Art Auctions’ Self-Serving Numbers

Writing in The Wall Street Journal, Lee Rosenbaum explains how the numbers reported for art auctions have a twist:

Contrary to what you might expect, press accounts, relying on the information released by the auction houses, don’t normally measure a sale’s success by comparing an object’s hammer price — the last amount announced by the auctioneer — with the presale estimate of hammer price. Instead, they almost invariably compare the estimate of hammer price to a figure arrived at by adding hammer price to the commission that the auction house charges the buyer.

The result is an apples-to-oranges comparison that makes the sale results look better than they actually are, because they’ve been inflated by the commission....For example, Bloomberg News reported that a work by Abstract Expressionist Arshile Gorky, one of 16 drawings consigned to Christie’s by Richard S. Fuld Jr., chief executive of the failed Lehman Brothers Holdings, and his wife, sold last Wednesday “for $2.2 million, at the low estimate.” But its hammer price was, in fact, $1.9 million — $300,000 below the low estimate of hammer price. Only after the auction house’s commission was added did the price reach the predicted amount.

Of course, the auction houses prefer media coverage about auctions that exceed the predicted outcomes. Accordingly, the auction houses’ numbers serve that interest, especially when reporters pass them along as unqualified facts.

Kudos to Rosenbaum for challenging that form of business as usual.