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When it comes to getting their hands on Aunt Maude's Monet, you won't find more bitter rivals than Sotheby's and Christie's. But when you look at the commissions they charge to buyers, the art world behemoths appear more like cohorts than foes. At least that's the charge the U.S. Justice Dept. is now investigating, as it looks into possible price fixing between the two auction houses.
The fallout so far certainly suggests that something was amiss, with privately held Christie's coughing up embarrassing admissions of possible misconduct in return for conditional amnesty, while the publicly traded Sotheby's has watched its share price plummet and its top brass resign on Feb. 21, amid news of the scandal.
The reputations of both houses could be cleared. But the investigation might help level a playing field that has been skewed by the growing hubris of its two largest players. Christie's and Sotheby's not only own the global-auction market but they've both become more aggressive about muscling into new types of business and fattening the commissions that buyers must pay on their goods. While the growing number of dot-com players offering online auctions for fine arts, antiques, and collectibles has only increased the competitive pressure on traditional players, the high-end auction business has hardly been a beacon of consumer-friendly behavior.
Take the longstanding complaints about the bidding structure, which allows auctioneers to start people bidding well below the reserve -- or minimum selling price of the goods. That gets people shouting out offers that the buyer will never accept. Many have argued that bids should start at the minimum price so that each bidder has a real shot at taking home the goods. But auction houses maintain the practice on the grounds that it helps to create a buzz, even if the auctioneer is doing most of the initial bidding. "It's artificial, and people think it's deceptive, but we gave up on that fight long ago," says one auction-industry lobbyist.
TANDEM STEPS.
Art enthusiasts have also become used to dealing with a relatively uniform commission structure. The question is whether the competing houses independently hammered out their fees or colluded on the prices in advance. Although executives in both companies either were not available for comment or declined to talk on the record because of the ongoing investigation, the facts are sure to raise a few eyebrows.
In 1992, Sotheby's raised commissions on the first $50,000 of a purchase price to 15%, from 10%. Less than two months later, Christie's did the same. Three years later, the venerable London-based auction house changed its fees to a sliding scale -- and Sotheby's soon followed suit. "We've learned to live with the commission structure that the auction houses impose upon us," says Manhattan dealer Richard Feigen. "They've basically charged the same thing for as long as I can remember."
What bothers Feigen and other dealers is a feeling that regulators have been oblivious to the art business, creating "an atmosphere of laxity and complacency that has allowed auctioneers to become careless." The crime, if any, may be less a conspiracy than a general attitude within the auction houses that they can basically do whatever they want.
Not anymore. Faced with a shareholder exodus, mounting lawsuits, and possible criminal charges, both houses are sprucing up their acts. Christie's decided to start the millennium on a fresh foot by fessing up to what looks like past misbehavior. Among other things, it has the benefit of a new owner -- French entrepreneur Francois Pinault, who took over the business in 1998 -- and new management.
That has made it possible for Christie's to pin the problem on "possible conduct prior to the tenure of our new management," according to a statement issued by the company. Christopher Davidge, then the chief executive, quit in December, 1999, and gave his successors information on potentially collusive conduct with Sotheby's.
"POWERHOUSES."
Sotheby's, meanwhile, has decided that legal heft is more valuable than art savvy at the moment. It named Michael Sovern, a Columbia University law professor and experienced troubleshooter, as its new chairman, following the resignations of Chairman Alfred Taubman, a Detroit retail tycoon who owns a 22.5% stake, and Diana D. Brooks, the high-profile president and CEO. "It's good that they've brought in someone with very high integrity," says Jenifer Casalvieri, a vice-president with Duff & Phelps Credit Rating Co. Even so, her company has put Sotheby's on a ratings watch, with a possible downgrade depending on how events unfold.
For now, the outcome of the investigation remains more uncertain than the probable bid on Aunt Maude's Monet or a signature Marilyn Monroe dress. But after years of sweeping up fat commissions in a buoyant art market, the latest events could at least pull both houses back to earth.
Some dealers and skittish customers are already grumbling about taking their business to places other than Sotheby's and Christie's. A few weeks ago, that would have sounded absurd, regardless of cost. "They have become powerhouses that dominate every major sale worldwide," says one New York dealer. "Maybe this will help spark some real competition in the market." Nothing wrong with that.
Brady covers the art market for Business Week from New York EDITED BY DOUGLAS HARBRECHT
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