Wine Auction Prices Slump Like Stocks as Bidders Sit on Hands
Nov. 13 (Bloomberg) -- Dozens of well-heeled wine collectors sipped champagne at Zachys's ``best-of-the-best'' evening auction last week in New York. Yet no one coughed up enough bucks to walk away with one of the world's most famous wines: a case of 1945 Chateau Mouton-Rothschild, estimated at $185,000 to $300,000.
This vinous legend -- in original wood from the cellars of Bordeaux negociant house Mahler-Besse, no less -- failed to reach its reserve, or confidential minimum price, and didn't sell.
Goodbye to three years of record-breaking prices. The global financial crisis started taking its toll on U.S. wine auctions last month.
Though the splendid new lighting in Restaurant Daniel's Adam Tihany-redesigned dining room cast a welcoming glow, bidders passed on 45 of the 236 lots that Zachys offered on Nov. 7. Most of the others fell below or barely matched the low estimates. A methuselah of 1971 Romanee-Conti (six liters, estimated at $50,000 to $80,000) brought in just $42,000. (A couple of years ago, one went for $101,000.)
That kind of story was mostly repeated at Zachys's day sales on Nov. 8-9, even with a standing-room-only crowd.
``There are liquidity issues, currency issues, net worth issues,'' wine adviser Kevin Swersey says. ``It's the perfect storm for significant downward pressure on fine-wine prices.''
Fewer bidders, a stronger dollar, high estimates and unrealistic reserves, plenty of supply and, of course, worldwide financial queasiness all affected the sales.
Unsold Lots
One measure of market strength is the percentage of wines sold at any auction. NYWinesChristie's hit a new low: Its posh evening sale on Oct. 30 in Los Angeles slipped to 35 percent sold; the next day's auction fared little better at 44 percent.
Yet the market is hardly in free fall. Zachys's three-day sale was 89 percent sold, and the best performance in the past month was Chicago's Hart Davis Hart auction on Nov. 1 at 99.3 percent.
Still, prices of wines once thought recession-proof are beginning to come down. The presumed showstopper at Aulden Cellars-Sotheby's Oct. 28 sale in New York, a lot of four pristine cases of 1990 DRC Romanee-Conti (estimated at $750,000 to $1.2 million), was passed over at $480,000.
Big-ticket items that have appreciated most will probably go down the most, auction directors agree.
``The air is getting thinner for $2,000 bottles,'' Acker Merrall & Condit auctioneer John Kapon concedes. Prices of 2005 first-growth Bordeaux will surely drop.
It doesn't help that the dollar has risen more than 25 percent against the euro and pound since July, which means European buyers are no longer getting the U.S. discount they did last spring. Many are sitting out the game or buying in London.
Unrealistic Estimates
The stumbles at recent auctions were also due to estimate and reserve agreements with sellers that were struck long before the financial crisis, with catalogs printed before mid-September. So many reserves were set 20 percent or even 30 percent above today's reality.
Jamie Ritchie of Sotheby's predicts that from December onwards, we'll start seeing reductions of 10 percent to 30 percent. (The unquestioned great buy at Sotheby's Nov. 22 auction is the presale tasting for $75.)
For some, market psychology has already shifted to bargain hunting. Rapid price depreciation should create buying opportunities.
``There's still cash out there, and a lot of it,'' says Marc Lazar of St. Louis-based Cellar Advisors, who says he sold a $1 million parcel of wine to two buyers last week. ``But you can't sell for what you could six months ago.''
Wine as Hard Asset
According to recent figures from a U.K.-based electronic wine exchange, the Liv-ex 100 Index fell 12.4 percent in October. Compare that with the Dow, which fell 14.1 percent during the same period. What about all those investors looking to put their money in fine wine as a hard asset?
Chicagoan Leon Dreimann started his $5 million U.S. Elevation Wine Fund in August. I reached him by phone in Hong Kong, where he was meeting with potential clients.
``I'm sitting on a large amount of cash,'' he says. ``In the last 45 days, I haven't been able to scoop up any investment- grade bargains.''
One New York-based wine adviser says he has a client with a $1 million ``vulture fund'' who plans to pounce in February, when he hopes the expected price correction will have taken place.
For now, the best way to get a good price is to be in the auction room.
``After all, people still need the comfort of a good bottle of wine on Friday and Saturday nights,'' Sotheby's Ritchie says.
That's what every auction house is banking on.