Welcome to the Finer Things Club

Bord-uh-eaux

The future is here, and it doesn't look bright.

Or should we say the futures? Perhaps you're familiar with the futures markets for commodities like oil, corn, and soybeans, where buyers and sellers agree upon a price today for the delivery of a product in the future. You may be surprised to learn, though, that a bustling futures market already exists for wine. You won't find it traded on the floor of an exchange in New York or Chicago, nor will you hear a term as unromantic as "futures contract" used to describe it.

Put away the Patagonia vests, bros of Wall Street. In Bordeaux, it's officially the season of En Primeur.

Conceptually, en primeur is similar to a futures market, though much smaller in size and less frantic in trading. Through the en primeur process, wine producers sell an allocation of the year’s vintage for bottled delivery in about two years. While the thought of committing to cases of wine for consumption in 2026 is debilitating to the layman, it's a relief to learn that - as far as we know - cases of Josh's exquisite $16 cabernet are not offered en primeur. Phew, bullet dodged. 

En primeur is a fragile system, though, one that relies upon an excess of demand relative to supply - or at least a healthy balance - to sustain its future viability. In the past, buying en primeur represented an opportunity to secure coveted supply of acclaimed vintages with direct chateau provenance and even speculate on their values. But absent some significant concessions on pricing, the delicate system may soon collapse under the weight of adverse market conditions.

So how does it all work?

We’re currently in the midst of 2023 en primeur. At this stage, the wine produced from grapes harvested in 2023 sits in barrels, with sample tastings in process or still to come for critics. As the wine public forms its opinion on the vintage, producers will determine the allocation available and its price. The allocation is then sold to middlemen termed “négociants,” who sell it to collectors, consumers, and distributors. Producers effectively transfer the risk of selling the allocation to the négociants, who dutifully purchase it to ensure that they continue to secure future allocation.

But, when demand no longer outstrips supply, négociants find themselves in an unenviable financial position.

Since 2017, en primeur release prices have frequently increased. Those price increases have thinned the négociants' margins and squeezed secondary market returns, particularly since we've entered a more tumultuous period for wine markets. After prosperous years to start the 2020s, the wine market has since capitulated to many of the same forces that felled prices on other collectible markets. Still, in some cases, speculation has proved as fruitful as the vines that yielded the wine's grapes. 

Per Liv-Ex, bottles from top houses like Petrus, Château Lafleur, and Château Lafite Rothschild have delivered significant secondary market price increases versus their en primeur release price across the 2017-2021 vintages. But wine from these producers is a challenge to procure, and consumers must be well placed to do so - it’s akin to being a loyal Rolex customer and gaining access to scarce references that often trade for secondary market premiums. When you move beyond those esteemed producers, strong performance versus en primeur release prices becomes harder to find, especially in recent vintages.

Today, en primeur faces various headwinds, with adverse market conditions ranking highly among them. The Lix-Ex Bordeaux 500 index is enduring a steep decline, falling 13.4% over the last year and 11.2% over the last two. With secondary market prices in decline, the idea of committing to a purchase price today for delivery of wine in two years becomes less alluring. That allure is further diminished by the ability to achieve competitive rates of return on cash in low-risk vehicles over the same period.

Part of the market's decline is due in no small part to a glut in supply. The market is awash with more supply of recent vintages than it can digest. The lesson here is valuable in wine markets but also in others like trading cards and sneakers. In markets where some assets are traded but not digested or consumed, new product releases compete not only against rival producers but against the same producer's products from prior years.

Put differently, present-day sales face cannibalization from the products of yesterday.

Today's Air Jordan releases compete with Air Jordan releases of the past several years that exist in brand new condition at similar prices on StockX or GOAT. This year's rookie cards compete for wallet share with last year's. And this year's en primeur releases compete for already thinner demand across yesterday's vintages. Speculation in recent years only heightens the available supply, as the sell side of the trade suddenly becomes more crowded as conditions turn adverse and speculators hurry for the exits.

The négociants are already drowning in more supply than they can efficiently sell, and financial conditions further complicate their situation. Rising borrowing costs heighten the expenses associated with onboarding additional inventory, and onboarding that inventory in the first place is not the assured success it might have been in prior years. Thin margins are thinning further as the market commands discounting to clear stocks. 

Much of the industry seems to agree on the solution: lower en primeur release prices. Like, a lot lower. 

Fifty fine wine companies surveyed by Wine Lister suggested that 2023 en primeur prices should fall 30% on average from 2022, a sentiment broadly echoed by other industry voices. That magnitude of cut would return the market to levels not seen since 2019, which many regard as the last productive en primeur season. COVID - extremely heavy sigh - changed everything.  

Whereas in years past, the quality of the vintage might have dictated price, uninspiring early returns from a highly acclaimed, yet pricey 2022 campaign suggest that era is over. Wine critics have yet to unanimously issue a verdict on the 2023 vintage that cements its status as an "exceptional" edition; it may rank as merely "very good." Such an outcome would not bolster its competitive position against a superior 2022 vintage that was also light in supply due to drought.  

Price decreases may not live up to the hopes of industry participants. Liv-Ex members anticipated a 7.7% price increase for 2022 en primeur. Instead, the average price increased 20.8% relative to 2021. Producers have an additional lever to pull in addition to price: volume. Many have increasingly withheld allocation for direct sales at a later date. However, it was low volumes and high average prices that sewed displeasure among customers of the 2022 season. 

Léoville-Las-Cases offered one of the earliest major indicators of the season, dropping prices 40% from last year's release in a move that could embolden others to follow suit. The reduction comes despite a warm reception from critics, including one review from Colin Hay that called it "calm, authoritative and composed."

Wait, were we talking about wine or Professor Dumbledore? 

Anyways, the hopes of an increasingly broken system hang in the balance of release announcements to come in the weeks ahead. Those hopes call for a return to pre-2020 "normalcy," but you can't force the cork back into that bottle. 

Watches & Wonders

Five brands reported $23 billion in combined sales.

Rolex reached $10 billion in sales for the first time in company history.

Believe it or not, though, we’re in a down market for the industry.

It’s now been two years since the luxury watch market hit its peak and it’s been a steady race to the bottom ever since. With prices finally flatlining, is there a reason for optimism?

No one has been safe, and the pain has been felt across all brands. Over the past year, the Rolex index tracked by WatchCharts is down -11% while indices for Patek Philippe and Audemars Piguet have stumbled -12% and -13% respectively. 

In 2023, Rolex reported $11.5 billion in sales, far and away the luxury leader. Cartier realized $3.5 billion, Omega reached $3.1 billion, while AP and Patek combined for more than $5 billion in sales.

In addition to the rise of interest rates and the increasing expense of debt, the luxury watch market has a supply and demand imbalance that hasn’t been easy to fix. Morgan Stanley research estimates that the volume of Rolex sales decreased by 19% between 2022 and 2023 across secondary trading platforms, while Patek and AP saw declines of 8% and 10%.

As of March 2024, the available secondary market inventory for AP is up nearly 150% compared to January 2021. We can observe a similar trend within Rolex and Patek supply statistics, as both brands have seen their available inventory jump by more than 60% in the past three years. These untamed surges in supply have come during a period where new releases by the Big Three have been limited and various models have been discontinued.

For authorized dealers, the churn of inventory has slowed significantly over the past two years. In March 2022, the previously referenced “peak” of the latest luxury watch boom, the median age of inventory held by sellers across Rolex, Patek, and AP sat near 50 days across each of the three firms. In a survey of dealers conducted by Morgan Stanley, the median age of Patek inventory now exceeds 200 days with the average AP timepiece sitting on shelves for at least 150 days. In an industry where demand has been historically strong enough to maintain waitlists that are calculated in years, the decline in turnover is alarming.

That’s the bad news. The good news? Value retention remains positive for the big three brands, and new releases continue to roll out.

Through the first quarter of 2024, the average retail price for a Patek across 87 watches tracked by WatchCharts and Morgan Stanley was $75,448. The average secondary market value across those 87 watches stood at $79,649. The margins have thinned, down below $5,000 for a Patek, but value retention (a weighted measure of secondary market premiums versus retail prices) remains above 30% despite a one-year decline of -10%. The average retail price for a Rolex across 146 surveyed models was $21,709 with a secondary market price of $23,396. The brand with the highest profit margin was found to be AP which carries an average retail price of $46,014 and an average market value of $55,584.

The last few months have been bloody, but is there hope on the horizon?

In April, Rolex announced their 2024 releases at Watches & Wonders in Geneva, and the market leader returned to its roots with a lineup of classics. The colorful exotic dials found in their 2023 release were shelved for updated versions of their timeless timepieces that pay homage to their icons.

At the low end, retailing for less than $11,000, is a GMT-Master II that comes with either an Oyster or Jubilee bracelet and a Cerachrom bezel coated in gray and black ceramic. The biggest gamble for the brand will be a Cosmograph Daytona that is littered with diamonds and 18-karat white gold. The updated iteration of the timeless Daytona features mother-of-pearl dials which are encircled by a set of eight diamonds. With a retail price over $70,000 for an Oyster bracelet, appearance isn’t the only boundary the watch is pushing.

The releases come at a pivotal time for Rolex and its dealers as the market winds are hopefully changing direction. After two years of decline, the Subdial index tracked by Bloomberg is actually green over the past thirty days.

With the exception of a few bright spots, 2023 was a challenging year in the sports collectibles market. Did the first quarter of 2024 offer more of the same, or is a reversal in fortunes underway? If there aren’t signs of a turning tide...perhaps at least there are calmer seas.

Is the mix-shift towards vintage and away from modern at the high end of the market complete, or is it still ongoing? Is game-worn faltering under the weight of massive expectations? All will be answered.

Inside, you'll find:

• A detailed analysis of auction activity and the types of assets selling best

• Card market performance and commentary, with subcategory nuance thoroughly explained

• An update on the headline-making game-worn memorabilia market

• Fascinating and relevant market trends in each sport

• Records, grading population updates, ticket market analysis, digital collectible details, and much more!

• NEW this quarter: an analysis of the emerging Type I photograph market

Whether you work in the industry, collect assets, or invest, the information needed to keep your finger on the pulse of the sports collectibles market is here, captured and made digestible.

Click the link below to receive your free copy of the report today!