After the 50-case 1982 Mouton-Rothschild lot sold for $1.05 million at auction last month (see "Sold for $1.05 million!") for well over its market value, now there is another mega-lot up for bid on Wine Commune by wine retailer Aabalat. The 11-bottle lot consists of an 11-year vertical of Cheval Blanc in 18 liter bottles (known as Melchiors). It’s being offered with an auction estimate of $700,000 - $875,000. 
That seemed a little high so I did a pricing analysis below based on “hard” data to illustrate how any wine collector could “sanity check” auction estimates and determine a “fair” bidding level. The various factors to evaluate in assessing value may vary based on what’s being offered but the concept of grounding any assessment with data does not.
750ml baseline pricing
Using Vinfolio’s Wine Price File data on wine auction prices, I first calculated the expected value of an 11-year vertical of 750ml bottles using average auction prices from 2006 for vintages from 1995-2001 and average US retail prices for vintages from 2002-2005 (these vintages were too young to have generated sufficient auction data). The value came to $3,773 for the 11 750ml bottles. Since there are 24 750ml bottles in a Melchior, this translates into $90,552 for the same 198 liters of wine, but in the 750ml bottle format.
Factoring in a premium for larger bottle size
Because of scarcity and the superior aging potential of larger bottle sizes, they usually sell for a premium on a per-750ml-equivalent basis. That premium tends to be higher the greater the bottle size. But how large of a premium is justified?
I then went back and did the same pricing analysis but selected the largest size bottle for each vintage on which market data existed. For 1995-2000, I used average auction prices and for 2001-2005, I used average retail prices. The mix of “largest possible” bottles included 3 3L prices, 5 6L prices, 1 9L price, and 2 18L prices. I then normalized the prices to generate a value for an 18L bottle in each vintage using the appropriate multiplier. This methodology based on “big bottle” proxies translated into a value of $133,723.
My final stab at justifying the maximum possible bid was to look at the two vintages where retail data existed for both an 18L bottle and a 750ml bottle and examine the inherent premium built in for the larger bottle size. The two resulting multiples were 1.35x and 2.61x. The approach above enabled the bottle size multiple to reach 1.48x ($133,723/$90/552) so let’s be generous and assume we can go to 2x (about the average). Using 2x the $90,552, you could justify $181,104 as your bid.
The charitable cause factor
If I assume the seller of the wine is not going to sell its wine at below market value, then the 20% charitable contribution from the net proceeds of the auction needs to be factored in to the expected bid level. This translates to a bid amount of $226,380 (which provides fair market value to the seller and a bit over $45,000 to the charity).
Other factors considered but not used
- The vertical factor - Many people wrongly believe there should be large premiums for selling a group of wines as a vertical. The only way I’ve ever approached valuing verticals is with a “sum-of-the-parts” analysis (just as was done above). The premium, if any, would be a function of the number of years in the vertical and the scarcity of the component vintages. For a vertical of the most recent 11 years, I don’t think this factor is relevant.
- Bottle condition and provenance – Since these are very recent vintages and bottles are stated to be in good cindition, this doesn’t affect value.
- Auction buyer’s premium – My assumption here is that there isn’t a premium added to the bid as this is a charity auction conducted by Wine Commune. But if I were serious about bidding, I would double check, and if present, it would lower my bid accordingly.
What’s with the high auction estimate?
Given that the most generous bid we could justify was $226,380, how did the estimate reach $700,000 - $875,000 and how did the opening bid get set at $490,000? I suspect the hope is that a wealthy person interested in supporting the charitable causes might step up. Even at the minimum bid of $490,000 less 20% to the charity, it would appear to be a very profitable way to sell wine for Aabalat. However, if charitable giving is the primary reason for buying (as it seems like it would be at the minimum bid level), then why wouldn’t the party just skip the bid and give the money directly to the charity?
As of now, there are no bids placed (you have until 12/20/06 at 11:45 EST) and my guess is that anyone interested in just the wine is not going to bother.
Lessons learned: If you want to bid for wine at auction, do your homework.
Thanks to Alder at Vinography and his post titled “For the billionaire wine lover who has everything” which inspired this post.
