Why Sotheby's and Christie's Adore NFTs
(Bloomberg Opinion) -- Franco-Israeli telecom billionaire Patrick Drahi stunned the art world in 2019 when he bought venerable auction house Sotheby’s for $3.7 billion, raising eyebrows with his outsider style, appetite for debt and executive appointees parachuted in from the world of cable networks and banking.
Covid-19 has shown that having an owner with a background in technology and media might not be such a bad thing. Glamorous fine-art sales were dragged online and live-streamed at an unprecedented pace last year, and Sotheby’s accounted for more than two-thirds of online-only auction sales, according to research firm ArtTactic — beating arch-rival Christie’s. “We’ve crossed the desert,” as Drahi put it.
Now a different kind of online desert-crossing lies before Sotheby’s. It’s due to hold its first sale of non-fungible tokens — uber-hyped digital mementos fueled by the cryptocurrency boom — just a few weeks after Christie’s set records with its $69 million sale of Beeple’s “Everydays” NFT. The sale of work by a mysterious digital artist or artists called Pak includes single pieces as well as “open editions,” where buyers can purchase multiple tokens of the same art.
Given the gold-rush mentality at work here, this sale matters for the credibility of the digital-collectibles market as it starts to show signs of exhaustion. Average prices for NFTs have tumbled almost 70% from a peak in February to about $1,400, according to Nonfungible.com data. Sotheby’s may be right that Pak is pushing the boundaries of digital art, but this is a market where Pokemon cards rub shoulders with YouTubers’ topless selfies — all in the name of democratizing art and sweeping away established arbiters of taste and value.
It also matters for the future of Sotheby’s under Drahi and his associates, who clearly hope to drag the auction house’s business model into the 21st century after a history of online misfires, high overheads and volatile revenues in a cyclical art market that shrank by around 22% last year.
It’s starting to look like speculative crypto art and billionaire-owned auction houses are logical bedfellows.
As the central crossroads for the world’s trophy assets, the auction-house industry has always been catnip for billionaires — French luxury retail magnate Francois Pinault owns Christie’s, and his nemesis Bernard Arnault once owned auctioneers Phillips — but Drahi in particular sees the opportunity in growing digital sales and trading a wider array of luxury goods like watches. His lieutenants at Sotheby’s talk up the idea of becoming the eBay of art, “buy-now” services to seal deals immediately and using more client data to juice future sales.
Hence why NFTs, far from spooking the gavel-bashers, are being embraced as a potentially lucrative — if niche — digital tentpole asset to bring in new business. However faddish the stuff being put on the blockchain looks now, the level of interest and demographic profile of bidders is whetting auctioneers’ appetite. Just as they chased after stock-market fortunes in the 1990s, now they’re hunting online-first collectors who’ve suddenly found themselves rich with bitcoin and other tokens. Millennial cash is being splashed, as my colleague Andrea Felsted has written.
And for a technology that’s supposed to be sweeping away the gatekeepers, the gates still look pretty solid. It was the daring decision by Christie’s to accept payment for the Beeple NFT in cryptocurrency, including the buyer’s premium, that helped bring in bidders. Much like in 2017’s initial coin offering boom, investors in bitcoin and other cryptocurrencies are looking for new assets to rotate into rather than be forced to cash in their chips after such huge capital gains.
While the crypto music is playing, no doubt Sotheby’s and its peers will feel the need to keep dancing. And for Drahi, it will make sense to keep pushing the virtual world’s newly-minted masterworks as a reason to keep digitizing what is very much a clubby, tactile business. So far under his ownership Sotheby’s has cut wages and jobs, shifted catalogs online and charged more fees to protect costs as it streams more auctions. The rise of private sales, and the fact both big auction houses are closely held by billionaires, has not suddenly removed the market’s opacity, though.
Amid all the excitement about tools to democratize art, there’s little evidence yet that the establishment is quaking or that a life of riches awaits the average digital artist. Rather, we may be in for a rollercoaster price ride that benefits those with money to burn and gatekeepers chasing digital profits. It’s the art market all over again — just on the blockchain.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.
©2021 Bloomberg L.P.