Ahead of the company’s annual meeting on May 6, he would like to remind shareholders what those two problems are: 1. He (still) thinks management sucks and 2. In Loeb’s opinion, Team Sotheby’s knows dick about selling art.
Dear Fellow Shareholders:
Sotheby’s (the “Company”) is a leading brand in the art and collectibles market. Despite strong global tailwinds from rising art prices and increasing consumption of luxury goods, Sotheby’s has lost market share in highly profitable areas like Contemporary Art while its margins have badly deteriorated. We believe the Company’s slide is a consequence of failed leadership by a Board of Directors who collectively own a scant 0.87% stake in the Company. Their lack of “skin in the game” has led to a dysfunctional corporate culture overly focused on short-term metrics such as auction volumes at the expense of long-term investment in key areas including: talent development and securing key relationships in the art world; maintaining and modernizing the entry and exhibition spaces at its headquarters; and technological infrastructure, both in terms of digital presence and database management. Most recently, Sotheby’s Board has spent shareholders’ money on legal shenanigans designed to disenfranchise them rather than on developing and articulating a clear long-term growth strategy. Third Point’s intention is to reinvigorate the Board with our Shareholder Slate – Daniel S. Loeb, Harry J. Wilson, and Olivier Reza – and to restore Sotheby’s to meet its substantial potential…
…one of Sotheby’s key “cost” areas is the amount it spends to win consignments from collectors who are choosing between the Company and Christie’s. The Shareholder Slate recommends sharply curtailing the use of fractional commissions, where Sotheby’s splits a portion of the buyer’s premium with the seller to “win” the consignment. The idea seems to be that certain pieces are needed to headline an auction to create sufficient buzz so that buyers will attend and purchase other items. Is this really the most effective and profitable way to sell art? To us, that type of thinking reflects poorly on Sotheby’s view of art collectors in general and its clients in particular, and epitomizes management’s lack of focus on driving a more profitable business. Either way, there is no doubt that the unchecked use of this practice has significantly weighed on auction commission margins and requires a detailed review.
Loeb might also add that he could teach the current auctioneers a thing or two about pointing and saying, “Sold to the man in the blue suit” but now is not the time. Soon, though.