What's the Worst Time for a Website to Crash?

Hacked and Hurting

What do the fine art market and Christie’s website have in common?

Both have been down this week.

Heading into the 2024 season, expectations within the high-end art world were rising, though still tepid. The 2023 season was bumpy at best, with a 32% decline in the average price of artworks sold at auction vs. 2022, the largest single-year decline in seven years.

If the opening night of New York’s biggest week of spring art sales was any indication, this year might not be much better.

“Irrevocable” has become a buzzword throughout the auction scene, as auction houses and sellers look to offset their risk in what has become an inconsistent and unpredictable market, while buyers seeking upside are showing a willingness to roll the dice.

For those new to the term, irrevocable bidding is an advanced commitment from a potential buyer to bid on an item at a pre-determined level, regardless of whether or not the bidding makes it to that level. If the item sells for more than the irrevocable bid, then that bidder receives a cut of the upside. This structure incentivizes an irrevocable bidder while simultaneously providing the auction house and the seller with a safety net.

With all that said, if lot after lot is selling to a single irrevocable bid, that is usually not a sign of a market operating at its peak.

The premier opening night event at Sotheby’s saw 35 contemporary works hit the auction block, and contrary to what has been reported across many traditional art media outlets, it wasn’t too pretty.

There was little flash or flair in the opening contemporary night, as the lead lot came from Francis Bacon, an artist who has experienced a steep decline in valuations over the past three years. His late 1960s work, titled Portrait of George Dryer Crouching, entered the evening with a guaranteed bid and closed without any additional participation. The hammer fell below $25 million despite carrying a pre-sale estimate between $30 million and $50 million, laying the foundation for what would become a recurring theme.

It was a yellow egg with black speckles from Lucio Fontana that entered with the second highest estimate, $20 million - $30 million, but the work went under the hammer to a single guaranteed bid for less than $20 million. On a positive note, it previously sold for $2.3 million in 2003 - representing a total rate of appreciation of 900% or just below 12% annualized.

There were no silver linings for Richard Diebenkorn’s Ocean Park #126.

The work entered the night with the biggest potential risk, as it landed on the auction block with the highest estimate and no irrevocable bid or guarantee. The painting previously sold in 2018 at Christie’s for $24 million but failed to garner a single bid above $15 million on Monday night and ultimately went unsold.

While Diebenkorn, Fontana, and Bacon might be falling out of favor among younger collectors, Joan Mitchell is on the rise. Her 1969 painting Noon didn’t blow expectations away - it hammered between its $15 million - $20 million estimate, with premium pushing the final price to $22.6 million - but it did provide yet another strong result for an artist who has been stacking new records in recent years. The painting last sold in 2016 for $9.8 million and now gives Mitchell three auction sales above $20 million, all of which have occurred over the past seven months.

On Tuesday, the evening sales at Phillips and Christie’s also left much to be desired. As bids poured into Christie’s, its main website remained offline, leaving the auction house to use a simplified site to conduct an event with hundreds of millions of dollars on the line. At Christie’s, the lot with the highest pre-sale estimate was Brice Marden’s Event, which carried an estimate between $30 million - $50 million but was withdrawn moments before the event started.

This isn’t to say that there weren’t bright spots. Christie’s and Phillips combined for more than $200 million in sales on Tuesday while Sotheby’s has already realized more than $300 million across their first three New York events.

There was also an impressive flip for a unique Basquiat/Warhol piece at Sotheby’s, but you’ll have to read ahead for more on that…

The AIR is out of the Sails

For Nike, the phrase “too much of a good thing” hits far too close to home these days.

The company relied heavily on retro products for many years to great success, riding the popularity of silhouettes like the Air Jordan 1 and the Nike Dunk at the peak of the sneaker market’s popularity. Before the 2020s, Nike exhibited surgical control on the delicate balance between supply and demand for hyped products, ensuring consumers were always left pining for more while reliably cashing in on spillover demand for less limited products. But COVID arrived, juicing markets with stimulus checks and easy monetary policy while simultaneously disrupting supply chains and that vice-grip on market balance. 

The sneaker market became a volatile monster of Nike’s own making, and quickly, it grew into one it could no longer control. The market binge-drank Jordan after Jordan, Dunk after Dunk, and while the haze of euphoria promised an era of never-ending prosperity, the threat of a vicious hangover lingered in the sneaker market subconscious. When those supportive economic and monetary conditions faded, the party ended quickly, leaving Nike without new, hit products to help clean up the mess it left.

Perhaps no sneaker more aptly illustrates those market dynamics better than the Air Jordan 1. The OG High model is a Nike stalwart, with its legacy firmly entrenched in the mythology of Michael Jordan and his foundational place in sneaker culture. The “Chicago” and “Banned” colorways are recognizable even to many sneaker novices, and their allure is unshakeable. But Nike can’t sell those frequently in large quantities without threatening their iconic status. So they leaned instead on a diversity of mostly meaningless colorways. 

And for a while, it worked.

Jordan 1 Retro High OGs sold out in the early 2020s no matter the colorway, quickly reaching premium prices on resale markets and minting many new resellers along the way. If you thought Jay Powell and Co at the Fed were the only ones printing money in those years, guess again; securing a “W” on Jordan 1s on the Nike SNKRS app - or in layman’s terms, successfully purchasing them -  was akin to winning free money. Even the large selling fees charged on StockX and GOAT couldn’t vaporize profits. 

The product's popularity meant that Nike could also lean on the higher supply, less desirable iterations of the Jordan 1 - the lows and the mids - to more broadly monetize unsatiated demand. All the while, it was silhouettes of the 80s and 90s, or iterations of them, driving brand heat and results. Not to pile on two struggling, iconic franchises, but it would be like the Lakers putting all their eggs in the LeBron James basket with no discernable succession plan. Once it’s over (and it always ends eventually), the transition is that much harder.

It’s been almost two years since unspectacular colorways of the Air Jordan 1 High commanded immediate and significant premiums on resale markets. That’s not new news. However, for most of those two years, the virus caught by resale markets hadn’t spread directly to Nike’s core. The shoes didn’t sell for premiums, but Nike was consistently able to sell them out at full retail price. Surely, those less desirable iterations that previously benefited from a halo effect suffered, but the OG high top’s cash cow status was intact. 

No more.

If you glance at the SNKRS app today, you’ll find something that was unthinkable in 2021 or 2022: a colorway of the Jordan 1 High OG released weeks ago, still in stock in every size. Suffice it to say, the “Artisanal Red” Jordan 1 was not a hit. The model retails for $180, but in a world with active resale markets, we learn the true market price of the product very quickly. Just one week after its release, the sneaker was changing hands on StockX for $102, a 43% discount to retail price. That is the fate awaiting Nike’s cash cow without a change in release cadence and strategy.

2022 releases of the model traded at a 25% premium to retail price on average one week after release. Even if you remove the outlier “Lost and Found” release, dressed in the iconic and coveted Chicago colorway, the premium still averaged 13%. Steadily, those premiums have become smaller premiums and then discounts. 2023 releases averaged a 5% discount to retail price one week after release. 2024 releases? They’re averaging a 32% discount.

Nike may think the price of a Jordan 1 High is $180. It won’t be for long. Not as consumers realize it’s available on deep sale immediately. Previously, these releases generated immediate and reliable cash flow for the brand. Now, that inventory will sit, and it will very likely be discounted. And if those are sitting, good luck to the Lows and the Mids. 

Similar trends have unfolded in Nike Dunks. The “Panda” Dunk once resold for nearly $350 in late 2021. While increasing its availability was no doubt long a part of Nike’s planned strategy, it’s doubtful that the product selling at a 20-25% discount on resale markets (near $90 in most cases) was part of that plan. But that’s today’s reality, and the Panda, too, sits on Nike’s site in stock in every size. 

These problems aren’t easily reversed overnight. But new, exciting products form the foundation of that solution. In the Jumpman Jack - a new Jordan model released in collaboration with Travis Scott - the brand has found one of its best-received, entirely new models in years. But is that more a result of Scott’s influence or inspired design language? Either way, it’s a feat Nike will have to repeat multiple times over in the process of rehabilitation.

But the Jordan 1 and the Dunk aren’t going away, and neither is resale. The Futura Laboratories Bleached Aqua SB Dunk Low releases this weekend. The sneaker, which retails for $135, already hovers in the mid-$400s on resale markets. 

The right collaborations, colorways, and stories still sell. Ordinary does not. That continues to be a lesson painfully learned. Every hangover brings with it a lesson. The question is whether the inflicted will heed it and for how long. Just as “I’ll never drink again” rarely holds up over time, hype markets will find a new party eventually.

You’d be hard-pressed to find two artists more culturally relevant over the last decade than Andy Warhol and Jean-Michel Basquiat, a reality underscored by a work from each selling for $200 million or close to it in the last two years (or in Basquiat’s case, in the last week). While their individual works capture the market’s fancy, so too does their collaborative work, as best illustrated by the Untitled piece that sold at Sotheby’s this week.

Combining motifs from both artists, the work from 1984 hammered within $15,000,000 - $20,000,000 estimates, ultimately selling for $19,367,500. The work last sold at Sotheby’s in May of 2010 for $2,658,500. Monday’s result represents 629% in total appreciation or 15% annually over fourteen years, both gross of buyer’s premium.

Not a bad outcome for collectors who also got to enjoy the work of two icons of the art world for a decade and a half.

Not all flips are as successful as the above example. Look no further than Ocean Park #126 by Richard Diebenkorn for evidence. As mentioned previously, the work last sold in 2018 at Christie’s for $24 million. On Monday night at Sotheby’s, bidding reached only $14.8 million, and the painting went unsold against an estimate of $18,000,000 - $25,000,000.

That will no doubt “burn” its status in the short-term, as a near $10 million loss over 6 years looked the most achievable outcome at the moment.