The $31 Million Patek – does the math add up?

“All things are subject to interpretation. Whichever interpretation prevails at a given time is a function of power and not truth.”

– Friedrich Nietzsche

The Only Watch auction this past weekend sent shock waves through the watchmaking industry, creating headlines not just in watch journalism, but across international news. The Patek Philippe Grandmaster Chime Ref. 6300A soared to new heights, becoming the world’s most expensive watch ever. The piece sold for a hammer price of CHF 31,000,000 (~US$31,100,000), shattering the previous record of CHF 23,200,000 (~US$24,000,000) hammered for the Patek Philippe Henry Graves Supercomplication.

Scrolling through comments online, many ask, “how can a watch fetch that much money?” Watch journalists and industry experts tend to answer this question by focusing on how the watch is an incredible, one-of-a-kind steel piece. To non-watch enthusiasts, this could be an extremely confounding economic answer as steel is a non-precious metal. Some will argue that the charity aspect of Only Watch played a major role. Others will point to the extreme degree of engineering and craftsmanship required to produce such mechanical artistry. Yet, quick, back-of-the-envelope calculations reveal that the return on investment factoring in R&D, materials, and labor would make most early investors in Google envious. So what’s the deal? How do we account for such soaring prices? The answer is the format of auctions.

“[Auctions] are rarefied entertainments where speculation, spin, and trophy hunting merge as an insular caste enacts a highly structure ritual in which the codes of consumption and peerage are manipulated in plain sight.”

— Jerry Saltz, Art Critic

Don Thompson’s book published in 2008, The $12 Million Dollar Stuffed Shark: The Curious Economics of Contemporary Art, provides some timely insight into auction psychology and sky-high hammer prices. As he shows in his book, you really need to understand who’s involved and how it works to truly grasp what’s happening.

An auctioneer carries an extremely central role in creating record-shattering purchases. Part choreographer, part astoundingly good salesman, the auctioneer reads the body language of the room, causing excitement when emotion lulls or creating a personal connection (speaking to a bidder directly by name) when vying for higher bids.

In the audience, there’s a range of members including public and private institutional buyers, individual collectors, young newcomers. The audience possesses a variety of different motivations as well as budgets. An individual’s behavior at an auction says a lot about those underlying motivations— newcomers may try to bolster their nascent reputation with aggressive public bidding while participants in an escalating bidding war fight against waking up the next day with regret. With the chess board set for each lot, the bidding begins:

“Ego considerations drive the bidding for many lots. The assumption that the auction process produces fair value for a [watch] through interacting bids from many potential buyers is simply wrong. From the moment that two people want to possess the same thing, the auctioneer’s role is to play these buyers off against each other, to encourage each other to not back down.”

— Don Thompson

This is the real answer for how we account for such soaring prices. It feels uncomfortable to say, almost like the admission of someone else’s secret. Maybe that’s why the industry’s journalists and experts don’t talk about it. But the truth, that the auction format and ego plays a major role in prices, is neither a critique nor an attempt to denigrate the value of the Grandmaster Chime Ref. 6300A. It just is what it is— it’s the honest answer.

Taking a step back, I’d like to suggest that the same rationalizing force that leads most of the watch industry to explain auction prices as “fair value” also sustains the narrative rationalizing secondary market prices. We’re continuously told that these prices are a function of wild, never-before-seen demand. Yet, at least with Rolex, there seems to be unprecedented levels of scarcity in the inventories of authorized dealers worldwide. The math just doesn’t add up, at least for the Rolex story.

In the watchmaking world, my sense is that there is a lot lurking beneath the surface, where our attention is not paid. Much like auctions, if we focus too much on the prices, we lose sight of how important the process and format are in producing said prices. I think it’s time we all collectively take a step back and finally dig beneath the surface.

Keep on keeping on,

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