Since online auction house Fine Art Bourse launched last month, its founder Tim Goodman has been flooded with emails of congratulations from delighted collectors keen to save money through its cut-price commission fees. FAB’s first auction is scheduled for September. How will things unfold after that? Private Art Investor asked Goodman for his view.
Tim Goodman’s international online auction house stormed onto the art market last month with an amazing proposition: Fine Art Bourse (FAB) will charge a buyer’s commission of only 5%, compared to the 25% fee commanded by most of the traditionalists – and transaction charges will be exempt of VAT/Sales Tax/GST, artist resale royalty and copyright fees.
FAB will also warrant catalogue descriptions and good title, unlike many online art portals, and packing and shipping – often a barrier to entry for bidding online – are free for buyers and sellers.
For many, the question is: how can Goodman afford to offer all this? It is certainly in his favour that he is no naïve newcomer. Goodman knows the auction business inside out, having previously been the founding chairman of Sotheby’s Australia, and his return to the fray is backed by careful consideration and research.
“I sold all my auction interests in Australia early in 2011 and having had a year ticking things off the bucket list, my wife suggested I should go back to work,” he says. “I started doing some consultancy work and a wealthy collector located in Melbourne asked me to advise him on the sale of his collection and to go to the auction houses and get auction proposals.”
When Goodman returned with two of the best proposals, the client was horrified at the cost and mooted the idea of an online auction business where the fees would be much less. Goodman saw the sense in this and started a due diligence process, researching the fee structures of the industry internationally.
“I very quickly realised that there was an opportunity,” he says. “That was three years ago and from that moment on I proceeded to formally conceive the auction business model that is FAB today.”
He started by raising angel capital from investors in Australia and Asia and then put together a team of senior people – mostly ex-Sotheby’s and Christies – and set about designing and commissioned the building of the FAB website. Key to the whole project has been pushing down costs and delivering savings to the customers.
“We’ve achieved lower commissions by doing three things,” says Goodman. “Firstly, we don’t have expensive bricks and mortar: we have humble premises in a number of locations around the world and we utilise resources of our consultant specialists.
“Secondly, our business model relies on a small core staff of 10 highly trained professionals. However, within three years we forecast that we will have 70 full time salaried staff in London, New York, Hong Kong and Beijing.”
For now, however, they have achieved great savings by treating all their specialists are consultants and paying them a monthly consultancy fee as opposed to salary.
“Finally, we don’t print anything,” adds Goodman. “The printing of catalogues is the most extraordinary waste of paper, energy, and labour because the cost of paper is about 10 times what it was when I first started in the business, and the cost of the fuel that drives the trucks to deliver the catalogues is about 10 times what it was as well.
“There is a never-ending competition amongst the larger traditional auction houses to produce bigger and heavier catalogues. Many clients say they bought something at one of the big houses 10 years ago and are still getting big catalogues that they are putting in the bin. It defies reason to be spending massive amounts of money on hard copy documents when there is so much technology available to present pictures beautifully online.”
The beauty of FAB is that all these savings have been achieved while still delivering a full auction house service. Where the majority of online auction platforms are effectively portals that unite buyers with sellers and leave them to conduct their transaction, FAB offers everything you would expect from a bricks-and-mortar auction house.
“The majority of online auctioneers are effectively classified advertising businesses. We are an auction house: we collect the goods from the seller, free of charge, anywhere in the world. We then take possession of the goods and our specialists located all over the world and do their due diligence. We catalogue the pictures, photograph them and do condition reports.”
Most of the large traditionalists give warranties or guarantees relating to authenticity and good title, which FAB have replicated, but they also guarantee the condition reports.
The other way Goodman has kept costs low is by basing the business in Hong Kong, which allows FAB to be VAT free, artist resale royalty (droit de suit) free and free from copyright fees.
“We are taking advantage of the law – and complying with the law,” says Goodman. “We’ve had legal opinions from lawyers in the EU, the US, Australia and Hong Kong regarding the extraordinary jurisdiction advantages of having the online auctions take place in Hong Kong. Contracts between the buyer and FAB are in the jurisdiction of Hong Kong and comply with Hong Kong law – so we pay no VAT on the 5% service charge, no resale royalty and there is no need for the seller to pay a copyright fee to illustrate the painting on the website.”
Goodman has no doubt that other businesses will follow his example, and that this will be part of a seismic shift in the world of fine art auctions.
“I think we will have an effect on the traditional auction industry generally, and I think that many will follow our business model and that within three years you will not recognise the current fine art auction landscape,” he says. “My prediction is that some of the larger auction houses will contract and become more ‘boutique’, exclusive and specialised. They will do more sales by private treaty rather than by auction and there will be many new online models.
“I predict that the retail gallery primary market will be disrupted as well because it has some of the same problems as the large traditional auction house, such as expensive bricks and mortar, and human resource costs. Artists are currently paying large fees to exhibit their art.”
Why has nobody done all this before? Goodman believes that only now have all the pieces of the jigsaw – especially the online, technical aspects – really fallen into place.
“Five years ago the market wasn’t ready: the technology available five years ago would not have been good enough. Peoples’ behaviour – and therefore the market’s behaviour – has changed dramatically over five years, and the growth in online interest in art as been exponential. So the timing for the launch of FAB is perfect.”
The coming months promise to be interesting.