IN 1989, when William Sokolin famously broke a purported bottle of 1787 Chateau Margaux previously owned by Thomas Jefferson—a fake it turned out, he did more than break a potentially valuable bottle of wine. He also probably broke the law.
Sokolin had taken the bottle on consignment from an English merchant and was trying to sell it in New York. In 1989, however, it was still illegal to sell wine in New York on consignment. It was also illegal to sell wine at auction. A secondary market existed, but it was a shadowy world of sales among collectors, all illegal. Auction sales finally became legal in New York in 1993, and the first sale was held in 1994.
Fast forward thirteen years. In 2007 there were five auction houses in New York alone that sold in total almost $150 million of wine. With impressive growth New York began outselling London, the previous center of the auction wine trade, in 1999. From that year on the U.S. dominated the global wine auction market, until 2010 that is. In 2008 Hong Kong lifted its 40% import tax on wine, and its auction market exploded. Within one year Asian wine auction totals had surpassed Europe’s, and in two years they surpassed those of the U.S. The global market readjusted starting in 2013, with the U.S. regaining the primary spot and Asia receding to second place, albeit by a wide margin over Europe.
The wine auction market is, evidently, demonstrably young and subject to rapid changes. Globally the market almost tripled in total revenue from 2005 to 2011, and it has declined 30% since that peak. The period of great growth between 2005 and 2011 was led primarily by Bordeaux, both in the volume of wines coming to market and the prices realized. This situation changed dramatically in 2011. Bordeaux underwent a market correction following a period of intense Asian interest, with 2012 prices auction prices of some wines reaching six year lows. This year also marked the ascendancy of Burgundy, which began to capture the imaginations and bids of collectors. While Bordeaux has spent the past four years struggling to regain its prior stature and pricing, Burgundy has gathered strength and produced record prices each year.
While this makes for interesting observation, the uncertainty is whether these are buying or selling opportunities. You could sell Burgundy now, reasoning that the record prices cannot be sustained, but then had you applied that analysis and sold in 2014 you would have missed out on additional appreciation. Similarly, the relative softness of Bordeaux could be seen as an opportunity. Based on previous auction demand Bordeaux has been undervalued since the 2011 correction, unless, that is, the 2010 prices were a phenomenon not likely to reoccur any time soon. What is certain, however, is that the development of the global wine auction market is vibrant and dramatic and that a wise investor will maintain a careful and critical eye.