The Art Market Is Tanking. Sotheby’s Has Even Bigger Problems.

The art market is grinding through a rough patch, and no one is feeling the pain more than Sotheby’s.

The sales downturn, driven in part by China’s economic slowdown, wars and volatile U.S. elections, has hit at a crunchtime for the auction house’s highly leveraged billionaire owner, Patrick Drahi , who is fighting fires amid restructuring in his broader telecom empire, Altice .

Sotheby’s had been riding a rollicking art market wave in recent years, bringing in at least $7 billion in sales annually and setting record-level prices for trophies by Gustav Klimt and René Magritte.

Now, amid signs cash is running low, it is pushing off payments to its art shippers and conservators by as much as six months. Several former and current employees said Sotheby’s this spring gave senior staffers IOUs instead of their incentive pay. And at a meeting this month of higher-ranking executives, some executives expressed worries about whether the company would be able to keep paying its employees on time, according to a person familiar with the discussion.

Drahi has at the same time been under pressure to slash the crushing debt of roughly $60 billion at Altice. The conglomerate’s French arm is now going through restructuring talks with creditors, with the U.S. arm expected to enter restructuring talks later. Some Wall Street analysts had hoped Drahi might sell part of Sotheby’s to help bolster Altice.

Sotheby’s itself carries $1.8 billion in debt, almost double the level it had before the Franco-Israeli billionaire purchased it in 2019. The value of its bonds swooned in the first half of the year as investors worried that declining sales and higher interest rates would choke off the company’s cash flow.

The auction house received a lifeline with a $1 billion deal to sell a stake to Abu Dhabi sovereign-wealth fund ADQ , announced Aug. 9 but not expected to close until later this year. At the time, Drahi said he would contribute an undisclosed amount as part of the deal.

As it awaits the funds, Sotheby’s is toeing a high-wire act with an uncertain outcome.

Charles Stewart , Sotheby’s chief executive, dismissed fears about Sotheby’s financial standing as overblown, and the company disputed the meeting with higher-ranking executives occurred. Stewart said the company’s bonds, which have rebounded in price since the ADQ rescue was announced, are proof that Sotheby’s has smoothed over any worries. He said the ADQ investment will position the house for growth moving forward. “It’s a massive credit positive,” he said.

A Sotheby’s spokeswoman said: “Under Mr. Drahi’s ownership, Sotheby’s is significantly larger, more diversified and more profitable than ever before. During this period, we have invested hundreds of millions to enhance our facilities, technology and expand our offerings to clients.”

ADQ declined to comment.

The crisis at Sotheby’s comes at a time when the entire art market is reeling . Over the past year, collectors who see art as a financial asset have winced as higher interest rates and inflation made it more expensive to trade art. Contemporary art buyers have also suffered sticker shock after years of paying ever-higher prices for emerging artists—who may never pay off. Some smaller galleries, who rely on collectors to vouch for unknown artists, have shuttered, while dealers have reported lacklustre sales at art fairs.

Those factors have hurt collectors’ overall confidence. “I don’t feel like there’s a bunch of collectors waiting out there to save the day this time,” said Dallas collector Howard Rachofsky.

Growing debt load

Drahi, 61 years old, is famous for taking on a mountain of debt to build telecommunications empire Altice, which operates in the U.S. and Europe. He borrowed from Wall Street when interest rates were low, but now that rates have risen sharply, he has started selling off chunks of his companies to lower his debt burden. Last month, his Altice UK sold a 24.5% stake in its BT Group to the Indian international investment arm of Bharti Enterprises in a deal valued at roughly $4 billion.

Drahi used a similar high-debt strategy to buy Sotheby’s in 2019 for $2.7 billion. Drahi issued $1.1 billion in new bonds and loans to finance the deal, and separately also assumed some portion of Sotheby’s existing $1 billion debt.

He has since spent lavishly, including signing a deal to pay at least $100 million for New York’s Breuer building, a Madison Avenue showpiece once home to the Whitney Museum of American Art and temporarily used by both the Metropolitan Museum of Art and Frick Collection. The company is planning to move in at the end of next year and to lease out part of its current glassy headquarters closer to the East River in Manhattan. Sotheby’s has spent tens of millions more to renovate new luxury-retail-style spaces in Paris and Hong Kong.

Drahi also expanded Sotheby’s ability to auction multimillion-dollar homes by buying a chunk of real-estate seller Concierge, and added RM Sotheby’s, an entity that sells high-end cars.

At the same time, the owner has pulled funds out of the company via dividends. In total since the purchase, Sotheby’s has paid out $1.2 billion of dividends to a parent company controlled by Drahi, according to New Street Research.

The ballooning debt didn’t draw much attention during flush years when an influx of newly wealthy collectors from across China, Russia, the Middle East and even the world of cryptocurrency were clamouring after Sotheby’s offerings.

That changed when the market cooled. Sotheby’s told its bondholders the auction portion of the business had a loss of $115 million in the first half of the year, compared to a $3 million profit in the first half of 2023, according to a copy of Sotheby’s unaudited financials for the first half of the year reviewed by The Wall Street Journal.

Rival Christie’s, owned by luxury magnate François Pinault , has also taken a hit, with its auction sales dropping nearly a quarter during the first half of the year.

Sotheby’s adjusted operating free cash flow fell to $144 million in the 12 months ended June 30, a 43% decline from the same time last year, according to data from New Street Research. The figure measures whether a company is making enough money to pay its bills and turn a profit.

Credit rating firm Moody’s Investors Service in February knocked down the ratings for Sotheby’s bonds to B3, one of its lowest categories of junk debt, specifically citing the dividends paid out. “The downgrade also reflects governance considerations, particularly the company’s decision to continue dividend payments out of its credit group in 2023 despite its operating performance deterioration,” Moody’s said in its decision. S&P downgraded the debt into deep junk territory in June.

Stewart said the company’s credit rating has been lower since the Drahi purchase. He said its updates to bondholders revolve around its auction performance only and don’t include fees from the company’s real-estate holdings or financial-services arm, which Stewart said remain in the black. He declined to divulge the company’s full financial figures.

Stewart also said the dividends remain in the Sotheby’s ecosystem and aren’t being redirected to shore up Drahi or his other businesses.

Drahi’s arrival

Sotheby’s was flush with cash but lagging behind Christie’s in 2018 when Tad Smith, the auction house’s then-CEO, suggested to his board that it find a buyer. The company had been public for three decades, but Smith believed the demands for public shareholder returns hampered its ability to go toe-to-toe with the bigger and privately held Christie’s.

In early 2019, the board let Smith make overtures to prospective buyers, including an entity connected to Abu Dhabi’s royal family that expressed interest, according to a person familiar with the negotiations. Drahi moved more quickly and emerged as the winner.

At first, the art establishment didn’t know much about Drahi. The self-made billionaire was born in Morocco, educated in France and has homes in Switzerland and Israel. He was familiar to Sotheby’s staffers in their Tel Aviv office but wasn’t widely known in art circles.

At the time, he was a traditional collector of 19th- and 20th-century artists rather than trendier, contemporary ones, owning pieces by Pablo Picasso, Henri Matisse and Marc Chagall. But he didn’t sit on major museum boards or pop up regularly on the art-fair circuit.

The Sotheby’s purchase marked Drahi’s first foray into luxury. The art world wondered if he would manage a house that started off auctioning books in London in 1744 the same way he ran his broadband communications companies, where he was known for aggressively cutting costs and using debt to fuel ambitious expansions.

Drahi told Sotheby’s he saw the company as an investment for his family, regularly dismissing rumors he was teeing up Sotheby’s to be resold. In 2021, Sotheby’s promoted his son Nathan, then 26, to run Sotheby’s operations in Asia, a key market.

As part of the sale, Sotheby’s divided its various endeavors—such as its real-estate arm and its financial services arm, which lends against people’s art collections—into affiliated but separate entities from the main unit, which handles Sotheby’s auctions and private art sales.

Stewart said Drahi’s move was intended to keep each division nimble.

The art-world ecosystem noticed Drahi’s arrival in other ways. Soon after the sale, a network of smaller companies that auction houses typically enlist to conserve, frame, crate and ship its art around the world said they got word that the house would be lengthening its pay schedules, from a typical month to two or more. One conservator said payments started to arrive six months after a job was completed.

Sotheby’s also started paying sellers more slowly than its rivals. In the past, both Sotheby’s and Christie’s asked winning bidders to pay for their pieces within 30 business days of a sale, and then paid sellers five days later. Sotheby’s changed its contracts to allow it to pay sellers 15 days later, according to sellers familiar with the house’s contracts. The move allowed the house to hold the funds in its coffers longer.

Sotheby’s said its processing deadlines have been in place for many years to allow the company to adequately process payments.

Pay for top talent

When the pandemic hit, Drahi and his management team reoriented the company to sell art online, a pivot Sotheby’s is credited with embracing faster than its rivals.

Sotheby’s also started laying off staff during the lockdown, and continued to do so after the pandemic. When the ever-swirling calendar of fairs and museum openings and biennials got under way again, advisers including Philip Hoffman of the Fine Art Group said they noticed fewer Sotheby’s staffers turned up. The company would send one or two rainmakers, not a whole team.

Stewart confirmed the pandemic-related staff cuts “like many other companies” and winnowed travel were meant to make the company more efficient, though he said it remains “mission critical” to put its top specialists in front of collectors.

Drahi needed Sotheby’s key dealmakers to remain in place. High-end art deals at auction houses are wrangled primarily by a handful of executives and specialists able to cultivate an air-kiss closeness with collectors. They also must be able to discern a fake Picasso from a real one, and price it to sell well in good markets and bad.

In 2021, Drahi revised the incentive pay program for these top performers. In exchange for accepting an immediate pay cut of up to 20%, employees were told they could expect a cash payout in three years based on the company’s performance and representing up to half of their total compensation.

Some powerful executives still left, dealing a blow to the auction house. Patti Wong , Sotheby’s former international chairman for Asia, now works as a private adviser, and Brooke Lampley , its former global chairman of fine art, is now a senior director at the blue-chip gallery Gagosian.

When the delayed payout came due, staff were told in conference calls—some say last fall and others say in March—that it needed to be postponed; enrollees were issued promissory notes this spring instead, according to several former and current specialists. Specialists said they now are hoping to get paid by year’s end with a portion of the Abu Dhabi funds.

The company disputed the description of the incentive program but declined to give further details.

New fees for sellers

In February, Sotheby’s shocked the art world when it fundamentally restructured the way it collects fees for works that it auctions.

Both Sotheby’s and Christie’s, in efforts to bring sellers to their doors, often waived their fees. They even shared with sellers increasingly fatter slices of the fees they charge buyers—which can add up to roughly 27% to a work’s winning price.

At the same time, buyers have bristled over the fees they pay. Rachofsky, the Dallas collector, said he has long agitated that “auction fees are unsustainably high.”

Sotheby’s new fee plan, which went live in late May, now charges buyers a flat 20% for anything it sells for $6 million or less, and 10% for anything it sells for more. For sellers, Sotheby’s charges a fee of 10% on the first $500,000 of anything it sells for $5 million or less. Terms for larger deals continue to be negotiated.

Christie’s and smaller house Phillips said they also charge an undisclosed seller’s commission, but their fee is negotiable.

Stewart said the goal is to create a system that is “simpler and fairer.”

It’s too soon to tell if Sotheby’s new fee structure will help or hamper its effort to win consignments. Sotheby’s has landed the prized estate of the season, an estimated $200 million collection amassed by Palm Beach beauty mogul Sydell Miller that includes a Claude Monet water lily scene estimated to sell for $60 million. The collection will headline the November sales.

Art adviser Anthony Grant said one of his collectors reasons that Sotheby’s might hustle harder to find bidders for each work now that they’re charging sellers a fee to do so. But Grant said he worries the change could also steer sellers of midmarket pieces to other houses who may not charge them extra for anything.

“It’s one more thing that’s gotten harder for them,” he said of Sotheby’s, where he once worked.

Asia is expected to play a crucial role in Sotheby’s prospects. In recent years, newly wealthy bidders in Asia—spanning mainland China to Seoul to Singapore—have been relied upon to mop up art at the highest levels even when collectors elsewhere held back. Now, China’s economy has slowed, sparking fears about its buyers’ willingness to splurge on blue-chip art.

Instead of scaling back, the major auction houses are all doubling down on the region. Sotheby’s and Christie’s both just opened luxurious new spaces in Hong Kong. Sotheby’s Maison space in Hong Kong’s Central neighborhood, opened in late July, said it has already had 300,000 visitors.

This month, on the eve of what was supposed to be its inaugural fall sale series in Hong Kong, the house announced it was pushing back these sales to November. Advisers who work in the region said the move left the impression that the house had failed to gather enough marquee material.

Sotheby’s said the calendar shift gives it more time to organise shows and a sale lineup, and said the delay wasn’t because the art was too tough to source. It cited its plan to sell an estimated $30 million Mark Rothko from 1954, “Untitled (Yellow and Blue),” in Hong Kong later this year.

Collector and dealer Hong Gyu Shin initially consigned an Oscar Wilde manuscript of “The Picture of Dorian Gray” to Sotheby’s to offer in its Hong Kong sales, he said, but he later changed his mind. He said he wanted the auction house to revel in the piece, which contains Wilde’s own handwritten edits, and he wanted to brainstorm the best way to position it to buyers. Instead, there was little conversation after the paperwork was signed.

“Specialists used to be so excited,” he said, “but now they just slap an estimate on it. When you have historical work, it’s a form of art to sell it.”

Give gold bugs their due. The yellow metal has been a light in the investing darkness. At a recent $3,406 per troy ounce, it’s up 30% this year, to the envy of stock, bond, and Bitcoin holders. Cash-flow purists will call this a flash in the pan, but they should look again. Over the past 20 years, SPDR Gold Shares , an exchange-traded fund, has surged 630%—85 points more than SPDR S&P 500 , which tracks shares of the biggest U.S. companies.

That isn’t supposed to happen. If businesses couldn’t be expected to outperform an unthinking metal over decades, shareholders would demand that they cease operations and hoard bullion instead. So, what’s going on? If this were gasoline or Nike shoes or Nvidia chips, we would look to supply versus demand. With immutable gold, nearly every ounce that has ever been found is still around somewhere, so price action is mostly about demand. That has been ravenous and broad since 2022.

That year, the U.S. and dozens of allies placed sweeping sanctions on Russia, including its largest banks, and China went on a bullion spree. Its buying has since cooled, but other central banks have stepped in. Perhaps this is unsurprising, in light of a decades-long diversification by finance ministers away from the U.S. dollar, which is down to 57% of foreign reserves from over 70% in 2000. But the recent uptick in gold stockpiling looks to JPMorgan Chase , the world’s largest bullion dealer, like a debasement trade. Investors are nervous about President Donald Trump’s tariffs, his browbeating of the Federal Reserve Chairman over interest rates, and blowout U.S. deficits.

Surging Demand

It isn’t just bankers. Demand among individuals for gold bars and coins has been surging, with some dealers experiencing sporadic shortages. Gold ETFs were bucking the trend, but flows there have turned solidly positive since last summer, including recently in China. All told, there is now an estimated $4 trillion worth of gold held by central banks, and $5 trillion by private investors. Calculated against $260 trillion for all financial assets, including stocks, bonds, cash, and alternatives, that works out to a global gold portfolio allocation of 3.5%, a record.

What’s next? BofA Securities says that central banks have room for much more gold buying, and that China’s insurance companies are likely to dabble, too. RBC Capital Markets analyst Chris Louney says ETFs could drive demand growth from here, especially if angst reigns. “Gold is that asset of last resort…the part of the investing universe that investors really look for when they have a lot of questions elsewhere,” he says.

Russ Koesterich, a portfolio manager for BlackRock , a major player in ETFs including the iShares Gold Trust , says that gold has proven itself as a store of value, and deserves a 2% to 4% weighting for most investors. “I think it’s a tough call to say, ‘Would you chase it here?’ ” he says. “There have been some pullbacks. Those might represent a good opportunity, particularly for people who don’t have any exposure.”

Daniel Major, who covers materials stocks for UBS , points out that gold miners mostly haven’t wrapped themselves in glory in recent years with their dealmaking and asset management. As a result, a major index for the group is trading 30% below pre-Covid levels relative to earnings. UBS increased its 2026 gold price target by 23%, to $3,500 per troy ounce, before gold’s latest lurch higher. Many miners are producing at a cost of $1,200 to $2,000. Major has bumped up earnings estimates across his coverage. “I think we’re gonna see further upward revisions to consensus earnings,” he says. “This is what’s attractive about the gold space right now.”

Major’s favorite gold stocks are Barrick Gold , Newmont , and Endeavour Mining . More on those in a moment. We also have thoughts on how not to buy gold—and what not to expect it to do: Don’t count on it to keep beating stocks long term, or to provide precise short-term protection from inflation spikes and stock swoons. But first, a little history, chemistry, and rules of the yellow brick road.

Flesh of the Gods

The first gold coins of reliable weight and purity featured a lion and bull stamped on the face, and were minted at the order of King Croesus of Lydia, in modern-day Turkey, around 550 B.C. But by then, gold had been used as a show of riches for thousands of years. Ancient Egyptians called gold the flesh of the gods, and laid the boy King Tutankhamen to rest in a gold coffin weighing 243 pounds. The Old Testament says that under King Solomon, gold in Jerusalem was as common as stone. Allow for literary license; silicon, an element in most stones, is 28.2% of the Earth’s crust, whereas gold is 0.0000004%.

Marco Polo described palace walls in China covered with gold. Mansa Musa I of Mali in West Africa, on a pilgrimage to Mecca in 1324, is said to have splashed so much gold around Cairo on the way that he crashed the local price by 20%, and it took 12 years to recover. To Montezuma, the Aztec king whose gold lured Cortés from Spain, the metal was called, as it still is by some in Central Mexico, teocuitlatl —literally, god excrement. Golden eras, gold medals, the Golden Rule, and golden calf—so deep is the historical association between gold and wealth, excellence, and vice that it seems to have a mystical hold on humanity. In fact, it’s more a matter of chemical inevitability.

Trade and savings are easier with money. Pick one for the job from the 118 known elements. Years ago on National Public Radio, Columbia University chemist Sanat Kumar used a process of elimination. Best to avoid elements that are cumbersome gases or liquids at room temperature. Stay away from the highly reactive columns I and II on the periodic table—we can’t have lithium ducats bursting into flame. Money should be rare, unlike zinc, which pennies are made from, but not too rare, unlike iridium, used for aircraft spark plugs. It shouldn’t be poisonous like arsenic or radioactive like radium—that rules out more elements than you might think. Of the handful that are left, eliminate any that weren’t discovered until recent centuries, or whose melting points were too high for early furnaces.

That leaves silver and gold. Silver tarnishes, but rarer, noble gold holds its luster. It is malleable enough to pound into sheets so thin that light will shine through. And, despite the best efforts of Isaac Newton and other would-be alchemists, it cannot be artificially created—profitably, anyhow. Technically, there is something called nuclear transmutation. If you can free a proton from mercury’s nucleus or insert one into platinum’s, you’ll end up with a nucleus with 79 protons, and that’s gold. Scientists did just that more than 80 years ago using mercury and a particle accelerator. But what little gold they produced was radioactive. If you think you can do better, you’ll likely need a nuclear reactor to prove it, but a large gold mine is one-fifth the cost, and we have to believe the permitting is easier.

We passed over copper due to commonness, but it has become too valuable to use for pennies. The 95% copper content of a pre-1982 penny is worth about three cents today. The equivalent amount of silver goes for $3.10, and gold, more than $320. But the three trade in different units. A pound of copper is up 17% this year, at $4.72. Silver and gold are typically quoted per troy ounce, a measure of hazy origin and clear tediousness, which is 9.7% heavier than a regular ounce. A troy ounce of silver is $32.70, up 13% this year.

Some Finer Points

Confused? This won’t help: The purity of investment gold, called its fineness, is measured in either parts per thousand or on a 24-point karat scale. A karat is different from a carat, the gemstone weight, but our friends in the U.K.—who adopted troy ounces in the 15th century—often spell both words with a “c.” Gold bricks like the ones central banks swap are called Good Delivery bars, and weigh 400 troy ounces, give or take, worth more than $1.3 million. If you buy a few, lift with your legs; each weighs a little over 27 regular pounds (as opposed to troy pounds, which, it pains us to note, are 12 troy ounces, not 16).

There are many options for smaller players, like Canadian Maple Leaf coins, which are 24-karat gold; South African Krugerrands, at 22 karats, and alloyed with copper for durability; and Gold American Eagles, 22 karats, with some silver and copper. Proof coins cost extra for their high polish, artistry, and limited runs, and may or may not become collectibles. Humbler-looking bullion coins are bought for their metal value. Prefer the latter if you aren’t a coin hobbyist. Avoid infomercials and stick with high-volume dealers. Even so, markups of 2% to 4% are common. Costco Wholesale , which sells gold in single troy ounce Swiss bars, charges 2%, but often runs out, and limits purchases to two bars per member a day. Factor in the cost of storage and insurance, too.

ETFs are more economical. For example, iShares Gold Trust costs 0.25%, not counting commissions. For long-term holders, as opposed to traders, there is a smaller fund called iShares Gold Trust Micro , which costs 0.09%.

Resist fleeing stocks for gold. The surprisingly long outperformance of gold is mostly a function of its recent run-up. From 1975 through last year, gold turned $1 invested into about $16, versus $348 for U.S. stocks. That starting point has a legal basis. President Franklin Roosevelt largely outlawed private gold ownership in 1933; President Richard Nixon delinked the dollar from gold in 1971; and President Gerald Ford made private ownership legal again at the end of 1974.

Gold has been a so-so inflation hedge over the past half-century, and at times a disappointing one. In 2022, when U.S. inflation peaked at a 40-year high of over 9%, the gold price went nowhere. The problem is that high inflation can prompt a sharp increase in interest rates. “If people can clip a 5% coupon on a T-bill, often they’d prefer to do that than have either a lump of metal or an ETF that doesn’t produce cash flow,” says BlackRock’s Koesterich.

Likewise, while gold has generally offset stock declines this year, it hasn’t always done so in the heat of the moment. Recall tariff “liberation day” early this month, which sent U.S. stocks down close to 11% in three days and pulled gold down nearly 5%. “This isn’t an uncommon scenario,” says RBC’s Louney. “When investors were losing elsewhere in their portfolio, gold was sold as well to cover those losses.”

Our top tip on how gold behaves is this: It doesn’t. People do the behaving, and they are appallingly unreliable. Use bonds as a stock market hedge. If they don’t work, fall back to patience. For inflation protection, think of assets that are a better match than gold for the goods and services that you buy every week. A diversified commodities fund has precious metals but also industrial ones, along with energy and grains. Treasury inflation-protected securities are explicitly linked to the consumer price index, which measures inflation for a theoretical individual whose buying patterns differ from your own, but are close enough.

Own a house. Stick with a workaday, reliable car. Yes, cars deteriorate. But so does nearly everything on a long enough timeline. Rely mostly on stocks, which represent businesses, which wouldn’t endure if they couldn’t turn raw inputs like commodities into something more profitable. There’s even a miner, Newmont, in the S&P 500.

The Case for Mining Stocks

Speaking of which, UBS’ Major recently upgraded both Canada’s Barrick and Denver-based Newmont from Neutral to Buy. “Both very much fall into that category of having a challenging recent track record,” he says. Newmont has lost 20% over the past three years while gold has gained 76%, which Major blames on difficult acquisitions and earnings shortfalls. Barrick, down 8%, has been in a dispute with Mali since 2023, when its government instituted a new mining code that gives it a greater share of profits. In recent days, authorities have shut the company’s offices in the capital city of Bamako over alleged nonpayment of taxes.

These are the sort of headaches that Krugerrands in a safe don’t produce. But Major calls expectations “adequately reset,” free cash flow attractive, and guidance achievable. Newmont, at 13 times next year’s earnings consensus, is selling assets, and Barrick, at 10 times, has healthy production growth.

Major also likes London-based, Toronto-listed Endeavour Mining , up 40% over the past three years and trading at nine times earnings, although he says it has “higher jurisdictional risk.” It is focused on West Africa, especially Burkina Faso, which had a coup d’état in 2022. You’d think the stock would be doing worse amid such political upheaval. Then again, Burkina Faso since 1966 has had eight coups, five coup attempts, and one street ousting of a president who tried to change the constitution to remain in power. That works out to an uprising every four years, on average.

Montezuma’s scatological name for gold might have been prescient, considering the sometimes-odious consequences for small countries that find it.