so that we feel the exposure would be good for business, we have had to scale down the seller’s commission”.
Scale down, or eliminate? Mrs. Jacqueline Kennedy Onassis 5,914 lot auction from cigarette lighter to BMW was conducted by Sotheby’s. The sole compensation was the buyer’s premium. There was no seller commission.
Did the buyer’s premium hurt the outcome of the auction? You be the judge.
One interesting lot was Caroline’s footstool that Jacqueline had written on a label on the underside “Footstool JBK bedroom in White House for Caroline to climb into window seat”. The cataloged lot was estimated to sell for $100-150. There were over 200 absentee bids on it before it brought $29,000. Oh but there was a 15% buyer’s premium – total price $33,350.
JFK’s walnut cigar humidor valued at $2,000-2,500 and offered as the last lot in the 1st session fetched $574,500 including the buyer’s premium. The successful bidder, Marvin Schanken, was the publisher of Cigar Aficionado magazine. He thought he would get a lot of publicity for his publication from the hoard of reporters that interviewed him after the auction. What a disappointment it must have been to read the reports that he was the owner of “Cigar and Fishing” magazine!
Arnold Schwarzenegger paid a buyer’s premium to acquire JFK’s golf clubs. Correction, his successful bid of $772,500 only captured the “woods”. The irons sold to another bidder for $387,500.
All said and done, 104,611 catalogs were sold for a total of $5.82 million (Catalog sales went to charity). The auction total was $34.5 million. All 1301 lots sold. There were 566 successful bidders of which 518 were Americans.
In my opinion and in the broadest sense, the buyer’s premium became popular because there were more buyers then sellers of fine art. The major auction houses, with high overhead were looking for ways to remain competitive, increase revenue and still entice sellers to put fine items on “the block”. It was determined, and proven, that buyers would share in the commission expense for the opportunity to acquire fine items.
It was only a matter of time and competition before the buyer’s premium would become a tool for auctioneers to utilize in the auctioning of other types of chattel and real estate.
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