The Wine Collector

WinePrices.com's wine price indexes were up strongly in September after the normal summer slow period in global wine auction activity. The top three most actively traded fine wine indexes were up 9%-12% in September and 33%-44% year to date. Every index has double digit YTD gains and the most active indexes are within reach of turning in positive year-on-year returns.  See below for a table of some key stats and the full summary results page for all nine indexes (and archives from prior months).

 

WinePrices.com's most actively traded fine wine indexes were down 1%-4% in June 2009 based on global auction results (the Dow Jones Average was down 0.6%) after their 10%-17% gains in May.  See the full summary results page for all nine indexes (and archives for prior months). The California 100 index finally showed some life and the Italian and Port indexes managed to turn in positive performances.

 

Auction activity in July is limited and non-existent in August so look for September results for the next major opportunity to assess price levels.

Since the Vinfolio Marketplace went live last week, there's been some discussion in online boards about its fees and how they compare with primary alternatives (i.e., bricks-and-mortar auction houses and online auction players). The Marketplace differentiates itself on many dimensions, including fees, but this post provides a fee-only-based comparison (OK, I've added some other comments too because "normalizing" fee charging methods requires some explanation).

Comparing  "apples to apples"

All other auction houses require the wine being auctioned to be in their custody prior to the auction.  While not required in the Vinfolio Marketplace, the seller has the option of transferring wine to Vinfolio storage first which is the nearest equivalent of the traditional auction house approach.  Therefore, for a true "apples-to-apples" comparison, the Marketplace seller's commission when sold from storage is the only relevant basis of fee comparison.

Normalizing fee methodologies

Auction houses (whether traditional or online) tend to charge both a buyer's premium and a seller's commission on a transaction. Many sellers tend to ignore the buyer's premium because, after all, it's not charged to them. That logic is fallacious because any rational buyer faced with paying a 20% buyer's premium on his/her bid (or "hammer") price, will lower his/her bid to reflect the extra cost.  Doing so ensures the total out-of-pocket price reflects what he/she believes the bottle to be worth.

The table on the right shows the universe of leading auction houses and their current buyer's premiums based on June 2009 U.S. auctions (note: if an insurance fee percentage is required, it is included).

To normalize different fee methodologies, I used a fixed $100 total price paid for a bottle and calculated the bottom-line net proceeds received by a seller (which is all anyone cares about!) when sold through different types of auction channels.  The final result is a table showing a comparable single metric representing an "equivalent" seller's commission.

Vinfolio Marketplace vs. Traditional Auction Houses

The following chart illustrates that the Vinfolio Marketplace generates greater seller proceeds than using a typical auction house.  Auction houses don't publish their seller's commission fees (why not?).  They tend to be negotiated based on the estimated value of the consignment but the range shown is fairly typical (with Acker Merrill being the exception at 0% but with their 21% buyer's premium, the net proceeds only reach $82.64).  Keep in mind that for larger consignments where the lower-end auction house seller's commission probably applies, the Vinfolio Marketplace's cumulative volume discounts would also, raising the Marketplace's net proceeds to $86.50.

Vinfolio Marketplace vs. WineBid and J.J. Buckley (WineCommune)

The following chart shows why the Vinfolio Marketplace is better than using WineBid or J.J. Buckley (a WineCommune affiliate).  Some additional explanation is needed here:

• Winebid's seller commissions are not published (at least nowhere I could find) but are believed to vary between 12%-19% based on the volume of wine consigned.
• J.J. Buckley is a retailer owned by WineCommune that uses WineCommune to run consignment auctions (WineCommune sellers as of 12/08 must possess alcohol licenses to use it directly, hence the J.J. Buckley "tag team").  There's no buyer's premium and the seller's commission is linked to the bottle value with break points at $250 and $1,000.  In checking WineCommune's site, there were only 3 listings with prices of over $1,000 per bottle (13% fee) and just under 10% of listings with $250 in total value (15% fee; listing measurement includes multiple bottle lots) so most people sell bottles for less than $250 which is a 17% seller's commission.  The 16.8% shown in the chart is an estimated weighted average.

Other material differences exist that you need to know about.  With WineBid and J.J. Buckley, any wine which doesn't sell in a weekly auction has its reserve and/or starting bid lowered each week until it sells (or you can ship it back to yourself any time at your expense).  If you feel like gambling, you can reduce the seller's commission to 10% at J.J. Buckley if you sign up for a weekly auction with a $1 starting bid and no reserve.  As that's an "orange" in this "apples-to-apples" comparison, I didn't include it in the chart above.

Selling fee summary

The table below says it all.  The far right column represents the "expected" fee borne by the seller based on which firm is used.

Bottom line: The Vinfolio Marketplace is the most cost-effective solution for selling your wine, even without considering its many other differentiators. Review the Marketplace overview to learn more.

 

Sotheby's Wine department excellent results for the 1st half of 2009 provide further evidence of Asian buying power (read the press release).  The tables below provide more details but here are a few points to highlight:

• With only a single debut sale in Hong Kong in the first half (out of nine auctions), Hong Kong already surpassed the five sales in London in the same period and almost beat New York.
• Over 56% of buyers at all nine auctions (measured by value) were Asian.
• Among the top 100 lots by region, an astounding 88% were purchased by Asians.

WinePrices.com's most actively traded fine wine indexes were up from between 10%-17% in May 2009 based on global auction results (the Dow Jones Average was up 4.1%).  See full summary results page for all nine indexes.

What's going on?

As noted in my prior post, Asian wine buying influence continues unabated, I'm sure these prices reflect the impact of higher auction prices being paid in Hong Kong.  Of the 11 auctions held in May worldwide that we tracked, four were in Hong Kong and about 25% of the price data points derived from these auctions.  I'll be doing a separate analysis soon to try to quantify the "Hong Kong effect" although Asian buyers continue to be active in New York and London auctions.  Note that these results exclude the first mainland Chinese wine auction for reasons I will address in a separate post (the results would have been skewed upwards further).

The sharp upturn in The Conference Board's Consumer Confidence Survey during May (see press release) also seems to correlate with these May auction results.

California fine wine prices performing particularly poorly

The California 100 index has turned in the worst performance of the nine indexes since January 2005 (101.11 index versus 100.00 in January 2005).  The 2009 price recovery which has positively impacted all other indexes has largely skipped the California 100 with only a 1.2% increase YTD to May.  The lowest other index for the same YTD period is +9.1% for the Italy 25 and +31.3% is the highest for the Bordeaux First-Growth 100.

In any given wine auction, whether in good or bad times, there are always examples of extreme price variations in both directions.  Just look up your favorite auction-quality wine on WinePrices.com and see the spread between high and low prices in any given year.  The wide variations stem from traditional auctions being an imperfect mechanism for selling wine.  Typical auctions depend on buyers showing up at a given time (or bothering to submit absentee bids) and typically only a very finite supply of a given item is available.  Moreover, many of the items offered are not that "special" or scarce to warrant making this effort.

So if a modest quantity of wine has a few people driving up the price or nobody bidding at all at a single auction, does that mean the value of that same wine owned by everybody else should be marked to that value?  No!  Only averages across a broader set of transactions provide insights into pricing trends which is why an index or transactions across multiple auctions are both better indicators than one-off prices obtained at a single auction. 

Bottom line: When you see attention-grabbing headlines about either large one-off declines (or increases), remember to focus on the bigger picture.

As a follow up to my last post titled Time to invest in fine wine?, I performed a similar analysis on the results of the Hart Davis Hart Fox cellar auction in Chicago on September 19-20, 2008. A few points about this cellar need to be kept in mind when evaluating the results:

• The provenance was impeccable (even better than "typical" fine wine auctions)
• The auction included the largest offering of Lafite-Rothschild ever to appear at auction
• Over 700 cases of first growth Bordeaux and over 1,000 bottles of DRC were offered
• 100% of the lots were sold for $11.2 million (see post auction press release).

The surprise to me was that despite these advantages, which would one think would translate into above average market prices, the results obtained (in aggregate) were no better than 2008 auction averages (using 8/08 YTD data). See the chart below:

If one assumes the provenance alone should have generated a 5-10% premium, then these results can be interpreted as a weakening of fine wine prices since earlier in 2008.

Even more surprising was the price performance of the premium Bordeaux and DRC lots.  In total, the eight producers below accounted for 910 lots or 57% of the 1,597 unmixed lots offered.  Only Lafite-Rothschild generated more premiums than declines to 2008 market averages (no doubt due to high Asian demand).

In fact, even with Lafite-Rothschild included, these premium wines did relatively worse than the other 43% of lots.  The chart below is comprised of the subset of 910 lots of these wines and the median (or typical) per bottle price achieved for a particular lot was 95% of the 8/08 YTD auction average.

Conclusions

The analysis above, combined with the analysis of the Zachys auction results from the same weekend, are signaling a consistent message: namely that fine wine prices are under some modest pricing pressure at the moment.  However, given the fine wine market's long-term fundamentals, I believe this is a buying opportunity for those interested in wine investing. 

In turbulent markets, there seems to be a trend towards investing in hard assets (see yesterday's WSJ story titled When stocks tank, some investors stampede to alpacas and turn to drink).  I don't know about you, but I would far prefer to invest in wine that exotic livestock.

P.S. The methodology used in this price analysis was the same as in my prior post. We took the auction price results (inclusive of buyers' premiums) for all unmixed lots sold and compared the average per bottle price per lot to the given wine's 8/08 YTD auction average according to WinePrices.com.   

Financial markets are in turmoil.  Your financial investments are in the tank.  Where else can you invest and still make a nice profit?  The answer: fine wine.

Almost exactly a year ago, I wrote Why fine wine prices will keep rising.  All of the reasons I cited then are still true.  As with any category of investing, there can be windows of buying opportunities which present themselves and we may be in one right now.

The chart below shows the results of last week's Zachys auction in New York.  We took the price results (inclusive of buyers' premiums) for all unmixed lots sold and compared the average per bottle price per lot to the given wine's 2008 YTD auction average according to WinePrices.com.  For the 831 lots where we performed the comparison, only 228 or 27% were at or above 2008 YTD auction averages (100% in the chart means the price per bottle equaled the 2008 YTD average)

The median (or typical) per bottle price achieved for a particular lot was only 87% of the 2008 YTD average price.  There were some other attractive wine auctions going on about the same time so perhaps buyers were focused elsewhere or just temporarily distracted by financial market problems. But if this auction's results are an indication of a dip in market prices for fine wine, then maybe it's time to reallocate some money to take advantage of what is likely a temporary buying window.  The global fine wine market is here to stay and market drivers still fundamentally support a trend towards higher prices.

P.S. Here's another prior post with Wine investing tips.

Sotheby's Wine department has produced their U.S. Market Review for 2007-2008 in a nice printed newsletter which I received a few days ago.  To me, the most interesting page was one devoted to Asian buying activity titled "Duty Free Asian buyers multiply."  I've reproduced below a short table from the article which caught my attention:

Whether this increased activity is driven by the elimination of Hong Kong and Macau duties, booming Asian economies, a weak U.S. dollar, or a combination of all of the above, it's no surprise that most major auction houses have already launched, or will launch, Hong Kong auctions.

Acker Merrall Condit's PR firm sent out an email yesterday (which I've replicated below) that is offering an entire cellar (see "The Man with the Golden Cellar" catalog), claimed to be among the world's top 3, for a mere $20 million. 

I've discussed the trend towards the purchasing of "instant cellars" in prior posts (see Sold for $1.05 million! and "Instant" wine cellars vs. developing a wine advisory relationship) but the sheer audacity of this proposal is to be admired.  In this case, which is Acker's first attempt to sell an entire collection, Acker's CEO John Kapon says (on page 11 of the catalog) that he is doing so because he considers "this collection to be a work of art" and that there should be a chance to keep it together.  He also acknowledges it might create some buzz (he's right).

While it would be a major exercise to perform a "sum of the parts" valuation of the component wines in the auction, I suspect the $20 million figure reflects a healthy premium to any such analysis give the reference to "a work of art."  However, I would also not be surprised if a wealthy Asian buyer emerges and pays the tab.  After all, it would sure save a lot of time and effort, not to mention generate instant credibility in the wine collecting world.  The credible alternative of selling the wine via an auction also focuses the mind of any buyer to act by the October 17th deadline or the opportunity will be lost forever.

Contents of the October 4, 2007 Email Sent by Acker's PR Firm

The bull market for fine wines shows no sign of retrenchment. The London International Vintage Exchange Index - an index of the top 100 investable wines - rose 42% in 2007-- trading at its highest level since its inception in 2000. Prices on the most sought-after vintages shot-up by 90% this past year, and new investors from Russia, China and the rest of Asia, are clamoring to get into the game in even bigger ways.

Now, for $20 million, a single investor can instantly become one of the world's undisputed top collectors-overnight.

Beginning October 5 through the 17th, the New York-based wine retailer Acker Merrall Condit (host of the world's largest-ever wine auction in 2006, which grossed $24.4 million) is looking to break new ground this year by offering a single buyer the opportunity to acquire one of the world's masterpiece wine collections in its entirety. Impeccably curated over decades and ranked as one of the world's top-three collections, it aggregates a portfolio of 1,500 of the best-of-the-best wine lots (roughly 12,000 bottles) that closely track the Liv-ex Index.

If no single investor steps up by October 17, the collection will be sold at a blockbuster auction attended by Wall Street high-rollers and international investors at New York's internationally acclaimed, Le Bernadin restaurant on October 19 and 20. Absentee bidding is expected from around the world via web and speaker phone.

John Kapon, president and CEO of Acker Merrall Condit, says that many of the investors he meets love to collect wines and to share a bottle with colleagues and friends. Aside from the high-yield on their investment, fine wine is a potent business tool, helping to cultivate and cement key relationships. "This collection is so extraordinary, the wines so rare, that it couldn't be recreated over a single lifetime. It's truly one-of-a-kind, like a Picasso."

John Kapon is available to discuss all details of the collection and auction. Let me know if you're interested in speaking with him.

Thanks for your consideration.

Why do wine collectors lose their economic wits and overpay for wine sold at auction that can be purchased for much less from reputable retailers?  They're literally throwing money away.

Possible reasons for overpaying at auctions

1. Excellent provenance is worth paying a premium to obtain but how much of a premium?  Would you pay 20% more?  100% more?  The premium may vary based on how long a period the wine has been "protected" (see an earlier post called The wine authenticity premium).
2. The desire to "win" overtakes rationale behavior.  Drinking during the auction itself (which can be encouraged) doesn't help maintain clear thinking either.
3. You miscalculate the per-bottle price being paid because your bid needs to factor in the quantity of bottles in the lot, fixed bidding increments, and buyer's premiums.
   
4. The stated "uniqueness" of the lot helps you rationalize paying more to get it.  Perhaps you're not aware of where else you can buy the same wine from a reputable source.  The same people who sell their collections through auction houses often prefer the market pricing, privacy, and speed of selling their collection outright to a retailer or other member of the wine trade.

Example of recent Zachys Stormby celler auction of Yquem

On September 28, 2007, Zachys held its auction of Dr. Nils Stormby's cellar.  The catalog documents the provenance of the wine and it's about as good as it gets.  Still, the prices paid by collectors were significantly higher than estimates, with the large Yquem section of the sale achieving two to three times its estimates (see Decanter story "Yquem collection goes for US$2m at Zachys Sale").

Yesterday, I received an email from the Antique Wine Company (AWC) in London, pointing out that their enormous selection of 1,372 bottles of Yquem was far more attractively priced in comparison to the prices paid at the Zachys auction (with numerous examples of vintages such as 1916, 1929, 1953, and even 1967 where AWC prices were about half or less).   Stephen Williams, the Managing Director of AWC, called me today in response to my inquiry and cited certain examples, such as the 1929 Yquem, where AWC's bottles were more pristine than Zachys' photos and condition descriptions.

Bottom line: Wine collectors should check retail sources in advance of bidding at auction to understand market alternatives and/or tap a more convenient (immediate) purchasing method.  If you missed out on any Stormby Yquem lots, it's not too late to get the same wines - just give AWC a call (especially for older vintages) or ask your favorite fine wine retailer.  For older vintages, you should also ask about provenance and to see condition photos.

The 20% advantage

Vinfolio recently did an analysis where we examined the retail prices at which we sold wine compared to what those same wines sold for at U.S. auction houses (hammer plus buyer's premium).  The average price advantage we achieved in 2007 YTD is 20% (22% to be exact but we rounded down).  Please review Maximizing sales price on our site for details on the analysis, why this premium exists, and why our retail prices are still competitive for buyers.

Benefit to private sellers of wine

This pricing advantage translates directly into higher net proceeds for the seller (even when the auction house has no seller's commission). 

Payment is also made in a few days (not months) because sellers are paid upfront, before the wine is even sold to consumers.

Why do people still sell at auction?

Mainly because that's the traditional choice (see The limited relevance of wine auctions).  When sellers learn that it's faster, simpler, and more profitable to accomplish their goals via a different method, they pay attention.  For example, we purchased a $600,000 cellar of impeccable provenance this month in direct competition with most of the New York auction houses.

Bottom line: If you're considering selling wine through an auction house, sell your wine to Vinfolio instead.

The Wine Spectator's Peter Meltzer addresses this topic quite well in a recent post in his Collecting Q&A online column (read it before continuing -- it's brief).

While auction houses tell you that you're buying "as is" and one could argue that the detailed disclosure of every fill level, label tear and other bottle condition is meant for you to factor this information (and any risk it may imply) into your bid amount, Peter's right that auction houses are empowered to make exceptions to preserve buyer relationships.  A lesser known fact is that their contractual agreement with the seller enables them to pass any liability incurred from accepting such a return back to the seller.

Every major auction house sales contract that I've seen has a "rescission of sale" clause.  This enables the auction house, usually in its "sole judgment", to accept a customer return for a variety of issues (including quality) and rescind the sale (meaning the seller doesn't get paid or reimburses the auction house if he's already been paid).  Whether the auction house actually bothers an important seller client for what may be a small adjustment is another matter but they have the recourse to do so.

On a related topic, you might enjoy reading an earlier post from 2006 called "Returning faulty wine to retailers."

P.S.    The photo is of a 1976 La Tache that you would not want to have received.... 

A full case of 1985 DRC - Romanee-Conti sold at Christie's in New York on May 22 for a price of $237,000 (including the buyer's premium) making it the most expensive case of Burgundy wine ever sold at auction (according to Christie's). 

The per-bottle price equates to $19,750 whereas the average auction price in 2007 before this sale was only $8,567 per bottle (based on 10 lots sold so far in 2007), a premium of 131% over the average.  According to the auction catalog, Richard Brierley of Christie's is quoted as saying "never before have I seen such pristine cases of these great wines [1990 was also sold]."  The wine was in its original wooden case and "stored in outstanding conditions."

The only higher prices for this wine occurred in 2006 when the wine was sourced from other impeccable collections: Russell H. Frye's and Park B. Smith's, both sold by Sothebys New York.  Two 2-bottle lots from the Frye collection obtained per-bottle prices of $22,325 and $21,150, respectively, and one 6-bottle lot from the Smith collection obtained a per-bottle price of $19,917.  The 2006 auction average for 32 lots sold (inclusive of these sales) was $8,708 per bottle (very close to the 2007 price level).

In case you're wondering, for wines of vintages 1961 or later, the 1985 Romanee Conti is the most expensive wine ever sold at auction (see Top 20 most expensive 750ml bottles sold at auction from November 15, 2006).  In general, DRC's Romanee-Conti vineyard dominates the top average prices obtained at auction for red Burgundies (see Top 20 red Burgundies at auction in 2006) but the 1985's average price placed it at only #35 on this list (but with higher bottle counts sold).

If you own any DRC Romanee-Conti, please take steps to ensure it is stored in perfect conditions, both to maximize your future drinking pleasure and the option for you to sell it with a "provenance premium." 

In an era when check deposits clear in one business day, why does payment for a successful wine auction sale take 30-60 days or longer?  Stories of much longer payment periods (6 months or even a year) are not uncommon.  Read this thread titled “Auction question – float” on the Mark Squires Bulletin Board on eRobertParker.com for some examples.

3 Factors explaining delayed payments

1. Risk of buyer rescinding purchase – As possession of your money provides some protection from the auction house being stuck with the cost of resolving buyer claims (e.g., regarding authenticity, quality, or title), delaying the seller’s payment provides time for potential buyer claims to be raised.
2. Buyer’s money may not have been collected – Virtually all sale contracts require collection of monies from the buyer before payment to the seller.
3. Reimbursable expenses may need to be calculated – Charges for shipping and other reimbursable expenses may need to be gathered as these are typically deducted from any sale payments.

Bottom line: 

1. Read the sales contract!  All of these payment details are spelled out in the sale contract you're required to sign.  Contracts I’ve seen from major auction houses state 35 days in one instance and 50 days in another.
2. Consider superior substitutes to auctions such as Vinfolio’s personal selling service where payment is guaranteed in 0-7 days after the sale.  Note that immediate payment occurs for larger cellars that are bought outright.  Inspection is performed at the customer’s location and funds are wired and received before wine is removed.

To resume my series on 2006 auction price results by region, let's turn to red Burgundies whose price points tower above those of other categories. In fact, the average price of a top 20 red Burgundy ($15,689) is 34% above the average price of the next highest category which is Bordeaux ($11,691).

As with white Burgundy (see prior post), Domaine de la Romanee-Conti (DRC) entries dominate with 11 of the top 20 spots. Of those, wine from the Romanee-Conti vineyard are the most precious.

DRC's Romanee-Conti vineyard

The Romanee-Conti vineyard is wholly owned by DRC making it a rare monopole (meaning single vineyard ownership). The vineyard's small size (1.8 hectares or just under 4.5 acres) means that annual production is low with an average of only 450 cases. As another prior post titled "An explanation of fine wine prices" covers, wine pricing is not exempt from the basic laws of supply and demand.

The Top 20 most expensive red Burgundies at auction in 2006

The table below lists the top 20 most expensive red Burgundy wines sold at major auction houses in 2006 (based on data from the January 2007 edition of the Wine Price File). The price shown is the average price of the bottle count sold. Data presented is for 750ml bottles only and prices include the auction buyer's premium.

Thomas Jefferson proclaimed Montrachet the greatest dry white wine in the world. Based on 2006 auction results, Jefferson would still be right as 19 of the top 20 (and 46 of the top 50) most expensive white Burgundy wines sold at auction in 2006 came from this small (8 hectare, or about 20 acre) grand cru vineyard.

The "thrill factor"

In issue #10 (April 2003) of Allen Meadows' Burghound, he has a special report on Montrachet. In it, he talks about what makes great wines special:

"The extra dimension...as to why these wines, and Montrachet in particular, seem to rise above their lesser neighbors is because they possess the 'thrill factor'...the ability to consistently deliver an emotionally thrilling experience, where our notions of wine as a beverage are transcended and we are transported elsewhere. This is the hallmark of a truly magnificent wine and where dry white wines are concerned, Montrachet is capable of delivering this experience more often than any other."

Montrachet facts

1. The vineyard is equally divided between the villages of Puligny-Montrachet and Chassagne-Montrachet.
2. According to Meadows, as of 1999, there were 16 separate proprietors after certain family holdings were consolidated (not especially unusual compared to other top grand crus).
3. Approximately 78% is held by 5 of the 16 domaines led by Marquis de Laguiche (25.8%, vinified and marketed by Joseph Drouhin), Baron Thenard (22.9%, marketed by Maison Roland Remoissenet et Fils), Bouchard Pere et Fils (13.8%), DRC (8.5%), and Jacques Prieur (7.4%).
   
4. Average production from all producers is a bit over 52,000 bottles or 4,300-4,400 cases.
   

The Top 20 most expensive white Burgundies at auction in 2006

The table below lists the top 20 most expensive white Burgundy wines sold at major auction houses in 2006 (based on data from the January 2007 edition of the Wine Price File). The price shown is the average price of the bottle count sold. Data presented is for 750ml bottles only and prices include the auction buyer's premium.

As part of my series on 2006 auction price results by region (see my prior post on the top 20 California wines), Italy is now in the spotlight. Specifically, the wines of Giacomo Conterno and Bruno Giacosa grab 15 of the top 20 positions with a slight edge to Conterno (8-7).

Giacomo Conterno

The estate of Giacomo Conterno had its origins in 1908 as Cantina Conterno when Giacomo's father began making wine. As of 2003, the estate is now run by Roberto Conterno, the grandson of Giacoma, who took over from his father, Giovanni Conterno. Giovanni is the brother of Aldo Conterno and the two of them began making their own distinct styles of Barolo in 1969.

The Giacomo Conterno Barolo Riserva Monfortino, which represents all 8 Conterno listings in the top 20, was initiated in 1915 (although not bottled as Monfortino at the time). The idea was to focus on making a premium quality Barolo only in great vintages that was designed for aging potential. Today, Monfortino is still produced only in the best of vintages and aged at least 7 years in oak.

The Top 20 most expensive Italian wines at auction in 2006

The table below lists the top 20 most expensive Italian wines sold at major auction houses in 2006 (based on data from the January 2007 edition of the Wine Price File). The price shown is the average price of the bottle count shown. Data presented is for 750ml bottles only and prices include the auction buyer's premium.

Screaming Eagle is well known to be an expensive bottle of wine. The winery mailing list price has risen from $50 for the initial 1992 vintage (released in 1996) to a current level of $500. But that's still a fire sale compared to prices in the auction market.

The table below lists the top 20 most expensive California wines sold at major auction houses in 2006 (based on data from the January 2007 edition of the Wine Price File). The price shown is the average price of the bottle count shown.

You'll note that every single vintage of Screaming Eagle that's been released is on the list (none made in 2000). That's 11 of the top 20! If you'd been lucky enough to buy the 1992 vintage upon release, it would now be worth 76 times your money.

The Top 20 most expensive California wines at auction in 2006

The following table uses data on 750ml bottles only and prices include the auction buyer's premium.

The January 2007 (23rd edition) of the Wine Price File is now compiled. Among statistics of interest are the top prices commanded by large format bottles in 2006 wine auctions. Not surprisingly, all are legendary wines:

1. 1947 Cheval Blanc, 3L, $135,125
2. 1961 Latour, 4.5L, $135,125
3. 1978 DRC - Romanee Conti, 6L, $124,425
4. 1961 Petrus, 4.5L, $123,375
5. 1865 Lafite-Rothschild, 3L, $111,625

Since 1995, a 3L of 1947 Cheval Blanc has only been sold 5 times at auction (twice in 2006). The high price was obtained at a Christies New York sale in March 2006 and it represented more than triple the price of the other 2006 sale and a 2005 sale.

The 4.5L of 1961 Latour appears at auction more frequently with 14 sales in the last 5 years. In 2002, a lucky bidder paid only $13,800 for the same wine and bottle size. Its value more than tripled by 2005 only to see a further tripling in the same March 2006 Christies sale.

The scarcity and price trends with the other three wines are similar.

Bottom line: The combination of both wine and bottle format scarcity, highly rated vintages, and the proven cellar worthiness of the best producers, mean prices are only going one direction: upwards.

The Antique Wine Company of London announced last week that it sold 135 bottles of Chateau d’Yquem to a European buyer for £775,000 ($1.5 million). The collection includes every consecutive vintage of Chateau d’Yquem produced between 1860-2003. And as a clever marketing ploy, it also included 9 empty bottles, signed by the director of Yquem, with each label bearing the text “this is to certify that no Chateau d’Yquem was produced in this vintage due to adverse weather conditions.” For the curious, those “bad weather” years were 1992, 1974, 1972, 1964, 1952, 1951, 1930, 1915 and 1910.

Fierce auction bidding

The collection was sold via an auction, which in this case, was exactly the right way to sell it give the rarity of what had been assembled (apparently, not even the Chateau itself holds all of these vintages). With a total of 26 bidders from Europe, Asia, the U.S., and Russia, the drive to own something this unique almost doubled the bidding in the final 24 hours from £400,000 to £775,000.

Other benefits

From reading the press articles on The Antique Wine Company site, a few other benefits come with the purchase:

1. A pair of cabinets custom-made to house the collection by well-known British furniture designer, David Linley. Built using American black walnut, a Decanter.com article referenced these as costing £50,000 each.
2. Two-day trip to Bordeaux with the Director of the Antique Wine Company, Stephen Williams, to visit Chateau d’Yquem and receive the royal treatment.
3. A degree of personal press coverage and notoriety. The successful bidder is to be announced publicly in January.
4. The opportunity to throw a very exclusive party in the future.

A word on the price

A December 2006 Robb Report article (scroll down this page) promoting the collection had a subtitle stating “Price starting at $2.5 million.” Given that the selling price obtained of $1.5 million was billed as “unprecedented” by The Antique Wine Company, just another reminder about doing a little analysis before bidding (see prior post, “Sanity checking” auction lot estimates).

The same Robb Report article made reference to a “smaller” Yquem collection having sold for $1 million in 1996 (also by The Antique Wine Company). I couldn’t find any corroboration of this in a quick Google search but found a 2004 thread on the Mark Squire’s Wine Bulletin Board titled “129 vintages of Yquem is a beautiful sight to see!”. It references a sale by The Antique Wine Company of Yquem covering the period 1868-1997. There’s no mention of this on The Antique Wine Company site (or elsewhere). Perhaps the price achieved was not high enough to be helpful in selling this new collection?

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.

Yesterday’s Sotheby’s auction got me thinking about the role of wine auctions as a buying channel for consumers. I could think of only three reasons for consumers to bother buying wine through auctions:

1. Access to rare wine – “Rare” may mean limited quantities in circulation or having a particularly distinguished provenance (especially for older wine).
2. Getting a bargain – Reserves (even with buyer’s premiums added) are typically below retail price levels.
3. The “experience” – Participating in live bidding or pre-auction events is fun. Even for absentee bidders, when your bid succeeds, it’s often described as “winning.” Who doesn’t like winning?

The counterarguments are as follows:

1. Most wine offered is not really “rare” – On average, I would estimate 80%-90% of the wine sold via auctions is available in the retail channel. Many retailers, including us, buy wine for resale directly from the same private collectors that auction houses tap.


2. Bargain hunting is time consuming - The disciplined buyer needs to review a catalog of often 1,000 or more items, research retail alternatives and auction price history for each wine of interest, and then “back into” a maximum bid amount. The bid is determined by dividing your desired maximum out-of-pocket price by (1 + the buyer’s premium % + any insurance fee %) and then rounding down to a specific bid level. Once you know your bid amounts, you need to submit them to bid on an absentee basis or invest even more time to participate live. Given that you can expect to “win” only a small percentage of those items bid on, the overhead of your effort often reduces or eliminates the benefits gained.


3. Most bidders are absentee – As such, other than the small thrill of learning you have won some bids, why deal with the complicated and inconvenient buying process?

Bottom line: Consumers could consider the retailer channel as a substitute for the auction channel when seeking fine and rare wine. Even when retailer pricing is higher, the convenience of “buy it now” saves valuable time that often justifies a premium.

Vinfolio also provides a quote request service where we’ll seek out any wine not already in our inventory (when 6+ bottles or more than $250 in value) or maintain a record of your interest until the next time we have the wine available.

As predicted in my post of November 14 (the most expensive wine auction lot ever), the 50-case lot of 1982 Mouton Rothschild just shattered the single lot auction record. The lot sold for a hammer price of $880,000 which translates into just over $1.05 million inclusive of the 19.5% buyer's premium. This was almost exactly in the middle of the estimated $600,000 - $1.2 million estimated (hammer) price range.

The winning bid translates into $1,752.67 per bottle. This is almost 60% above the prior 2006 auction high for 1982 Mouton Rothschild of just under $1,110 and 127% higher than the 2006 auction average. The seller looks like the winner here (and Sothebys New York).

My bet is that we will see more "mega lots" in the future at auctions (where possible) as this "packaging" format has now proven its appeal.

As a follow up to yesterday' s post on the most expensive wine auction lot ever, I received a request to generate a list of the most expensive 750ml bottles ever sold at auction. The resulting list had numerous 19th century vintages of Yquem, Lafite-Rothschild, and Latour in it. As these older vintages seemed to comprise their own category, I filtered the list to remove any vintage before 1900.

The list below represents the highest prices (including buyer's premium) per 750ml bottle achieved at auction by the first 20 unique wines bearing a vintage of 1900 or later. Only the highest price for each unique wine is shown even though multiple lots of a wine may have sold for higher prices than other wine lower down the list.

1. 1945 DRC - Romanee-Conti, $32,900
2. 1959 DRC - Romanee-Conti, $30,550
3. 1945 DRC - La Tache, $28,200
4. 1941 Inglenook - Cabernet Sauvignon Estate, $24, 675
5. 1945 Mouton-Rothschild, $24,167
6. 1929 DRC - Romanee-Conti, $23,500
7. 1923 DRC - Romanee-Conti, $22,515
8. 1934 DRC - Richebourg, $22,325
9. 1985 DRC - Romanee-Conti, $22,325
10. 1962 DRC - Romanee-Conti, $20,563
11. 1911 DRC - Romanee-Conti, $18,960
12. 1919 DRC - Romanee-Conti, $18,960
13. 1923 Roumier, Georges - Bonnes Mares, $18,763
14. 1978 DRC - Romanee-Conti, $17,038
15. 1966 DRC - Romanee-Conti, $16,450
16. 1934 Roumier, Georges - Musigny, $15,405
17. 1961 Jaboulet Aine, Paul - Hermitage La Chapelle, $15,405
18. 1945 Roumier, Georges - Musigny, $14,813
19. 1945 Ponsot - Clos de la Roche, $14,220
20. 1947 Ponsot - Clos St.-Denis, $14,220

A few observations:

• Unlike the 50-case 1982 Mouton Rothschild lot referenced in yesterday' s post, all of these prices were established based on small lot sizes ranging from 1 to 12 bottles.
• Burgundy dominates with 85% of the unique wines and DRC - Romanee Conti rules.
• All prices were set in 2006 except #4 in 2006 and #20 in 2005.
• 95%% of the wines are French
• Only 25% were vintages from the latter half of the 20th century.

Note that the source of the above information is Vinfolio's own Wine Price File, the standard industry reference for wine auction price results from all major wine auction houses worldwide. Details on the The Wine Price File may be found by visiting http://www.wineprices.com/.

This weekend's Sotheby's wine auction in New York promises to break the auction record for the most expensive wine lot ever sold at auction. The wine is from the collection of Park B. Smith, the co-owner of the wonderful, wine-centric Veritas restuarant in New York City.

With an estimated hammer price of $600,000 to $1.2 million, Lot #150 consists of 50 cases of 1982 Mouton Rothschild (all 750mls), a wine rated 100 points by Robert Parker. All are in original wooden cases, have been cellared perfectly, and are in exceptional condition according to the catalog. The buyer's premium on top of the hammer price is 19.5% and this is not discounted for wine as it is in other Sotheby's categories like art. This would bring the out-of-pocket cost for the winning bidder to an estimated range of $717,000 to $1.43 million when the premium is added. The previous high of $345,000 (including buyer's premium) was set only in September 2006 by Christies New York with a mere 6-magnum lot of 1945 Mouton Rothschild.

According to Vinfolio's Wine Price File database, the general price trend for the 1982 Mouton Rothschild has been steadily upwards as reflected in the auction pricing chart in the wine store portion of our site. As the accompanying table on that page shows, the highest price paid in 2006 (and prior years) at auction is just under $1,100 (including the buyer's premium). Note that Vinfolio sold its last bottles of our most recent supply for $800 each last week and there are five other U.S. retailers listed on Winesearcher Pro offering it now for $795-$800. The median price of the 26 U.S. listings is $995 and the high price goes all the way up to $1,600 a bottle.

Let's say we were willing to pay $1,100 a bottle (inclusive of the premium) for Lot #150 as this bid reflects a price actually paid at a recent auction (even though there are higher "asking" prices from more expensive retailers). That means our bid would only be $660,000, well below the $717,000 low estimate with premium. Arguably, the exceptional provenance may be worth some further amount as might the ability to capture this quantity of 100 point wine with one bid. You might also look at the price appreciation trend in the chart and rationalize a much higher bid by considering a purchase as an investment.

One way or the other, wine auction history is likely to be made on November 18th and it appears Sothebys is shooting to establish a single lot record that will last longer than a few months.

As a follow-up to yesterday’s post on the top 10 wines sold at auction, I decided to focus only on US wines (turns out all are from California) to see who the most popular sellers were given that only Harlan Estate made it into the overall rankings.

Here are the top 10 most frequently sold US wines at auction based on the number of lots sold in the first half of 2006 (regardless of vintage and bottle size):

1. Harlan - Proprietary Red - 454 lots
2. Opus One - Proprietary Red - 240 lots
3. Dominus - Proprietary Red - 219 lots
4. Screaming Eagle - Cabernet Sauvignon - 175 lots
5. Araujo - Cabernet Sauvignon Eisele Vineyard - 166 lots
6. Bryant Family - Cabernet Sauvignon (Pritchard Hill) - 159 lots
7. Caymus - Cabernet Sauvignon Special Selection - 146 lots
8. Colgin - Cabernet Sauvignon Herb Lamb Vineyard - 127 lots
9. Mondavi, Robert - Cabernet Sauvignon Reserve (Unfiltered) - 127 lots
10. Dalla Valle - Maya - 121 lots
    

A few observations:

• Harlan Estate has a fairly dominant position with almost twice the number of lots sold as #2 Opus One.
• Mondavi’s reserve cabernet may have dropped off many collectors’ radar with the proliferation of other quality producers in recent years but this is a good reminder that sophisticated buyers recognize its quality.
• The others are all recognized cult cabernet producers so perhaps the real question to consider is: “what up-and-comers will be on this list in the future?”

Please feel free to post your predictions for the top up-and-coming, collectible wine from California (or elsewhere in the U.S) in a comment.

Note that the source of the above information is Vinfolio's own Wine Price File, the standard industry reference for wine auction price results from all major wine auction houses worldwide. Details on the The Wine Price File may be found by visiting www.wineprices.com.

The top 10 most frequently sold wines at auction based on the number of lots sold in the first half of 2006 (regardless of vintage and bottle sizes) were:

1. Mouton-Rothschild - 1,157 lots
2. Lafite-Rothschild - 904 lots
3. Latour - 863 lots
4. Margaux - 828 lots
5. Haut-Brion - 645 lots
6. Petrus - 639 lots
7. Cheval Blanc - 545 lots
8. Yquem - 537 lots
9. Lynch-Bages - 476 lots
10. Harlan Proprietary Red - 454 lots

This list pretty much defines the dreams of any wine collector. A few observations:

• All but one wine is from Bordeaux. Admittedly, Bordeaux is made in fairly large volumes so has an advantage in a list using a volume-based metric. But, it has also proven itself for long-term cellaring.
• Harlan Estate leads the CA cult wine category.
• The members of the top 10 auction wines are fairly constant. The same list prepared using the last half of 2005 data includes the same first 8 wines in the same order (except Lafite and Latour are flipped). The last two wines in the prior period were Pichon Lalande and Leoville Las Cases.

Note that the source of the above information is Vinfolio's own Wine Price File, the standard industry reference for wine auction price results from all major wine auction houses worldwide. Details on the The Wine Price File may be found by visiting www.wineprices.com. Auction data from the Wine Price File is also integrated into Vinfolio's ecommerce site and free VinCellar online cellar management application.

If you have other wine auction facts you would like to know, please add a comment with a request.