A Peek Inside the Rarified Air of High-end Fine Wine Auctions
In last week’s column, I presented the rarified world of wine auctions and my experience as a participant (more as an observer) of a high-end auction conducted by Christie’s Auction House.
These world-renowned auctions, conducted in major cities, are responsible for creating a market for fine and rare wines, typically the most sought-after bottles from elite and prestigious producers.
These auction houses, as purveyors – brokers if you will – for private collectors, trade as a commodity house. They act as conduits for transferring fine wines from the cellars of collectors who typically have amassed valuable collections over decades of meticulous purchasing upon release or at high-end auctions. The auction houses, over one, or several, decades, may offer the wines of one private seller to another, and then onward to the next, ad nauseam. For each such facilitation, they stand to collect sizable commissions. The built-in profit formula arises from the fact each vintage produces a fixed volume of wine, which over time never expands and is continually depleted, inducing rising prices for shrinking inventories.
Let’s delve into the structure, operation and business model of these houses of high repute.
- The clientele
The participants at these high-end auctions tend to be well-heeled investors, seeking self-fulfilling enjoyment of owning and imbibing rare wines or, in many instances, seeking bragging rights among fellow collectors. It is indisputable that the adrenalin rush alone justifies the effort.
- Wines offered
The standard auction catalog has historically been dominated by French wines. The highly desirable offerings from the Burgundy region tend to command top prices of lots and auctions, followed by those from Bordeaux. American wines have a small but voracious following. California cult wines such as Screaming Eagle compete head to head with a number of their French counterparts.
- The global picture
The breadth and depth of the business of conducting high-end auctions is impressive. At the turn of the century, worldwide wine auction sales totaled $92 million. By 2016, willing sellers and buyers pushed sales to $338 million.
By far, the United States leads the pack of international auction house sales. In 2016, $168 million passed hands, with the average price of a lot (the composition, theme and size of a catalogued offering) at $3,294. This statistic essentially sets the price of entry into an average auction proceeding. The top three auction houses accounted for $197.8 million, a whopping 58 percent of total global sales.
- Profile of a high-end auction
Record-setting prices have become de rigueur in many auction house offerings. Last year the billionaire wine collector Bill Koch auctioned a portion of his collection through Sotheby’s. He sold an astounding 20,000 bottles of wine, garnering an equally astounding $21.9 million in proceeds. The highest price paid? Over $34,000 for each of 10 bottles of 1945 Château Mouton Rothschild, a highly prized Bordeaux fine wine.
- Cost to bid
Only wealthy bidders can afford the cost of purchasing high-end wines. Fees, customarily paid by the buyer, can top 22 percent of the gavel price. Typically, a sliding scale is employed. The greater the purchase or the rarer the wine, the lower the fee (a function of auction houses vying for prestigious sales from prestigious cellars). The average fee ranges from 12.5 to 25 percent. When you do the math, the intense competition for representing valuable cellars becomes obvious.
Is this rarified air of wine auctions the exclusive enclave of the one percenters? Is there no opportunity for avid wine aficionados who lack the financial means of the titans of private wine cellars? In another benefit afforded to the masses by digital technology, auction house events are now offering lower-priced wines to buyers who may not have the fortitude or personality to bid at live auctions. I’ll explore this burgeoning market opportunity in next week’s column.
Nick Antonaccio is a 40-year Pleasantville resident. For over 20 years he has conducted wine tastings and lectures. Nick is a member of the Wine Media Guild of wine writers. He also offers personalized wine tastings and wine travel services. Nick’s credo: continuous experimenting results in instinctive behavior. You can reach him at nantonaccio@theexaminernews.com or on Twitter @sharingwine.
