Sotheby’s has reported an 88 per cent plunge in its core earnings and a 25 per cent decline in auction sales, as a chill in the art market hits one of the industry’s most famous brokers.
The first-half figures at Sotheby’s main auction business reveal the extent of the financial pressure the group came under before it struck an investment deal with Abu Dhabi earlier this month.
Weaker luxury spending in China is among the factors weighing on demand for fine art and affecting both Sotheby’s and historic rival Christie’s.
One of Sotheby’s marquee auctions fell short of expectations in May, when the winning bid for a Francis Bacon portrait of his lover George Dyer missed the low end of its $30mn-$50mn estimate.
Abu Dhabi-based sovereign wealth fund ADQ agreed to take a minority stake in the auction house earlier this month, through a $1bn capital raise funded with its present owner Franco-Israeli billionaire Patrick Drahi, who has been looking to cut debt across his business empire.
Ahead of the deal, Sotheby’s told lenders that its earnings before interest, taxes, depreciation and amortisation (Ebitda) plunged 88 per cent to just $18.1mn in the first half of 2024. Even after it stripped out further costs — such as severance pay and legal settlements — from this earnings measure, Sotheby’s adjusted Ebitda fell 60 per cent to $67.4mn.
It also booked $558.5mn of revenue in the first six months of 2024, a 22 per cent fall on the $712.3mn recorded in the same period last year, according to an earnings report shared with its lenders.
The results cover Sotheby’s main auction business and do not include earnings generated under other arms of parent company BidFair, such as its financial services division that makes loans to art collectors.
Sotheby’s declined to comment.
The slowdown at Sotheby’s follows Christie’s last month publicly reporting a similar 22 per cent drop in auction sales over the same period.
Sotheby’s results also reveal that it intends to use $700mn from the planned capital raise to “reduce the company’s leverage”, with the deal with ADQ expected to close in the fourth quarter of 2024.
Founded in 2018, the ADQ sovereign wealth fund is tasked with fuelling development in the oil-rich emirate of Abu Dhabi and is chaired by the UAE’s powerful national security adviser, Sheikh Tahnoon bin Zayed al-Nahyan. An Abu Dhabi branch of the Louvre museum opened in 2017.
Sotheby’s reported more than $1.8bn of net “long-term debt” at the end of June, suggesting that it will still carry over $1bn of such debt even after the capital raise is completed. The company’s total liabilities stand at $4.3bn.
The wider Sotheby’s group has also borrowed money through creative means this year, with its financial services affiliate in April raising $700mn through new bonds backed by loans the auction house provides to art collectors.
Drahi took over Sotheby’s in a leveraged buyout in 2019, returning the centuries-old auction house to private ownership three decades after it listed on the New York stock market and bringing him into direct competition with French billionaire François Pinault, who owns Christie’s.
The deal handed Drahi a trophy asset alongside his Altice business empire, which he transformed from a niche cable company into a global telecoms conglomerate through a decade-long acquisition spree.
Now faced with rising interest rates and market jitters over a criminal probe into one of Altice’s co-founders, Drahi has been increasingly selling off assets in a bid to tackle his group’s over $60bn debt pile.
Earlier this month, Drahi agreed to sell a stake of nearly 25 per cent in BT Group to Indian billionaire Sunil Bharti Mittal’s conglomerate, having borrowed heavily from banks to buy up shares in the British telecoms operator in previous years.
Additional reporting by Josh Spero in London