Sotheby’s – one of the world’s largest auction houses – has been riding the wave of the art market boom in recent years, generating over $7 billion in revenue and setting successive records with artists like Gustav Klimt and René Magritte.

Now, the tide has turned – and Sotheby’s situation is cause for concern.

According to The Wall Street Journal, the company is low on cash, having to extend payments to transporters and other suppliers by more than six months.

At a meeting this month, some company executives expressed concerns about their ability to continue paying their employees on time, a source told the WSJ.

Sotheby’s art auction vertical suffered a loss of $115 million in the first half, compared to a profit of $3 million in the same period last year.

The company’s operating cash flow for the last 12 months until June was $144 million, a 43% decrease year-on-year.

“The crisis at Sotheby’s comes at a time when the entire art market is suffering. Over the past year, collectors who see art as a financial asset have pulled back as high interest rates and inflation have made art trading more expensive,” says the Journal.

Contemporary art buyers “have also suffered a shock after years of paying increasingly high prices for emerging artists – who may never pay off.”

The newspaper also notes that some small galleries – which rely on collectors to validate their unknown artists – have closed their doors, while dealers have reported weak sales at fairs.

Christie’s, Sotheby’s main competitor, has also felt the blow, with its auction sales vertical dropping almost a quarter in the first half.

However, Sotheby’s hole is deeper – as in addition to suffering from falling sales, the company carries a very high debt.

According to the WSJ, the company now has a debt of over $1.8 billion – double what it had when it was acquired by French-Israeli billionaire Patrick Drahi in 2019.

Drahi’s situation is also complex. Owner of the Altice telecommunications conglomerate, with operations in the United States and Europe, he is known for taking on a mountain of debt to build his empire.

The problem: the businessman indebted the business when interest rates were low, and now that they have risen, he is having to sell parts of this empire to reduce a debt of over $60 billion.

Last month, for example, Drahi sold 24.5% of BT Group to Bharti Enterprises in an operation of almost $4 billion.

At Sotheby’s, he used a similar strategy. When he bought the business for $2.7 billion, the businessman raised $1.1 billion in new bonds and loans to finance the transaction, in addition to assuming part of the existing debt of $1 billion.

Since then, the man has spent as if there were no tomorrow, including buying the Breuer building in New York – which once housed the Whitney Museum of American Art – for $100 million; and renovating luxury retail spaces in Hong Kong and Paris.

While doing all this, Drahi withdrew resources from Sotheby’s through dividends. “In total, Sotheby’s paid $1.2 billion in dividends to a company controlled by Drahi since the acquisition,” says the Journal.

The company’s tough times led Moody’s to downgrade its debt rating to B3, one of the lowest levels of ‘junk debt’.

One of the reasons was precisely the company’s dividend payments. “The downgrade also reflects governance issues, particularly the company’s decision to continue paying dividends in 2023 despite deteriorating performance,” the agency said.

Standard & Poor had already downgraded Sotheby’s credit to ‘deep junk’ territory in June.

But all may not be lost for Sotheby’s, which could be saved by the Arabs. Earlier last month, Drahi announced that he had closed the sale of a minority stake in the company to ADQ, a sovereign wealth fund from Abu Dhabi that will inject $1 billion into the company.

But the money has not yet come in.


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