Cruise Ship Art Auction Controversy (part 2)

| July 18, 2008

The Controversy This controversy began when a number of people contacted, unsolicited by the web site, to ask about their cruise ship art auction purchases. Many cruisers had spent $30,000, some spent $75,000 or even more, on just one cruise. In most cases, they soon discovered they had no idea what they were buying on the ship, and instead had relied solely on the advice of the onboard auctioneers. A big mistake in some cases, it turns out.

Once these people had time to research their newly acquired treasures, many found all that glitters is not gold. Many pieces they bought, according to online posts in FAR and other sites on the Web, were not as unique or valuable as they thought. In some cases they had paid 10 times or more what the piece would sell for on land today.

Their descriptions of the onboard auction process were often very similar. The auction began with free champagne, they bid and only saw the total price they were expected to pay after the bidding was over. In other cases, the sales process took several days with the auctioneer inviting the guests to "private showings" in order to reinforce the idea of owning something you not only could love, but would also increase in value as time goes on. A work of art that loves you back, and for shop-aholics a guilt-free way to spend tons of money!

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After receiving so many queries, FAR investigated the way these Park West cruise auctions are conducted and soon documented what they believe are several procedural problems. According to FAR, Park West runs their cruise ship auctions in a manner that would never be considered legitimate in other land-based auction houses, such as Christie's or Sotheby's.

What differences between these cruise ship auctions and standard art auctions did FAR bring forth? Here is a synopsis below while exact details are in the FineArtRegistry article.

  1. Cruise ship auctions do not provide a detailed auction catalog with sufficient documentation about the pieces before the auction begins. Some of the artwork is on display, but there are no price estimates, documents of authenticity, appraisal figures or any other information provided to help the buyer identify and research the artworks before the auction begins.
  2. There is no preview of the contract of sale. Buyers only see the contract after the auction has been concluded and the time comes to settle the bids.
  3. The artwork is not consigned. In most art auctions the company conducting the auction does not also own the artwork for sale. If they have any financial interest in the pieces, that must be disclosed according to most state laws.
  4. Except in a small minority of selections, the specific artwork on display and receiving bids is not the actual piece being sold. In fact, the piece for sale is not even on the ship. Park West only guarantees the buyer will receive a reasonable facsimile of the piece on which they are bidding! In most cases the purchased piece will be pulled from stock at the Park West galleries and shipped to them when the cruise is over. According to FineArtRegistry, this practice violates the Uniform Commercial Code (U.C.C. 2-328).
  5. The auctioneer is not licensed as is required in most U.S. States. They are also independent contractors, which limits the liability of Park West.
  6. A certified, independent appraiser does not do the official appraisal for the pieces. The owner of Park West, Albert Scaglione, does them. While there are several certified art appraisers in the world, as well as books one can easily consult to see the approximate value of a given piece. Park West, which purports to be the largest art dealer in the world, does not use these sources. The owner, an engineer by trade, signs the appraisals. A NY Times article of July 16, 2008 compares this to a homeowner appraising his house as "It's worth $50 million, because I say so."
  7. People who sign up to participate in the auction are given a form that is actually a credit card application form. If they "win" a piece Park West puts the charge on the credit card instead of invoicing them. This credit card motivates the buyer to spend more, as it comes with a 5-figure limit and no interest charges for a year, but the buyer doesn't see the total costs until they get the credit card bill or the artwork arrives with an invoice.
  8. There are several charges added to the invoice which buyers are not made readily aware of during the auction (these are listed below).
  9. Many auctioneers misrepresent the value and investment quality of the art for sale. They refer to the pieces as highly collectable, bound to increase in value, and that it is being auctioned at a discount to the going price which can only be done because "they are at sea."

Additional charges; In one actual invoice on the FAR Web site we see

  • The Hammer Price (the bid amount from the actual auction)
  • The Buyers Premium (on each piece 15% of the hammer price. A $10,000 painting is $1500 - we don't know what this charge is)
  • The Appraisal Fee ($30 for the first piece, $15 for each piece, including "free" ones)
  • A shipping and handling fee for each piece ($60 per piece even for the "free" pieces which arrive rolled up - not framed.)
  • Framing Fees (average $150 per piece).
  • Sales tax on the total of all the above
  • An "in-transit" Handling Fee of $70+ added to the final total.

In this one invoice, the cost of the artwork "hammer price" was $7020, but the total invoice after added charges was an astounding $8344.51. In total, $1324.51 in added charges.

This is enough to make one think twice about shipboard art auctions, but it is just the beginning of many problems FineArtRegistry (FAR) says it has found. The articles on the site claim far more egregious problems that we go into below.

Caveat Emptor or "buyer beware" is definitely the operative phrase with Park West auctions according the CEO of FineArtsRegistry, Teri Franks. "Any knowledgeable art buyer would be appalled," she says.

In fact, class action lawsuits have been filed in California and Florida on behalf of cruise ship art buyers, although a similar class action suit in New Jersey was dismissed before it got started a few years ago. Cited were problems with inconsistent damages for different buyers and jurisdiction issues as the auctions were conducted outside the United States.

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The Actual Auction

I have personally attended art auctions on several ships, though I have never purchased anything. Here is a rundown on what I have seen along with information I read online in first-person accounts by people who purchased at these auctions.

The auctions start with free champagne offered to the entire audience. Those who wish to bid must fill out a form that asks a great deal of personal information such as home address, estimated income, etc. This is the credit card application from GE finance. No one can bid without completing this paperwork.

The auctioneer mumbles through the rules of the auction in a manner resembling the "world's fastest talking man."

Here is a video of a real Park West cruise ship auctioneer. At first I thought the sound was bad, but then I realized he is perfectly legible when he wants to be heard. The auctioneer is supposed to be reading the rules, but he skips right over some of them.

One of the rules that the auctioneer mumbles through is that Park West reserves the right to accept "shill bids." For those who are unaware, "shill" bids are previously arranged by the auction house and often used as "minimum" bids to get the ball rolling. According to posts left on message boards online, regular guests are asked before the auction to act as shill bidders during the bid process. They are rewarded with a gift, which ultimately may be delivered with an appraisal, taxes, shipping and handling fees -- about $100 total for an unframed poster in a rolled up tube. I saw people in the audience making bids for pieces while the auctioneer's assistant sat next them telling them when and how much to bid.

But what I did not know is that these could also be pre-arranged bids. Park West also allows guests to negotiate a price before the auction with the auctioneer. When he hears that bid the hammer goes down quickly.

Some states recognize the right of a seller to bid on his own piece if he does not feel the price is high enough, but it turns out Park West sets the opening price so high there is no reason to fear losing money. FAR estimates that the opening price for many pieces in cruise ship auctions is about 10 times the actual value the piece would receive in a land-based gallery on the same day.

Why the shill bids, then? It does make it more interesting and keep the crowd alive. But even though it is legal I personally wouldn't participate in any auction where I know I am bidding against the house.

The first painting is typically sold very quickly, often for an outrageous sum. The first painting of my auction fetched $12,450. However, I have no way of knowing if that is a real bid or not. Someone did shout out a bid for the piece, but reading off a "fake" bidding number and hitting the hammer as if it is a "final sale" makes it a shill bid.

The goal with the first painting is to show people how the auction works. As it turns out, this hammer action is not just for show, it is an integral part of the sale process where the contract sale price is set. I decided to follow the assistant and position myself on the opposite side of a bidder. Sure enough, that guest made a bid on the next painting. The assistant was definitely telling her when to make her move, and right after said "good job." That was when I snapped this picture:

The assistant told me right then that I was no longer allowed to take pictures of the auction. I didn't bother to ask her why not.

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Continue Article >> The Story Gets Deeper (Part 3)

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