Bloomberg News

Sotheby’s CEO in Hot Seat For Driver, Country Club Perks

October 07, 2013

Sotheby's CEO William Ruprecht

Sotheby's Chief Executive Officer William Ruprecht. Source: Sotheby's

In 2010, directors of Sotheby’s took a big whack at their chief executive officer’s perks.

William Ruprecht’s annual allowance for a car and driver was cut to $25,000 from $143,000 in 2009 including associated taxes. And the auctioneer stopped reimbursing him for taxes he was assessed when it paid his country-club dues and personal financial-planning fees and other perks.

In return for this bout of austerity -- and perhaps to ensure that he’d never have to take the subway -- Sotheby’s paid its CEO a onetime fee of $250,000.

As Daniel Loeb, founder and CEO of hedge fund Third Point LLC, pursues a bigger stake in Sotheby’s and the departure of Ruprecht, he has made clear his distaste for privileges that “invoked the long-gone era of imperial CEOs.”

Ruprecht, whose contract expires in August 2014, earned $7 million in 2011 and $6.3 million in 2012.

While the Sotheby’s lifer presided over the art-market boom, results lately have been mixed. In 2012, sales declined 7 percent to $5.4 billion.

The Rival

Rival Christie’s sales increased 10 percent to $6.2 billion during the same period.

Sotheby’s results for the first half of 2013 “reflect mixed sales performance,” the company said in a filing.

Its auction commission margin -- revenue from auction sales -- peaked in 2009 at $20.70 for every $100 of sales. It was $16.30 in 2012.

Sotheby’s lost ground in crucial growth areas, including online auctions and Chinese market, according to art market observers.

The result is “demoralizing” for Sotheby’s employees, Loeb wrote in a letter filed with the SEC.

Sotheby’s was an online pioneer. It was exploring Internet sales in 1999 and had partnerships with Amazon.com and EBay Inc. In 2003, Sotheby’s said it lost about $100 million on Internet operations in three years as sales of high-end fine art, antiques and collectibles hadn’t grown as fast as it expected.

“Sotheby’s was certainly an early adopter of Internet technology,” said Patrick Meade, U.S chief operating officer for Bonhams auction house, and a former Christie’s senior vice president of business development. “Christie’s didn’t even see the relevance of online selling platforms at the time.”

Christie’s now offers online sales in seven categories, including fine art, wine and jewelry. During the first half of 2013, 46 percent of buyers at 11 online-only auctions were new to Christie’s.

China License

Sotheby’s allows its clients to bid online but doesn’t have online-only sales.

After leading in Asia, Sotheby’s hasn’t invested in the region as aggressively as its rival, said Michael Plummer, a principal of Artvest Partners in New York.

Earlier this year, London-based Christie’s was granted a 30-year license to operate independently in mainland China. Its inaugural sale in Shanghai on Sept. 26 raised $25 million.

“Christie’s has been consistently looking for long-term growth strategy and new value creation,” said Sergey Skaterschikov, founder of Skate’s Art Market Research.

Sotheby’s long-term plans focus on fostering high-end market and private sales, two areas where “growth opportunities have been largely exhausted,” he said.

In his 1,668-word critique, Loeb cited Sotheby’s “deteriorating competitive position relative to Christie’s,” as evidenced by recent contemporary and modern art sales.

Major Sales

The results at the major New York evening sales, at least, where the rivals hold auctions on successive nights, aren’t one-sided.

In the dozen such sales since 2010, they’re even on which had the better night. Christie’s sold an average $260 million per evening sale, Sotheby’s $244 million.

Asher Edelman, a New York art dealer and former corporate raider, said Loeb’s critique is “all rhetoric. He is interested in making a profit in what is now an overpriced stock.”

Roosevelt Investment Group Inc. was one of Sotheby’s shareholders in 2011, with as much as 1.5 million shares, but has since sold its holdings. Roosevelt portfolio manager Jason Benowitz said Sotheby’s (BID:US) isn’t troubled enough to warrant the ousting of its CEO.

“The stock has performed well. They are cutting expenses and investing in the company’s growth,” Benowitz said. “Could they run a leaner operation? Yes they could.”

The shares are up 51 percent this year, although they remain below their closing high, set in 2007.

On Friday, Sotheby’s adopted a shareholder rights plan -- a so-called poison pill -- that could make taking control more costly.

Third Point responded with a statement: “We hope this will be Ruprecht’s board’s final snub to shareholders.”

Muse highlights include Manuela Hoelterhoff on New York City Opera, Jeremy Gerard on theater.

To contact the reporters on this story: Philip Boroff in New York at pboroff@bloomberg.net; Katya Kazakina in New York at kkazakina@bloomberg.net.

To contact the editor responsible for this story: Manuela Hoelterhoff in New York at mhoelterhoff@bloomberg.net.


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