| The art auction market achieved remarkable feats in 2017. At Christie's November Post-War and Contemporary Evening sale, the company sold Leonardo da Vinci's Salvator Mundi for an astounding $450.3 million, becoming the most expensive work of art ever purchased at auction. Similarly, at Sotheby's May Contemporary Art Evening sale, Jean-Michel Basquiat's Untitled, 1982, attained a new artist record of $110.5 million. In the face of these masterpiece sales, it is nonetheless important to consider that from a business perspective, the risk for auction houses to do business at the highest end of the art market remains high, and can often outweigh the rewards.;In a competitive effort to secure top lots, auction houses have resorted to providing financial incentives such as guarantees and extensive marketing campaigns, which have significantly reduced profit margins. To begin with, access to the ultra-high net worth group is costly. Take for instance the $85 million paid by Sotheby's to acquire Art Agency Partners. In the same year, the auction house reported a $12 million loss over the guaranteed Alfred Taubman estate sale. In an effort to recuperate loss, Christie's and Sotheby's are channeling their efforts towards growing the middle market, an area where works are more modestly priced between $25,000 and $1,000,000. While these works do not always come with headline-grabbing prices, they produce higher profit margins, incur lower marketing costs, and are relatively easier to source than most top-tier property.;This thesis aims to investigate and evaluate the profitability of the art middle market, analyze what Sotheby's and Christie's are doing to capitalize on these works, and recommend further practices for both auction houses to cultivate the middle market art patron. |
