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Sotheby's Stock Chart

According to Bloomberg.com Sotheby's shares have declined almost 10 percent since Oct. 26 as the company neared this week's New York auctions after promising sellers fixed prices for paintings by Paul Gauguin, Francis Bacon and Mark Rothko.

Sotheby's, the world's second-largest auction house, may report a third-quarter loss of almost 39 cents a share on Nov. 9, compared with a 50-cent loss a year earlier, according to a Bloomberg survey of three analysts who provided estimates based on generally accepted accounting principles.

Sotheby's Nov. 14 contemporary art sale, which it values at about $220 million to $284 million, has guarantees equal to about 78 percent of the low estimate, said analyst Kristine Koerber of JMP Securities.

``If they have huge guarantees, and there are a lot of unsold lots, it could have a ripple effect on the art market,'' said New York art dealer Richard Feigen, who has sometimes invested in Sotheby's stock.

Guaranteed minimum prices draw art sellers by transferring the risk of a drop in the market to the auction house. While some U.S. hedge-fund managers have taken losses in the credit markets, Sotheby's and its larger competitor Christie's International have said they're counting on new buyers from Russia, Asia and the Middle East to sustain values.

Sotheby's values its impressionist to contemporary art auctions through Nov. 15 at as much as $978 million. Results in the usually weak third quarter were helped by a surge at London sales in October.

Gauguin, Van Gogh

For its Nov. 7 impressionist and modern art auction, Sotheby's promised sellers minimum prices for art with an estimated price range of $153 million to $209 million, based on data in the sale catalog, said Koerber, who rates Sotheby's stock ``market outperform.''

Guaranteed lots include paintings by Gauguin and Vincent van Gogh with top estimates of $60 million and $35 million, respectively. Sotheby's values the impressionist evening sale at about $355 million to $494 million.

Guarantees may be near or above the low estimate for artworks, auctioneers have said. Sotheby's must pay the seller the promised amount if a work is unsold or fails to reach the agreed minimum. It keeps some of the extra money if the item sells for more than the promised amount.

`Principal Risk'

``Taking principal risk often generates superior returns, and occasionally large losses,'' said Sotheby's Chief Executive Officer William Ruprecht, in an e-mail earlier this year. ``We are well positioned to make informed investment decisions regarding guarantees and purchases of works of art.''

For its Nov. 14 contemporary art sale, Sotheby's has guarantees against art valued at $174 million to $220 million, including a Bacon bullfight picture valued at as much as $35 million and an $18 million Rothko, Koerber said. A year ago, Sotheby's guaranteed 35 percent of the value of its contemporary art sale, she said.

``It is concerning, but management has a good track record with guarantees,'' said Koerber in an e-mail. Christie's commitments run to 52 percent of its Nov. 13 contemporary sale, said Koerber.

Neither auction house would comment on the analyst's data.

The high level of contemporary art guarantees may be especially risky, as buyers have lately discounted high-priced Western artists. A Bacon painting scraped above its low estimate and two Andy Warhols failed to sell at Christie's last month in London, while China's Yue Minjun overtook America's Rothko on Sotheby's list of top lots.

Shares Fall

Last week, the Standard & Poor's 500 Index lost 1.7 percent, including a Friday rally after a better-than-expected jobs report outweighed investors' concern that banks face mounting credit losses.

Sotheby's shares closed Friday at $51.05, down 77 cents in New York Stock Exchange composite trading. The stock, which has gained 64.6 percent this year, hit a 52-week high of $61.40 on Oct. 11 during the day.

Five analysts track Sotheby's results from continuing operations. The mean of their estimates for the third quarter is a loss of 32 cents a share, compared with a year-earlier loss of 49 cents, according to Bloomberg data.