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The practice of issuing guaranteed payouts to vendors regardless of whether a lot sells or not has become widespread over the last five years as the auction houses competed for consignments during a booming market.

But the major downturn in demand seen at the last major round of art sales in London and New York at the end of 2008 saw lots guaranteed for tens of millions sell for far less, meaning the salerooms had to make up the shortfall to vendors.

The losses incurred on offering these guaranteed lots has now forced the auctioneers to review their policy.

A Christie’s spokesman said: “At the moment we are mainly not issuing guarantees, but we are still treating things on a case-by-case basis.”

Sotheby’s released a statement saying: “In light of the current uncertainty in the global economy and volatility in the financial markets, we expect to continue to substantially reduce the use of auction guarantees until stability is restored.”

The guarantee system, which allowed them to compete against each other for consignments at multi-million pound levels, effectively excluded any other players from operating at the same level.

Bonhams have criticised of the guarantee system and have not taken part in it.

Having issued $450m of guarantees in 2006 and $902m worth in 2007, in the spring last year Sotheby’s anticipated potential problems of overexposure and announced that the maximum level of guarantees at any one time had been reduced from $500m to $350m. By November they had reduced that overall exposure on guarantees to $114m.

Christie’s do not publish such figures, but it is highly likely that the two auction houses are not far apart on policy.

The changes mean that there will now be only one guaranteed work at the upcoming February flagship contemporary art sales in London being held by Sotheby’s, Christie’s and Phillips de Pury. These sales will all be much smaller events this year in terms of number of lots.

Estimates have also clearly been revised to reflect the times, and reports are that vendors have more realistic expectations. The collective low estimate for the entire contemporary series is under £40m, less than a quarter of what it was for the equivalent sales last year.

Sotheby’s 27-lot contemporary art evening sale on February 5 will have the one guaranteed lot, a Bridget Riley (b.1931) acrylic estimated at £600,000-800,000, while Christie’s 31-lot contemporary evening sale on February 11 has no guarantees although there will be two lots in which the auctioneers have “an ownership interest”.

Phillips de Pury, who were bought by Russia’s largest luxury retail company Mercury Group in October, made a decision to eliminate guarantees after the sales last autumn.

Chairman Simon de Pury said in a statement: “We took the decision earlier last year to do away with giving guarantees for works… We are now making informed choices with our new partners about the current market based on this strategy.”

Although Phillips’ sales have been the hardest hit by the downturn, a spokesman for the company said that they are “not announcing any major cuts in staff” at the moment.

Behind the scenes, Sotheby’s, Christie’s and Bonhams are reviewing their businesses in light of the changing market. All are expected to cut their workforces, but, with negotiations ongoing, official comments from them are still awaited.

Meanwhile Phillips reported a turnover of $247m (£177m) for their contemporary art auctions in 2008, down on the $255m (£134m) from 2007, but with a ten per cent rise in their contemporary art sales in London.

Phillips also stated that the goal of the new ownership was to expand into areas such as The Middle East, Asia and Russia. This has already resulted in the establishment of an office in Dubai which will be run by their newly appointed Middle East director Sheika Lulu al-Sabah.

By Alex Capon