Luxury watch prices have been on the rise for a number of years now, but it seems that every single auction season, there is some “record breaking” result, where a timepiece sells for some ungodly amount of money. While everything has a tendency to get more expensive over time due to inflation, the specific format of a traditional auction does not lend itself to yielding results that are actually representative of the values of the timepieces sold at them.
Record-breaking prices are always exciting for collectors and enthusiasts, but when it comes to establishing the true value of a timepiece, there are a number of different problems with luxury watch auctions.
A Skewed Perception of Value
In economics, the price of an item is the amount of money that has to be paid to acquire it, and on the open market, the total quantity of examples available influences its equilibrium price. For example, no person in their right mind would ever pay $100 for a bottle of water because there are millions of bottles available for sale and this helps keep prices low.
However, should you find yourself at a concert or music festival, you might be inclined to pay exponentially more for that same bottle of water, simply because you are already at the venue and there aren’t any other vendors selling them at a cheaper price. Now, imagine you are at that same concert or festival and there is only one bottle of water that will be sold to the highest bidder… How much would you pay for it then?
This example is a bit extreme, but you can easily see how the auction environment promotes atypically high results that would not otherwise occur on the open market. In the same way that someone could easily get a less expensive bottle of water from any store outside the venue, there are often less expensive examples of most watches sold at auctions. However, as long as people can afford the premium, they are happy to pay for the convenience and justify the higher-than-market price by saying that it was all part of the greater experience.
Add to this the fact that the vast majority of luxury watch auctions will also have buyer’s premiums that further inflate their final sale prices by up to 25% (or more), and it becomes easy to see how sky-high prices can routinely be achieved by rather inauspicious watches.
Excitement, Ego, and the Power of an Audience
There are many different types of auctions, but the traditional format is live and in-person, with all of the potential bidders gathered in a single room. There is no time to look at comparable listings or even to “think about it overnight” - instead, there is a person standing behind a podium, often speaking rather quickly, and driving the excitement within the room as increasingly higher bids are placed.
In addition to the people actually bidding on the watches themselves, there can also be a crowd of other individuals present who are there to either document the auction or simply to observe it from an academic or enthusiast standpoint. What this means is that there is effectively an audience for the participating bidders, which adds fuel to the already competitive nature of an auction, where the person willing to spend the most money is deemed the winner. There will always be people who don’t want to “lose” or be out-bid in front of others, and this ultimately means higher sale prices for the auction houses.
We have all seen how some people will act differently simply because there is an audience present, and just because two guys decide to ego lift at the auction house instead of the gym one day, that should not establish a new “record-breaking” precedent for the value of a particular watch.
Image: European Watch Company
Unique Pieces and Exceptional Provenance
An entirely separate but related issue is how to value a one-of-a-kind watch, where there is quite literally only a single example that will ever exist. In the art world, many notable pieces are considered to be “priceless” simply because any value you tried to assign to them would be inaccurate or subject to significant change from one sale to the next. However, not all unique pieces can be considered priceless works of horology, and so an auction initially does seem like the most logical way of determining the value of a watch that truly has no point of reference other than itself.
With that in mind, a bidding war between incredibly affluent individuals (that is potentially also fueled by free wine and champagne) hardly seems like the proper way to accurately determine the true value of something. In support of this claim would be the massive delta that exists between the pre-sale estimates for many watches and the final sale prices achieved by them (again, including that obligatory 25% buyer’s premium).
Furthermore, there is also the issue of exceptional provenance, which can significantly increase the sale price of a watch without being indicative of the actual market value of it. Jack Nicklaus’s Rolex Day-Date sold for over a million dollars, and Paul Newman’s very own, Rolex “Paul Newman” Daytona famously fetched $17.8 million dollars at an auction in 2017; however, these figures must be considered outliers and not reflective of the actual market value of these watches. On top of that, should additional information about either of these famous Rolex owners come to light in the coming years, that would inevitably influence the value of their watches one way or the other should they ever be sold again.
At the end of the day, watch auctions are an important part of this industry and they provide a ton of excitement for collectors and enthusiasts each year. In many ways, they are easily the most fair way to determine who gets to take home the rare and coveted timepieces, but it’s always important to maintain perspective that their record-breaking prices are in no way representative of the actual values of the various watches that are sold at them.
Image: Professional Watches