Welcome to Wall Power. I’m Marion Maneker—and when I’m not at an auction preview or art fair this week, I’m combing through the data to try and predict what’s going to happen next week during the May sales in New York. If you are a Wall Power SMS subscriber, text me and I’ll suggest some highlights you might want to check out. Speaking of which…

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Of course, if you want to understand what’s really going on during the May sales, you’ll have to do more than simply view all the art up for bid. You’ll also need to know which works have been guaranteed and whether that third-party guarantor has provided what Sotheby’s calls an irrevocable bid. This season, there are hundreds of millions of dollars in art backed by third-party guarantors. We’ll get into all of that in a moment.

• Gagosian goss: I just got wind of a private exhibition that Larry Gagosian is opening later this week to V.I.P. clients by appointment only. His gallery’s flagship space in Chelsea will be taken over by a show of major works from Jean-Michel Basquiat, David Hockney, Jasper Johns, Donald Judd, Gerard Richter, Mark Rothko, Frank Stella, Cy Twombly, and Andy Warhol.
• Frank Stella paintings in the May sales: Frank Stella, who achieved remarkable success quite early in his career, died over the weekend at age 87. His work often features in the evening auctions, but this year all three of the top houses happened to have a Stella in their evening sales. At Sotheby’s, there’s the great 1964 work Ifafa I, estimated at $14 million. Christie’s has a concentric squares painting from 1974 for $6 million, while Phillips has another from the same year titled Lettre sur les sourds et muets II that has a $5 million estimate.
• Lee Krasner gets the drama treatment: Pushkin Industries, the podcast company founded by Jacob Weisberg and Malcolm Gladwell, did very well with Death of an Artist, which recounts the story of Cuba-born artist Ana Mendieta, who died under questionable circumstances in 1985 after a fight with her husband, artist Carl Andre, who died earlier this year. That story has long been a feminist touchpoint, and Helen Molesworth’s narration helped broaden interest in Mendieta’s work. This season we’ll see some of the first auction attention for Mendieta as Rosa de la Cruz’s collection is sold at Christie’s.

  Following up on the first-season success of Death of an Artist, Pushkin is now trying to bring some true crime breathlessness to the story of Lee Krasner and Jackson Pollock. Krasner and Pollock had their own tortured relationship. Pollock was a miserable drunk and a boor—even if he was a peerless artistic talent. Hosted by Katy Hessel—author of The History of Art Without Men—Death of an Artist: Krasner & Pollock debuts on May 10.

  Unfortunately, however, the story seems to have gotten the wrong end of its dramatic device. Krasner deserves enormous credit for two very different accomplishments. First, she guided the hapless savant’s career despite his self-destructive tendencies. Second, she is herself an important painter worthy of attention. The show simultaneously wants to give Krasner credit for making Pollock a posthumous world-historical figure, but also carve out a space to address her own worthy place in art history. If you don’t know the Krasner-Pollock story and don’t want to read any of the several biographies, the podcast isn’t the worst place to start. But you will have to wade through the radio-play melodrama.

Meanwhile, discretionary sellers have little incentive to offer their works into an uncertain marketplace. And that’s where a little financial engineering comes in. After all, auction houses use their market expertise to make money for clients while managing their own risk profiles, too. The essential tool for creating enticing markets while managing downsides is known as the auction guarantee—especially the third-party guarantee, or the “irrevocable bid,” as it’s known at Sotheby’s. These are the houses’ attempts to lock in a buyer at a floor price, which could either smooth the path of a work to the block—or lure a higher bidder out of the woodwork.

There is $1.25 billion in presale value coming up for action next week. That breaks down to $575 million at Christie’s, $548 million at Sotheby’s, and $112 million at Phillips. Of that presale value, about $364 million is covered by third-party guarantees. Christie’s has secured $162 million in guarantees on 31 different lots. In other words, 28 percent of the auction value is already sold—but that doesn’t mean someone can’t come in and bid more. At Sotheby’s, $147.3 million of auction value—or 27 percent, spread across 28 lots—is already covered. It’s a marvel that both houses have such similar risk profiles without ever speaking to each other or coordinating in any way.

Even the much smaller Phillips, which is populated by former employees of both of the other houses, has been able to cover eight lots with third-party bids for $54.7 million of the $112 million in presale value—a staggering 49 percent in third-party guarantees. (Phillips’ percentage is much higher since their day sales don’t go as deep into 19th and 20th century property.)

And these are only the early guarantees. The next week will be filled with potential buyers jockeying to get their irrevocable bids accepted while anxious sellers try to decide whether to take money in hand or hold out for potential saleroom action.

Unfortunately, when the market abruptly shut down in the fall of 2008, Sotheby’s tried to rein in its guarantee book. Sure, there were mini-blips—oil-rich Russians and Gulf State buyers were driving the market in those days, and Damien Hirst held an astonishing direct auction that made $200 million on the day Lehman collapsed. By November, however, the auctions would be described by Eli Broad as a half-off sale. Sotheby’s was left with a $50 million loss from all of the discounting, and in 2009, the publicly traded auction house almost went out of business.

In the fallow years after the financial markets seized up, the auction houses took a previously little-known tool, the third-party guarantee, and turn it into an auction way of life. Much like the investment banker’s “go shop” period, the irrevocable bid has created a system where we often see private sales conducted in public, since it allows sellers to agree to an acceptable price for their art but still hold out for more. It just costs them some of the upside.

In a raging market, an irrevocable bid can scare off potential bidders who already see an ambitious estimate and wonder why they should waste the time and energy pursuing a work. But in down times, the irrevocable bid can be a powerful market signal for an auctioner. During the previews over the weekend, one auction house macher told me that he loves irrevocable bids. “I’ll take them all day long,” he said. “If I tell someone the estimate and they scoff at the price, I don’t have to make a big deal. I just say, ‘Look, I already have that price. It’s going to sell. If you don’t want to bid, it doesn’t matter to me.’”

Zuckerman, who now advises collectors and institutions through his firm, Art Market Advisors, was in a quandary. He trusted Meyer, but his job was to be nervous. He needed to verify that hunch and mitigate the risk involved.

In those days, auction houses regularly tolerated much lower sell-through rates. If an auction sold at above 75 percent, it was a success. Selling 80+ percent of the lots was a blowout. (The 90 percent sell-through rates we’ve seen in the past few years were viewed as a sign that the specialists hadn’t secured enough property.) For works that did not sell—that got “bought in,” in industry parlance—consignors would frequently receive an offer from a dealer right after the auction. In fact, it was common to see dealers make a beeline for the back room after the last rap of the hammer.

To cut down on the traffic, Zuckerman had been writing occasional contracts with dealers and collectors that acted as put options for the buyers, who agreed to pay a price at or below the estimate for a work if it failed to get bids above the reserve price. In other words, Zuckerman arranged a back-up deal that protected Sotheby’s from having too great a loss if a guaranteed work didn’t sell. But these contracts weren’t for sculptures priced at $3 million. If Sotheby’s was going to guarantee a Koons, Zuckerman wanted the house to get the public credit for the sale.

Usually in this situation, Zuckerman would ask his specialists for comparable works that might justify the guarantee (and the estimate). But there was no comp for a $3 million Koons. So Zuckerman called a collector he knew who was interested in Koons and asked what he thought about $3 million for Michael Jackson and Bubbles. The answer he got: “I’d buy it at that price.”

That assurance was great. But Zuckerman couldn’t just take a potential bidder’s word that he would show up on the day of. He needed to lock in the deal, and he didn’t want to sell the normal put option on the work if it failed, because that would make Sotheby’s look bad. So Zuckerman took one of Sotheby’s absentee bidding forms—which could be revoked up until the sale began—and penned “irrevocable” in front of the word “bid.” In a separate letter, he offered the buyer an enticing deal. If the bidder won the lot, he would pay only a portion of the buyer’s premium; but if he were outbid, the buyer would still benefit by receiving some of the overage. In other words, Zuckerman decided he was willing to part with some of Sotheby’s upside to lock in a deal preventing a loss. Thus, the third-party guarantee was born.

As it turned out, Meyer was right: The Koons sold for $5.6 million, with fees. Manilow made money; the holder of the irrevocable bid made money; Sotheby’s made money—and got all the credit. From Pollock to Koons, a Strong Sale at Sotheby’s screaming the Times headline.

It’s important to remember that all of this guarantee activity is purely market-dependent. Everyone has a different risk appetite. To give a final example, that I.B.-loving auction house macher wasn’t being entirely honest. As we strolled through the preview, I asked about one prominent work priced in the mid- to high-seven figures, just the kind of work you might want to de-risk in an unstable market environment. I stopped in front of the painting. After we had both admired its wall power—yes, that’s a thing—I asked about the direct guarantee.

Surely he was looking to lay off the risk on such a pricey work of art. He stuck out his chin, waggled it a bit and said, “No, I’m not worried about this one.” He then rattled off all the reasons the estimate was low and demand was deep. On this particular work, greed was overcoming fear, and the auctioneer was willing to roll the dice and, he hopes, reap the profits.