Auction Guarantees in Transition: Adapting to Market Shifts and Collector Interests

Victoria Kleiner, Head of Art Due Diligence and Digital Art Expertise

Tarabella Frazer, Research Associate and Client Success Manager

Christopher Mann, MSc CEng MIET MIoP, Head of Data

Guaranteed bids have become a fundamental part of the auction market. Auction houses are constantly vying for the same consignments and single-owner collections, however in guaranteeing important, often very high-value, property the house bears the financial risk of the work being ‘bought in’ (not selling), should no one bid on the work. A Third-Party Guarantee (TPG), sometimes referenced as an ‘Irrevocable Bid’, can offload some or all the house’s financial risk onto a third-party guarantor. The guarantor gets a financing payment or a discount on the buyer’s premium if they end up acquiring the work, or a proportion of the buyer’s premium if they do not. A third-party guarantor can be a collector, an institution, or an art market professional. Although the pool of guarantors is small, few are known to the public, and they are shared between auction houses.

TPG lots are a regular feature of marquee sales, however year-on-year analysis signals a change in the guarantee landscape. The number of TPG made in all November Sales dropped by 6%, from 146 in 2023 to 137 in 2024 and the average realised price dropped by 37%, from approximately 4.9 million USD to approximately 3 million USD. It is reported that as more guarantors end up purchasing the work they guaranteed, fewer are willing to participate – if this trend were to continue, it could trigger huge financial risks for the houses if they continue to offer in-house guarantees. However, by analysing TPG according to their creation period, medium and location of the sale, areas of growth are visible and suggest a movement towards guaranteeing ‘safer’ blue-chip artworks, lower-value lots, and potential growth in Hong-Kong/Asia-based guarantors.

The data used for this analysis is auction data from Sotheby’s and Christie’s from November 2023 and November 2024 of lots that have a low estimate above 50,000 USD.

Creation Period

The number of third party guarantees by creation period show year-on-year differences between the categories. Impressionist and Modern Art (1860-1945) saw the biggest increase of 43% year-on-year and Post-War (1946-1970) saw an increase of 5%, whereas the Contemporary category (1971-2000) saw the biggest decrease of 36% and Post-2000 saw a small decrease of 3%. These year-on-year differences indicate that guarantors are reverting to the ‘safer’ blue-chip artworks and there is increased desirability of this category to collectors.

The declining number of TPG in the ‘wet paint’ Post-2000 and Contemporary categories correlates with the contracting market of these previously strong groups of artists. In November 2024 Sotheby’s merged their Now Evening Sale[1] with their Contemporary Evening Sale in New York, and no Now Evening Sale was held in October over London’s Frieze week, suggesting either lack of consignments or the strategy to merge Evening Sales together to create a more ‘positive’ auction.

Medium

Analysis of TPG by medium segments suggests third parties are starting to guarantee more lower value lots than previously. As visible in the graph below, the ‘Paintings’ category has reduced, although the categories of ‘Works on Paper’ (WOP) and ‘Sculpture’ have grown in number. The number of guarantees is low in comparison to the ‘Paintings’ category, however the two categories buck the trend of decreasing TPG numbers and WOP has the largest year-on-year growth of number of TPG.

Sculptures vary in price according to the work itself, however WOP are an inherently lower value category, made clear when considering the average realised price of all WOP (guaranteed and non-guaranteed) was approximately 470,000 USD, whereas Paintings (guaranteed and non-guaranteed) was approximately 814,000 USD in November 2024.

Number of Third Party Guarantees by Medium in November 2023 and November 2024 (Overstone Analytics)

We can further see this increase to lower value lots when analysing different low estimate price segments of TPG lots, as the number of TPG increased year-on-year for all price segments, except for the top segment which decreased.

*Number of Third Party Guarantees by Low Estimate Price Segments in November 2023 and November 2024 (Overstone Analytics)*

It has been reported that the top of the market has shrunk, underscored by the year-on-year reduction of TPG works with a low estimate above 1 million USD (visible in the graph above). Furthermore, the number of trophy lots coming to auction has decreased, with the number of lots reaching nine-figure sums appearing in 2024 decreasing to one (René Magritte’s L'empire des lumières selling for a record 121 million USD in November 2024) from six in 2022.

Location

Analysing third party guarantees by location shows growth in Hong Kong, and a decrease in London and New York. It is of no surprise that the number of TPG lots is highest in New York, given that US holds the largest market share of 42% in terms of value.[2] However, the number of TPG lots doubled year-on-year in Hong Kong from 7 to 14 lots, whereas New York saw a 10% year-on-year decrease from 134 to 121 lots, as visible in the graph below.

Furthermore, the average low estimate of TPG lots increased in Hong Kong by 28% year-on-year from approximately 2.4 million USD to 3 million USD, whereas London and New York saw a reduction of 3% and 44% year-on-year respectively. Although New York saw a reduction in the number of TPG lots, the decrease in the average low estimate could further indicate the trend that more lower value lots are being guaranteed.

*Average Low Estimate of Third Party Guarantees by Location in November 2023 and November 2024 (Overstone Analytics)*

The increase in the number and average low estimate of TPG lots in Hong Kong could indicate a tactic by the auction houses to present a strong sale with higher value lots, demand, and a positive outlook for the market. Christie’s and Sotheby’s opened new saleroom locations in Hong Kong with much publicity and reported successful inaugural sales at these new venues in September and November respectively.

Conclusion

Overall, the dynamics of TPG are changing but reflect the current trends in the market. Lots in lower price segments, either due to their medium or actual value, are increasing in volume as more auction houses use them to increase their bottom line whilst the top end is not performing like the market high in 2022. More guarantors are backing safer ‘blue-chip’ artworks by established artists in comparison to contemporary artists with sometimes quick changing markets, bearing more financial risk. In their 2024 review press conference, Sotheby’s reported Asia and Hong Kong as the most active region for bidding and the largest number of younger collectors active in the market, indicating that we can expect to see further sales, more buyers and guarantors in the future from this region. If these trends continue, it is likely that the number of guarantors overall will not fall, but that they will choose which works to guarantee with more consideration.

[1] Sotheby’s Now Evening Sales were historically where ‘wet paint’ and contemporary art was sold and was a stand-alone evening sale.

[2] Clare McAndrews, The Art Basel & UBS Art Market Report 2024, pp. 25-26