Arts Businesses Reeling from Market Downturn
By Annette Meier
Sotheby’s modern and contemporary art day and evening auctions on October 6 and 7, at Sotheby’s Hong Kong, 2022. Courtesy Sotheby’s.
Amid a sharp decline in the international art market and in China’s economy, industry giants across the globe, including the international auction house Sotheby’s and the Hong Kong property conglomerate New World Development (NWD), appear to be facing severe financial woes.
In Hong Kong, Adrian Cheng, a major art collector and the eldest son of one of the city’s wealthiest families, is stepping down as CEO of NWD, a company founded by his late grandfather that he has helmed since 2007. Cheng is well-known for his “cultural commerce” strategy of showcasing contemporary artworks in his shopping malls and properties, including the NWD-owned K11 Art Mall, a mega outlet in Tsim Sha Tsui which operates under the umbrella of Cheng’s nonprofit K11 Art Foundation.
Despite its historic success, NWD is purportedly the most indebted property developer in Hong Kong. The company is expected to report its first annual loss in over two decades, with a projected deficit of up to HKD 20 billion (USD 2.57 billion). Speaking at the NWD’s annual media briefing on September 26, Cheng explained that the company suffered shortfalls in one-off provisions, not in cash. The profit warning was issued shortly after a Chinese state-owned company placed a HKD 9 billion (USD 1.2 billion) bid for the K11 Art Mall, signaling its property developer’s financial turmoil.
According to NWD’s company filings, Cheng will purchase the K11 rights for HKD 209 million (USD 26.9 million), along with three companies carrying the brand. And while he will remain the NWD’s non-executive vice chairman, Cheng revealed to the press that he aims to focus more on “public services and . . . continue to serve Hong Kong and the motherland.” He is currently chair of Hong Kong’s Mega Arts and Cultural Events Committee, which issues government funding for major international art events staged in the city, including Art Basel, Art Central, and last month’s inaugural edition of Art021.
Many fear that Cheng’s departure will curtail funding from K11, and that it demonstrates the wider impact of China’s economic downturn. After all, the economic slump has extended to auction houses, as Sotheby’s annual first-half sales in China have dropped by 49 percent amid the country’s real estate crisis and decreased luxury spending. Some executives have even raised concerns about whether the auction house will be able to keep paying employees on time: according to a report by the Wall Street Journal, promissory notes were given to some staffers rather than incentive compensation, and the auction house is almost six months behind on payments to art shippers, conservators, and sellers.
Compounded by a core sales decline of almost 90 percent in the first half of this year, as well as the USD 60 billion debt accrued by Sotheby’s owner, Patrick Drahi, across his telecom empire Altice, the auction house is wading in deeply troubled waters. Since Drahi acquired Sotheby’s in 2019, the auction house’s debt has skyrocketed from USD 1 billion to USD 1.8 billion. To encourage more active bidding, Sotheby’s recently implemented a new standardized fee structure that slashed buyers’ fees, while also putting off its biggest sales of the season and spending tens of millions on lavish venues in New York, Paris, and Hong Kong.
Despite growing unease, Sotheby’s maintains that “[it] is significantly larger, more diversified, and more profitable than ever before.” In August, the auction house announced that ADQ, an Abu Dhabi sovereign wealth fund, is investing USD 1 billion for a stake in the company, which Sotheby’s CEO Charles Steward described as “a massive credit positive.” But as the institution awaits the financial lifeline, which is not expected to close until later this year, it is not guaranteed to reassure hesitant collectors or offset the impacts of a globally tanking art market.
Annette Meier is an editorial intern at ArtAsiaPacific.
