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#LBSSfinance: Sotheby’s

Founded in 1744 in London by the pioneering Samuel Baker, Sotheby’s is, without any doubt, the most outstanding auction house in the world. Along with being one of the most important fine art brokers in the world, Sotheby’s is also known for its focus on the luxury world, from watches and jewelry to wine and real estate.

Some historical tidbits:
The lengthy history behind Sotheby’s has made it the most trusted and established fine art auction house in the world. Samuel Baker held his very first auction in the heart of London in March of 1744, during which he sold some copies of what he called “Polite Literature”. In following years, the company extended its role to the sale of new items aside from books, such as antiquities and prints.
After going through the two World Wars, Sotheby’s view became much broader and more cosmopolitan, hosting and selling modern ‘star’s’ works in its fine art galleries, like Andy Warhol’s famous Marilyn Monroe screen-prints.

In 1964, the auction house acquired Parke-Bernet, its greatest American competitor, inaugurating a true era of international expansion and opening sales in the Asia-Pacific region. Meanwhile, in 1977, the company went public, with shares oversubscribed 26 times. A new chapter began shortly after in 1984, when Alfred Taubman acquired the company, taking it back into private hands. Regardless, 4 years later, Sotheby’s was once again listed on the New York Stock Exchange (NYSE).
The same story repeated in 2019: after being public for almost 31 years, Sotheby’s was privatized again through the acquisition of Patrick Drahi, a TMT entrepreneur.

What to consider when valuing a company?
• Business variation — Sotheby’s offers fine art masterpieces from more than 50 collecting categories in more than 40 countries. Along with presenting auctions in 10 different salesrooms ( the most sizable being New York, London, and Hong Hong), a new program called Bid Now allows clients coming from all corners of the world to participate in the auctions live and online. Bid Now promoted a true shift of Sotheby’s operations towards a hybrid format, making auctions much more dynamic thanks to the presence of a ‘virtual’ public.e

• The impact of the COVID-19 pandemic — Like it did on most global businesses, the COVID-19 pandemic had a negative impact on Sotheby’s as well. In particular, as it had to indefinitely postpone its events due to restrictions and lockdowns imposed all around the world, Sotheby’s lost a lot of revenue in the first several months of 2020. Nevertheless, the company’s profits started to regularly increase when measures started to be loosened.

• Auction Results (as of 30th June 2021) – As of the end of June 2021, the auction financial results more than doubled with respect to the results achieved the previous year during the same period, which was strongly impacted by the pandemic.

During the first semester of 2021 particularly, the net auction sales accounted for 2.3 billion USD. When compared to the first six months of 2019, net auction results improved $11 million (3%), thanks to a 6% improvement in net auction sales. This showed a great reaction of the auction audience after the COVID-19 pandemic, and one of the main drivers of this fact can be that artworks and luxury goods in general can be seen as reserves of value through time: therefore, in periods in which uncertainty characterizes daily life, these can be seen as profitable assets to invest in.

An Interesting Service: “Bid Now, Pay Later”
Sotheby’s Financial Service, a full-service art financing company under the control of Sotheby’s International, focuses on offering two innovative financial services.

The first captivating aspect can be found in the fact that the company provides custom-made loans for its clients by securing them with a special type of collateral, art, which can go from decorative art to jewelry. Indeed, a positive aspect connected to this service can be found in the fact that the company focuses much more on the art rather than the financial circumstances, giving the chance for this service to be characterized by an unmatched speed in the delivery of the loans, a speed that will be never reached by ‘traditional’ financial institutions. The loan’s time range usually falls between 1 and 2 weeks from the conclusion of the deal.

To evaluate this special type of collateral, experts from the field are usually called to appraise the quality, condition, provenance and market for each artwork, jewelry, watch, or other collectible.

Along with this, Sotheby’s Financial Service also provides an appealing solution which gives the possibility for its clients to pay for their purchases over time, with the well-known formula of Bid Now Pay Later (here, the bid substitutes the classical buy typical of BNPL platforms).
The service consists of immediate payments of at least 50% of the hammer price (including Sotheby’s premiums on the service offered), followed by installments distributed over a set period, usually over 12 months. It is fundamental to highlight that the hammer price must be at least 400,000$ and the annual percentage rate is at 7.032% with an interest rate of 5.0% and a 3-month LIBOR rate.

The fact that Sotheby’s provides this service is of essential importance: particularly, it shows its attention towards customer variation; not focusing merely on a limited group of people who are able to finance their purchases. Sotheby’s is opening the world of fine art and luxury investments to everybody.

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