It was widely reported that on Monday night, at Phillips de Pury auction house, Andy Warhol’s 1962 portrait of Elizabeth Taylor and her lovers, Men in Her Life, sold for $63 million. Problem is, it’s not quite true. Because of a type of (legal) insider deals, the winning bidder may have written a check for less, even a chunk less, than $63 million to take the picture home.
Here’s how these “insider” auction deals usually work: days or months before an auction, a collector, dealer or even a financial entity promises to pay the seller X amount for an artwork if no one else bids for it. Such arrangements are usually called “third-party guarantees.” They remove the element of risk for the seller and enable the auction house to get better property. When the artwork finally does come up at auction, the third party gets a percentage of what it sells for, in exchange for that early willingness to commit funds. But if the person who guaranteed it is also the winning bidder, that may mean he or she doesn’t, effectively, pay the reported price.
Sound confusing? Here’s exactly how Christie’s spells it out in the auction catalogue (Sotheby’s said it structures such deals differently, and does not compensate its third-party bidders when they win, to “ensure a level playing field”): “When a third party agrees to finance all or part of Christie’s interest in a lot … [it] will be renumerated in exchange for taking on this risk. The third party may also bid on a the lot [which would be announced at the auction]. When it does so, and is the successful bidder, the renumeration may be netted against the purchase price.”
You can’t make this stuff up. Or can you?