Annual sales of contemporary art at Sotheby’s and Christie’s International’s flagship auctions in New York and London contracted 17 percent in 2008 after more than doubling over the previous two years, according to figures compiled by Bloomberg News.

The world’s two largest auction houses took a combined total of just below $2 billion with fees at their regular series of mixed-owner sales in New York and London this year. In 2007, the same group of auctions achieved a record $2.4 billion. In 2006 they raised $1.1 billion.

Worldwide auction sales of contemporary art grew by more than eight-fold from 2003 to 2007, according to the French-based database Artprice. Auctions have started missing presale totals as collectors watching the financial crisis balk at prices.

“Next year’s going to be very tricky,” said Philip Hoffman, chief executive of the London-based Fine Art Fund, in a telephone interview. “People aren’t going to put things up for sale. Volumes at auction could be 30 or 40 percent down on this year. It’s going to hit the auction houses badly,” said Hoffman, who worked at Christie’s during the last major art-market recession in the early 1990s.

The deepening international economic crisis caused demand to slump in the last quarter of 2008. In November, Sotheby’s and Christie’s evening auctions in New York, consisting of contemporary works entered by sellers during the summer, raised $125.1 million and $113.6 million respectively with fees, below their presale lower estimates. Almost a third of lots failed to sell at both houses. The equivalent sales in 2007 made $315.9 million and $325 million.

Philips’s Sales

The $9.6 million achieved by Phillips de Pury -- recently acquired by Russian luxury retail giant, Mercury Group -- was less than a quarter of the $42.3 million the auction house took in November 2007.

Phillips said in an end-of-year statement e-mailed on Nov. 24 that it had entered into the fall auction season in London and New York with a decision to eliminate guarantees for works. Although a substantial portion of works remained unsold, no debt had been incurred to the company, it said.

“It was our decision taken earlier in the year to do away with giving guarantees for works,” said Simon de Pury, company chairman, in the statement. “That decision has paid off. We are now making informed choices with our new partners about the current market based on this strategy.”

Demand Outlook

Dallas-based collector Howard Rachofsky said he expected demand to be “spotty” in 2009.

“There’s been a lot of speculative money around and a lot of product,” said Rachofsky, who will be contributing to a debate on the art market at the Museum of Modern Art, New York, on Dec. 13.

“For fresh wonderful things by major artists, no price will be too high,” said Rachofsky in a telephone interview. “We’ll have to wait until May in New York to see what a not-great Rothko is worth.”

Sotheby’s said in a U.S. Securities and Exchange Commission filing on Nov. 14 that it lost an additional $10.6 million from guarantees for its contemporary-art auction that week, bringing its total of guarantee-related losses in two months to $52.6 million.

Twelve guaranteed works with a combined low estimate of $48 million failed to sell at Christie’s auction in New York on Nov. 12. Both houses, like Phillips, have said they will no longer be offering minimum prices to sellers.

“It’s going to be difficult to get top quality material without guarantees,” said Brett Gorvy, Christie’s co-head of contemporary art. “But there are going to be more people selling who need to sell. From now on estates and distressed sales will be the driving force of the auction market.”

Frieze Week

Gorvy, speaking in a telephone interview, said that Christie’s may scrap its third evening auction in London, held in October during the week of the Frieze Art Fair.

Christie’s “Frieze Week” auction on Oct. 19 found buyers for only 55 percent of the lots. It totaled 32 million pounds ($55.3 million) with fees against a presale low estimate of 57 million pounds. Sotheby’s contemporary auction the previous evening made 22 million pounds against a low estimate of 30.6 million pounds.

‘Distressed Material’

“It doesn’t make sense to stretch the material too thin,” Gorvy said. “We’re aiming to restore confidence in the market by holding auctions with 80 percent selling rates. But it depends on how much distressed material comes in.”

Overall in 2008, Sotheby’s and Christie’s mixed-owner auctions of contemporary art in London in February, June/July and October raised 508 million pounds with fees, an 11 percent increase on 2007. The New York auctions take place in May and November each year.

These figures do not include Sotheby’s 111.5 million-pound Damien Hirst sale in September. When approached by Bloomberg News, Sotheby’s was not able to provide anyone to comment for this article.

Sotheby’s and Christie’s equivalent auctions in New York in May and November 2008 totaled $1.2 billion, 40 percent down on last year.

“The art market isn’t as bad as it was in the early 1990s, but the economy is worse,” said Hoffman. “Contemporary art is so much more fashionable than it was then. The market will sustain at a certain level.”

Totals from London auctions have been converted throughout to U.S. dollars using the Bloomberg News exchange rate as of Nov. 24, 2008.

Sotheby’s last night said that its board approved job cuts that will reduce salaries and other related costs by $7 million in 2009.