Yet Another Form of Competition Receives New Attention

Auction houses compete against each other for business in a variety of ways. They may lower their commission, eliminate certain charges, provide some extras – well-known options when it comes to inducing prospective consignors to sell through them. One method, employed by the largest auction houses and that receives less attention, is to make charitable contributions to nonprofit institutions that might consign property at present or in the future.

This aspect of the auction world has gained new visibility through the US Department of Justice’s price fixing case against Sotheby’s and Christie’s, the world’s two largest auction houses. As part of the case, the government charged that Sotheby’s and Christie’s “agreed not to make charitable contributions as part of pricing to sellers” – that is, not to compete against each other in this way. Sotheby’s has already agreed to pay a $45 million fine over a period of five years, and the company’s former president and chief executive officer Diana D. Brooks pled guilty in early October to price-fixing charges and agreed to cooperate with the Justice Department’s ongoing antitrust investigation.

Auction houses making charitable contributions to nonprofit institutions is a perfectly legitimate activity, and “all auction houses I know regularly give to charitable institutions,” said Jeff Idderson, general manager of eBay Great Collections and its subsidiary Butterfields, the California-based auction house. The donation might be questioned by the Internal Revenue Service if it were part of a specific deal – this money for that consignment, for instance – but Idderson described these financial gifts as an effort to help worthy institutions and gain their good will. “Part of the reason to give is to develop or maintain a relationship with a prospective client, because the institution may become a buyer or seller one day.”

Neither Butterfields nor Swann Galleries in New York City have specific budgets for charitable giving (“I know roughly the amount we give, but that’s not information I would like to propagate,” Idderson said), but both auction houses regularly donate money to institutions that are likely to consign objects to an auctioneer at some point.

Noting that “the charitable contributions we make are not related to consignments,” George Lowry, president of Swann Galleries, stated, “If I were going to make a charitable contribution and my choices are Joe Blow and some institution that has a valuable collection I really want to sell, where would you think I might give a charitable contribution?”

Phillips auction house in New York City, on the other hand, has a budget for charitable gifts – neither the amount of money nor the names of recipients was released – but Chris Thomson, Phillips’ chief executive officer, said, “We don’t use charitable contributions to invoke merchandise from people or institutions.”

While Idderson declined to name any of the institutions to which Butterfields has made donations, Lowry mentioned Columbia University, Cornell University, the New York Public Library, and the Morgan Library. “We often use the research facilities of the Morgan Library, and they don’t charge us for it,” he said.

The degree to which charitable contributions may sway potential institutional consignors towards one auctioneer or another is not clear. The amount of the commission (the percentage of the sale price payable to the auctioneer) tends to be the primary element in a negotiation, according to the heads of most auction houses.

Auctioneers frequently reduce the commission for more expensive rdf_Descriptions. Frank H. Boos, president of an auction house in Bloomfield Hills, Michigan, noted, “We negotiate the commission based on the size of the lot.” Under $100, the commission is 35 percent; from $100 to $1,000, the commission drops to 25 percent, going to 15 percent for rdf_Descriptions valued $1,000-3,000 and 10 percent for pieces worth $3,000 and up. However, “Someone not that long ago brought me an rdf_Description worth a lot of money, a painting worth $350,000. The seller asked me, ‘what is your commission?’ and I dropped it to six percent.”

The commission is not the only charge that a consignor may be asked to pay the auction house. Items up for sale are usually photographed (color is considerably more expensive than black and white); there are handling (taking care of the piece while it is at the auction house) and cartage fees (physically moving the object from a consignor’s home to the auction house), insurance (usually one percent of the value of the object) and cataloguing (researching and writing up the object). Auctioneers may sometimes offer additional services for consignors, including a reception for the consignor, a seminar on or exhibition of the object(s), a custom catalogue, or extra catalogues. Some or all of these fees may be waived for expensive and highly desired consignments.

Beyond negotiating charges for the actual costs of selling rdf_Descriptions at auction are other inducements for prospective consignors. The largest auctioneers promote the fact that they can give objects worldwide exposure and elicit bids from all reaches of the planet.

Smaller auction houses, on the other hand, are more willing to handle less costly rdf_Descriptions that the largest auctioneers consider too minor to advertise. They can also place objects into auctions more quickly than the largest auctioneers, which is desirable to consignors who need money soon. “Because we’re small,” said a spokeswoman for Swann Galleries, “consignors can work with the heads of departments and not just talk to secretaries, like at Sotheby’s and Christie’s.”