Sotheby’s, one of the most prestigious auctioneers globally, is suffering from poor financial results down by 88% due to the slowing art market internationally. This result follows the announcement that core earnings have fallen 88%, and sales at auction have fallen short by 25% through the first half of 2024, a report in the FT stated.
The sharp slowdown underlines the struggles Sotheby’s has endured in the past before finally landing crucial investment from ADQ, Abu Dhabi’s sovereign wealth fund, this month. One of the key contributors to such a slowdown is a decline in demand from China-a highly influential factor on sales for both Sotheby’s and its longtime rival, Christie’s. That became pushed ahead in May, whereby the highly anticipated sale of a portrait by Francis Bacon realised less than anticipated after the high bidder managed only to pull in a below-the-estimate bid within the $30 million to $50 million range.
To circumvent this potential problem, Sotheby’s engaged with ADQ, who committed to acquire a minority equity share in the auction house by infusing USD 1 billion in fresh capital.
The acquisition of that company is part of broader efforts to reduce leverage across the sprawling business empire of its current owner, Franco-Israeli billionaire Patrick Drahi. Going private with a 2019 leveraged buyout at Sotheby’s, Drahi has also taken active steps in the period since to sure up assets while interest rates are rising and uncertainties remain in the market. The pressure on the finances of Sotheby’s is highlighted by the fact that during the first half of 2024 its Ebitda (earnings before interest, taxes, depreciation, and amortisation) fell by 88% to $18.1 million. Even after adjustment for costs, including the provision for severance pay and resolution of some legal action, adjusted Ebitda fell by 60% to $67.4 million. Revenue also slipped 22% for the auction house, to $558.5 million from $712.3 million in the period a year earlier.
The above numbers account for just the core auction activities of Sotheby’s and exclude other revenues, such as from its financial services division-which lends against art collections. Significant liabilities on its books further cloud the overall picture of the finances for the auction house. Sotheby’s reported more than $1.8 billion in long-term debt as of the end of June 2024, a level that will still be over $1 billion after the expected capital injection.
The investment ADQ is expected to close in the fourth quarter of 2024, whereas the $700 million will be used for the payment of debt for the leverage of Sotheby’s. That would be quite crucial for the firm, considering its state, as the economic environment has remained very hostile.
ADQ, formed in 2018, is central to the development of the Abu Dhabi economy and led by Sheikh Tahnoon bin Zayed al-Nahyan—his role is that of national security adviser in the United Arab Emirates. Such investment is a statement of more general cultural ambitions held by Abu Dhabi, among them being the launch of a branch of the Louvre Museum in 2017. Drahi added a prestige asset with his takeover of Sotheby’s to his Altice business empire, which he expanded from a niche cable company to a telecoms conglomerate through a string of acquisitions. But in the present economic environment, with its recessionary fears and also amid a criminal investigation involving one of the co-founders of Altice, Drahi has moved to shed assets to reduce his group’s debt burden of $60 billion. Of late, Drahi has subscribed to a deal with the conglomerate of Indian billionaire Sunil Bharti Mittal to sell an almost 25% stake in BT Group further pointing toward his restructuring and stabilizing business interests.
