At the end of last year, the sag in prices realized at auction and the rise of unsold property (see Auction Reviews, page 86) prompted top management at Christie’s and Sotheby’s to impose a host of measures affecting buyers and sellers alike. Changes were already in motion in mid-October, when Christie’s instituted new payment terms under which property will not be released to purchasers unless they have paid in full within seven calendar days of the auction, in cash or by credit card, wire transfer or check (which must first clear). Before this, the house had allowed certain buyers from the trade to take possession of their acquisitions before completely settling their accounts. (At Christie’s, as at Sotheby’s, consignors may agree before the auction to allow extended payment terms, usually 30 or 60 days.) 

"We are not the trade’s bankers, so we don’t know their financial position," says Christie’s president Marc Porter, explaining the rule change. "It’s never been our practice on a regular basis to release expensive works of art that haven’t been paid for, whether by private people or by the trade." The house believes that the new policy will simplify transactions and encourage buyers to use an option, introduced in September, that allows credit card payments of up to $150,000 per sale for lots purchased by a bidder in the room and up to $25,000 for those bought via absentee or telephone bid.

Christie’s has taken a tough stance in several other areas as well. "We are going to be scaling back guarantees dramatically [and] cutting our marketing, travel and entertainment expenses," says Porter, adding with respect to guarantees: "We have a few deals that were already in place for the February sales, but we’re not offering anything new." Asked about persistent rumors of staff cuts, he will say only, "We’re always looking at the structure of the business."

For its part, Sotheby’s says its settlement procedures have not changed: Payments have always been due in full immediately after the sale, according to a spokesperson. However, the house has instituted other rules that resemble those of its rival. As at Christie’s, the moves are intended to stem the flow of red ink on the books. This is perhaps even more important for Sotheby’s, which, unlike Christie’s, is a public company and so must not only lay open its accounts for all to see but also worry about keeping its stockholders happy.

The house’s third-quarter earnings report, delivered in a conference call on November 7, revealed operating revenues for the period of $76 million, an 11 percent drop from third quarter 2007, and net losses of $46.2 million, largely due to overreaching guarantees. The latter cost the house $27.6 million in the New York contemporary sales alone, which took place the week after the call and so were represented by estimated figures in the report.

With Sotheby’s stock trading at under $10 a share, a fraction of the $42 high of a year ago, the Sotheby’s CEO, William Ruprecht, tried to reassure the shareholders and analysts listening in on the call by pointing out that the company was cutting costs globally and "resizing." "We’ve undertaken initiatives across the business, and there are no sacred cows," he said. "We cannot at this moment peg where our sales levels will be next year — no one can — but we can manage our costs in ways that will ensure our financial health, even at top-line sales levels far lower than where they are today."

As one way to "manage costs," Ruprecht mentioned that Sotheby’s would "significantly reduce our use of auction guarantees and other special concessions to consignors until such times as stability is restored in the global economic environment and in the financial markets. We’re essentially closing the door on that part of our business."

The "special concessions" to which Ruprecht refers had been generous. In boom times like the one that just ended, auction houses eager to win the battle for market share more or less roll over for sellers with valuable property, agreeing, for example, to waive commissions on multimillion-dollar consignments and, of late, offering consignors a percentage of the buyer’s premium (which they had raised aggressively over the past several years to offset shrinking profit margins). Doling out a share of an "enhanced hammer price" is less risky than committing to extravagant guarantees, although some clients received both.