Confession: I’ve arrived at a point in my horological journey where every time I read a Phillips watch auction catalogue, a Britney Spears song starts to play – on repeat – in my mind. It would be more accurate to say I hear a riff on one of her songs, and it goes “Oops, they did it again!” However, events surrounding Phillips’ watch auctions are definitely not accidental, so forget the “oops.”
Time and again, Phillips’ senior consultants Aurel Bacs and Livia Russo, alongside their global team, manage to cull multiple outstanding timepieces from some of the most important collections around the globe and present them for sale to the watch-buying public. Particularly noteworthy are the “cover lots” consignors entrust to them, which stir the passions and draw the attention of innumerable enthusiasts and buyers. Once the hammer falls it almost always signifies headline-grabbing, record-breaking results
Session one of the 2021 New York Watch Auction on December 11 was the same, but also different. The exact process that played out is hard to determine, but there are some facts that nobody would deny.
Patek Philippe Nautilus Reference 5711/1A-018, double signed “Tiffany & Co”
When Bacs stepped to the podium in New York City on Saturday, December 11, he announced that 20 days earlier Phillips agreed to auction a timepiece consigned by a non-profit called The Nature Conservancy. The watch was the just-announced Patek Philippe Nautilus Reference 5711/1A-018 in steel, double signed “Tiffany & Co.” The dial is presented in a “Tiffany Blue” colorway. My personal nickname for this watch is the “Nauti Tiffy.”
Patek Philippe CEO Thierry Stern has announced that the Nautilus is on its way out of the company’s catalogue. Many speculate that the 170 examples – one for each year of Tiffany’s existence – of the Nauti Tiffy are a swan song for the decades-old Gérald Genta design. What’s interesting is that the auction sale of the Nauti Tiffy example consigned by The Nature Conservancy was perfectly choreographed with the release of the same watch through retail channels. I’ve noted on my blog Horolonomics that this is part of a developing pattern in which a brand auctions one example of a particularly novel watch design upon its world debut.
The first example of this that I’m aware of took place earlier in 2021, when Audemars Piguet auctioned a special version of its new Black Panther Royal Oak Concept during a YouTube livestream featuring a cavalcade of stars in April 2021. That piece unique sold for over $5 million. After the auction, the “standard” Black Panther Royal Oak was sold at a six-figure retail price.
I wasn’t certain how the Nauti Tiffy auction would play out given that the watch was new to market in so many ways. As time passed, though, it became clear that the rapt attention of the watch community was focused upon this auction lot.
I had a chance to see the watch in the metal at Phillips’ New York location on an evening earlier in the auction week. As I made my way through the crowd, I recognized several prominent watch journalists and collectors. In conversations about the auction, I would periodically figure out the Instagram handle of the person I was talking with and think to myself, “Oh yeah, their account is awesome!” Enthusiasts were definitely enthusiastic about checking out the Nauti Tiffy.
When I pulled up the livestream of the auction on Saturday morning, a curious note greeted me even before the auction began: lot 1T, the Nauti Tiffy lot, was on screen with text indicating that an opening bid of $4.2 million would lead things off. At that point, any residual doubts about the desirability of this timepiece were extinguished. Curiously, the bidding did not begin at that value, but Bacs got there eventually.
Inevitably, the number of bidders dwindled as the bids increased in astonishing increments. Ultimately, only one bidder remained. Identified as an online buyer from New York, the hammer fell at a price of $5.35 million. The buyer’s premium on the sale was an additional $1.153 million. Phillips will donate this sum to The Nature Conservancy.
Curious about New York state sales tax on the purchase? An additional $475,000 (approximately), although there is some possibility the buyer may not have to pay this under New York law.
Wider implications of the sale of the Patek Philippe Nautilus Reference 5711/1A-018
First, an environmental charity holding a Charity Navigator rating of 93/100 for accountability and transparency will receive a very sizeable donation. In fact, this single watch sale represented 8.5 percent of The Nature Conservatory’s reported total cash on hand in 2020. That is a fairly stunning result, and I think we can agree our environment needs every bit of help it can get.
Second, the buyer will almost certainly end up paying less than $5.35 million, or even the $6.5 million with buyer premium that will be widely reported in the press. We will likely never know exactly how much this buyer pays once we consider the tax implications. From the U.S. Internal Revenue Service (IRS): “Donors who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value. The donor must be able to show, however, that he or she knew that the value of the item was less than the amount paid.”
For example, an American buyer in the top tax bracket can quite likely deduct 37 percent of a significant portion of this purchase from their taxes. That deduction could be worth roughly $1.98 million to the buyer, yielding a net cost of approximately $4.5 million.
This is still a dear sum of money. The retail price of the Nauti Tiffy is approximately $53,000. Even after the tax deduction, the buyer paid nearly 85 times the retail price of this watch. An analogy would be paying $425 for a $5 Starbucks coffee.
At this point, the head scratching begins. Just before the Phillips auction, grey market dealer Jomashop listed a Nauti Tiffy for sale at a price of $2.5 million. It was still available at this price soon after the hammer dropped at Phillips. This is one of the more bizarre scenarios that I have witnessed when it comes to the watch market. We know there was at least one underbidder at a price of $5 million, raising the specter that an intermediary could buy the Nauti Tiffy from Jomashop, sell it to the underbidder for $5 million, and pocket a cool $2.5 million. The plot has definitely thickened.
But wait, there’s more! We know that brands like Patek Philippe are not fond of flipping, the scenario where someone buys a watch at retail and then quickly resells it at the going rate on the secondary market. I have made the point on my blog that flipping is the consequence of a retail price that is too low and the fact that the watches are not going to those who value them the most.
For example, in the case of the Nauti Tiffy that sold at Phillips, we know that the retail price was roughly 85 times lower than someone in the world was willing to pay (at least willing to pay when a particular charity was involved). In an alternative universe where the auction didn’t take place, if the winning bidder had not received an allocation, they would have very easily convinced someone else to sell them their Nauti Tiffy for the price of $4.5 million. At least one flip would have happened.
I do not believe this mispricing of luxury watches will persist. Patek Philippe, and a number of other brands, are simply leaving too much money on the table. For example, suppose that Patek Philippe sold the run of 170 Nauti Tiffys to Tiffany’s for $26,500, or half the retail price (this would allow Tiffany’s to also profit on the watch at the retail price). That means Patek Philippe’s total revenue from the run of 170 watches would have been approximately $4.5 million, or roughly the price paid for that single Nauti Tiffy at Phillips today (after we deduct the buyer’s tax benefit).
It is certainly generous to leave that kind of money on the table when selling watches, but I just don’t know how long a brand will be willing to forego so much revenue.
If the market fundamentals of the luxury watch industry remain unchanged, I think it will become increasingly likely that there will be a seismic shift in some direction. If allocations were sold at auction instead of at a fixed retail price that is too low, brands would earn more revenue and flipping would subside.
I don’t know if there is any brand with the will to resist moving in that direction. While radically higher prices for timepieces from Patek Philippe, Audemars Piguet, or others may seem untenable, when you compare today’s prices from the “holy trinity” to those charged by brands like Richard Mille or Jacob & Co, they begin to seem more credible.
The other possibility is that the market fundamentals do change, and buyers become unwilling to pay six- or seven-figure prices for luxury watches. It is certainly worth looking for signs that this is coming, but I for one have not seen any yet.
One thing is clear: 2022 will likely be a very interesting year for the luxury watch industry.
Quick Facts Patek Philippe Nautilus Reference 5711/1A-014
Case: 40 x 8.3 mm, stainless steel
Movement: automatic Caliber 26-330 S C, 28,800 vph/4 Hz frequency; 35-45-hour power reserve, Gyromax balance, Spiromax balance spring, Patek Philippe Seal
Functions: hours, minutes, seconds; date
Limitation: 170 pieces
Retail price: approx. $53,000
Auction estimate: “in excess of $50,000”
Auction price realized incl. buyer’s premium: $6,503,500
Brendan M. Cunningham, PhD has a forthcoming book on the history of Rolex. You can learn more by visiting www.sellingthecrown.com and sign up for email updates on the project.