Threshold Resistance (11 page)

Here's where serial vision came in. We didn't simply want to make existing auctions better. We wanted to change the nature of a hide-bound and inefficient business, and make it better. Without turning off our critical dealer customers, we wanted to add some competition in the salesroom. After all, just as was the case in our centers, Sotheby's primary responsibility was to the person selling the goods. It was our job to create the most vibrant and exciting market possible in which they could showcase their merchandise. Passionate individual buyers would drive higher auction results and make it more difficult for dealers to control the process.

To help develop larger numbers of individual buyers and strengthen Sotheby's identity as an approachable, knowledgeable resource for collectors and connoisseurs, we invested in several areas of the business that had long been neglected. Sotheby's International Realty, Sotheby's Appraisal Company, Sotheby's Restoration, Sotheby's Educational Programs, and Sotheby's Financial Services were all
given new leadership and support. It was in the area of financial services that we really ruffled some dusty feathers.

Art dealers historically had offered cash up front to sellers and extended terms to buyers. This was a tremendous advantage over the auction houses. Let's say your rich uncle Harry from Harrison left you a terrific sporting painting, a well-wrought tableau of hounds, horses, and hunters. While you are very proud of the piece, college tuition bills have just arrived, and you could use some cash. So you head into Manhattan to visit an art dealer specializing in sporting paintings and to visit Sotheby's.

In the old days, the inevitably charming dealer would inspect your painting (typically with enthusiasm and grace) and offer to buy it at a specific price. If the amount were agreeable to you, he would write you a check on the spot. And by the way, if you wanted to select something to replace the painting, the dealer would sell it to you on credit, allowing you to pay off the purchase over several years. (This is how I purchased much of the art in my early collection.)

Sotheby's, on the other hand, would inspect the painting (perhaps with a bit less enthusiasm and grace), estimate what it might fetch at auction, and suggest that you place the painting in the next sale of sporting paintings, which could be as far off as six months. Even though the estimated sale price at auction could be twice the amount offered by the dealer, the uncertainty and wait at Sotheby's were deal breakers. We set out to change the rules of the game, and level the playing field by introducing conservative financing policies to both sellers and buyers. Under the new rules, we would inspect Uncle Harry's painting (with better manners), estimate its value at auction, and offer to write you a check for up to 50 percent of that amount. After the sale, we would send you an additional check for the balance—which had the potential to be significantly larger than the first payment, especially if we were to succeed in drawing more individual buyers to the auction room. Since a dealer is going to mark
up the painting by 100 percent or more once he puts it in his window, our first check would probably be very close to the amount offered by the dealer. The second check would arrive from Sotheby's in a matter of months.

This tactic made us far more competitive in the quest for Uncle Harry's sporting painting. Dealers were forced to work a little harder and write larger checks, but we didn't see anything unfair about our financing policies. Another move we undertook to make the Sotheby's experience more customer-friendly was more controversial. Christie's and Sotheby's had a longstanding practice of extending credit to dealers. But as we were reimagining the auction business as a luxury retail business, Sotheby's decided to do the same thing that many of my department stores had done: help our customers finance their purchase. When we began offering credit on a larger, more formal scale to
individual buyers,
the Seurat hit the fan.

Foul, cried the art dealers' associations. Reckless, reported the art world press. To drive home their arguments against auction house financing, dealers and reporters hit upon the sale at Sotheby's of Vincent van Gogh's
Irises
on November 11, 1987. Put up for auction by John Whitney Payson,
Irises
was purchased by Australian businessman Alan Bond for $49 million ($53.9 million including the buyer's commission), at the time a record price for any work of art. John Marion, who was at the podium that evening in New York, captured the drama of those historic few in his book,
The Best of Everything:

The room exploded with applause, but the art world grumbled in protest. Many believed that because we extended credit to Bond, the price was somehow illegitimate and would artificially inflate the market. Never mind that we extended credit to dealers all the time. And never mind the fact that dealers arranged credit for buyers all the time.

Several months later, when Bond ran into financial trouble and was having difficulty paying us back on schedule, there were more breathless headlines. But the situation also demonstrated the appropriateness and conservative nature of our financing policies. At the first sign of trouble, we took possession of the painting, which was always available to us as collateral. Bond consigned several other paintings from his collection to cover his obligations. And in 1990 we sold
Irises
a second time for a substantial commission to the Getty Museum, where it hangs to this day, overlooking the Pacific Ocean in Malibu.

In fact,
Irises
was one of the most profitable objects ever represented by Sotheby's. But the controversy was so great, we discontinued the practice of accepting the object being bid on as collateral and decided not to lend on any art within twelve months of purchase. We did, however, continue to take bids on credit and offer advanced payments to sellers following very conservative lending practices. Mitchell Zuckerman, who is president of Sotheby's Financial Services, has done a great job of making financing a dependable and significant competitive tool and income stream for the company. His loan portfolio performs year in and year out with a minuscule default rate.

But financing wasn't the only Sotheby's initiative that came under fire unfairly. Sotheby's had a venue called the Arcade, where items of more modest cost—principally decorative art, furniture, and collectibles—were offered for sale. Buyers could get a bargain on a beautiful dining room set, classic stemware and flatware, or garden statues. Before I became involved, lots were exhibited for the convenience of the dealers. If there were twenty dining room tables
in the sale, the tables were all together in one area of the exhibition space. Chairs were in a separate area reserved just for chairs, even if they matched the tables. The place looked like a flea market, but the dealers, clipboards in hand, didn't mind sorting dispassionately through the inventory. But for individual buyers, this arrangement was a veritable wall of threshold resistance

As Milton Petrie and Leslie Wexner knew, I had some pretty firm ideas about how best to design shopping areas in a way that broke down barriers between customers and the merchandise. I thought we should arrange the dining tables and chairs in room settings. We might even place flatware, dishes, and stemware from the sale on the table—the way people use these beautiful items in their homes. Side tables were placed beside an heirloom headboard on a colorful Heriz carpet. On the walls were framed mirrors, prints, and paintings. We carried this display technique over to our catalogues as well.

As you might guess, individual buyers found the groupings helpful in making their buying decisions, and attendance at our Arcade auctions increased dramatically. But the art world was furious. I was accused of turning Sotheby's into Bloomingdale's. This guy from Detroit, who had already destroyed downtowns the country over with his huge malls, was “malling” the art world. He was hanging mirrors on walls and placing chairs with tables! Of course, what we were doing was breaking down threshold resistance. Competition and new ideas were shining rays of light into their secretive, exclusive, largely unregulated world. And the art world was not happy.

What's more, we were reaching out to new collectors through high-profile, unapologetically glamorous celebrity sales. We made history with the 1987 sale of the jewels of the Duchess of Windsor in Geneva, Switzerland (at which Elizabeth Taylor successfully bid $623,333 by phone from Beverly Hills for the duchess's plume-shaped “Prince of Wales” diamond brooch); the 1996 sale of the property of the late Jacqueline Kennedy Onassis (at which the publisher of
Cigar
Aficionado
magazine purchased a presidential humidor for $574,500); and the ten-day-long sale of the Andy Warhol Collection in 1988 (at which the artist's collection of store-bought cookie jars went for $247,000).

Such extravaganzas, which would have been shunned as down-market by Sotheby's and Christie's before we came along, were fun, and made news around the world. More importantly, they got people interested in the auction experience and collecting. They also helped strengthen the business of dealers and retailers. After the Windsor sale, jewelers saw a dramatic increase in the sales of estate and antique jewelry. Long before eBay came along, news of the prices fetched for Warhol's everyday possessions set off a tidal wave of collecting interest in everything from baseball cards to
Star Wars
memorabilia. Charities and other nonprofit institutions began to feature auctions in their annual fund-raising activities. Interior decorators saw an upswing in client interest in antiques and original art for their homes and offices. Americans, historically averse to saving anything, ran to their attics in search of comic books, record albums, and vintage clothing (a collecting category introduced with great success at Sotheby's by my stepdaughter, Tiffany).

Looking back, I really believe we played a pivotal role in this revolution that has brought joy to millions and great success to every sector of the art market. My good friend Bill Acquavella, one of the most respected art dealers, says that he and his industry colleagues all benefited from Sotheby's tactics that were attacked as unfair and unfriendly. Most people came along begrudgingly as the numbers spoke for themselves. Our rivals at Christie's railed against every innovation or new policy we introduced, only to adopt or imitate our practices within a few months.

A golfing buddy recently told me an interesting story about the initial reaction of professional golfers to the ascension of Tiger Woods. The young superstar certainly shook up the clubby, insular world of
the PGA in all sorts of ways when he burst onto the scene in 1996. Not only was he one of the most talented players ever to explode onto the scene—in others words, better—he was different. He kept in superb physical shape and approached the game with extraordinary intensity. Many old-timers were threatened by Tiger, even though he appealed to a far broader audience and brought new commercial and popular attention to the tour. The established pros didn't want him in their club.

Today, the better players are matching Tiger's work ethic and much of the resentment has faded. Why? Because everybody's ship has been lifted. In 1995, the year before Tiger, just nine golfers won a million dollars or more on the PGA tour. In 2005, seventy-eight golfers were million-dollar money winners! Television revenues are up—and so are the purses at tournaments. Golf courses are being built at record pace, manufacturers of golf equipment are enjoying record sales, and golf tournaments can't handle the crowds of spectators, young and old.

Now, I'm no Tiger Woods. His long game is much better than mine. But his story, and the saga of Sotheby's barrier-busting innovations, stand as cautionary tales for any business leader or marketer. Broadening audiences and intensifying competition usually helps industries and every talented, hardworking participant in them. Ignore the cries of entrenched individuals frightened by change.

I suppose some in the art world, who still long for the closed, noncompetitive world before Windsor, Warhol, and Onassis, will never get over it. But thanks to the ideas that came out of those initial brainstorming sessions at Sotheby's, there's a whole lot less resistance standing between customers and the enriching world of art, antiques, and collectibles.

I feel good about that, and so should everybody at Sotheby's.

I
t's always interesting to spend time with college students. They ask great questions and hang on every word of your answers. In 1985 I got a call from a professor at the Harvard Business School asking if I would come to campus to discuss my “eclectic” business experience. He said the students and faculty would be particularly interested in any common threads running through the seemingly unrelated fields of retailing, real estate, art, restaurants, and professional sports (I had recently become the majority owner of the Michigan Panthers football team of the new United States Football League).

I was flattered by the invitation—this was Harvard, after all—and went right to work crafting my half-hour “lecture.” It was a great opportunity for me to examine my businesses and achievements from a fresh point of view. Since my schoolday afternoons at Sims department store, I had spent little time reflecting on my career, let alone the underlying principles guiding the decisions, risks, and investments I had made as an adult. Other than my involvement, what did Taubman shopping centers, A&W Restaurants, Sotheby's, Woodward & Lothrop, and the Panthers have in common? Good question.

To get the students' attention and set up my central themes, I led with a provocative introduction:

Before examining my individual companies and the industries in which they operated, I offered these four personal precepts for consideration:

1. Our consumer society, not driven by the satisfaction of basic needs, is fueled by the fantasy, flight, and excitement of a possible purchase. People will buy—on impulse—products and services they feel will make them happier.
   
2. You can sell almost anything once. But repeat business is built on consumer confidence, perceived quality and value, excitement, a rich mix of customer opportunities, as well as convenience and service.
   
3. The biggest mistake you can make is to price your product or plan your development based on what others are doing, rather than on how you see the opportunity. Study the consumer. Work for that part of the market that's there for the taking, with a creative new idea or an old idea made better, not just different.
   
4. Become an expert in one fundamental area of your market or business. No one starts out as a generalist. In my case, I started as a store planner and learned the basics of successful retail design. Through that discipline, I sharpened my understanding of the customer.
   

The lecture hall and the curious faces of the bright students and distinguished faculty members inspired me to new levels of philosophic thought. I went on to observe:

Here, I knew I was challenging one of the basic precepts of business school curricula. For generations, business textbooks had taken the reader step by step through the process of identifying a need and designing a business to address it. But by the late twentieth century, there was far more to business than satisfying basic needs. The pony express and Federal Express both represent systems of delivering mail and packages. The former filled a basic need; the latter introduced levels of speed and efficiency we never knew we needed. And what's that speed and efficiency worth? Well, you pay 39¢ to send a letter
through the U.S. mail or up to $45 to have that same letter delivered overnight by FedEx. Clearly, going beyond mere needs satisfaction can pay handsome dividends. By upgrading the beans, training excellent people, and creating a welcoming environment, Starbucks charges big bucks for a cup of coffee!

So we examined the customer appeal of Sotheby's, Woodies, Taubman malls, and A&W. But the class really wanted to know more about the logic behind the new United States Football League (USFL), the spring football experiment of which the Michigan Panthers were inaugural members. The world certainly did not “need” spring-summer professional football. There was plenty of football on television during the fall, and the Super Bowl drew international audiences in the hundreds of millions. In the spring-summer, fans seemed perfectly happy with the other sports and activities on offer.

But television advertisers longed for more television sports aimed at men 18–54 years old, especially in the spring and early summer months after the end of the hockey, basketball, and football seasons. There was no NASCAR on TV to speak of in those days, and golf, in its pre-Tiger era, had limited appeal. So only baseball provided content over the summer for the companies advertising to guys who drink beer, chew tobacco, use razor blades, and buy cars (which sell best in the spring and summer months).

I love football, especially University of Michigan football. No sports experience comes close to matching the atmosphere at a Michigan vs. Ohio State game in front of 110,000 screaming fans in Michigan Stadium on a crisp fall Saturday afternoon in Ann Arbor (especially if the Wolverines win). So I was interested in 1982 when a friend from Detroit, Judge Peter Spivak, introduced me to the concept for the USFL. Judge Spivak served as the league's first president before ESPN executive Chet Simmons was named commissioner. Chet successfully negotiated network television contracts with ESPN and ABC.

Each team would operate under a reasonable annual salary cap (initially just $1.8 million) and control drafting rights to players from nearby colleges. In other words, a Michigan franchise would end up with a number of fan favorites from the University of Michigan and Michigan State University. Because our league would be active after the NFL season, stadium facilities were available. In the past, I had thought about buying a professional baseball team (I had explored purchases of the Baltimore Orioles and the Detroit Tigers). The Panthers would be different but still fun. They would play in the Pontiac Silverdome (then home to the Detroit Lions), which was just a few minutes from the home I was born in, on Ottawa Drive. Along with my friend and fellow college football fan Max Fisher—Max, who had attended Ohio State on a football scholarship, sat with me at just about every Ohio State–Michigan game for thirty-years—I took the plunge.

We never thought we would make a lot of money. But we did hope to have some fun. Our first season, in 1983, started out miserably. Before we knew it, we were 1–4, tied for last in the league. Detroit-area fans are very loyal, but we were testing their patience and dampening their enthusiasm for spring football. You have to remember that the Lions had not fielded much of a team for many years (they still haven't). We had to do something, or even more of the Silverdome's 80,000 seats would be empty.

In desperation, I asked Shire Rothbart, my trusted, talented finance guy who helped convert all those ground leases on the Irvine Ranch, to take over operations for the Panthers. I wanted to win, and Shire, who had no football or sports experience, was a smart, competitive guy with a knack for finding creative solutions to difficult problems. The first call he made after learning about his new assignment was to an agent he had been introduced to at one of our earlier games.

“What's keeping the Panthers from winning some games?” asked Shire.

The agent said we had a good coach and good players at the skilled positions, but a lousy offensive line. “You can't win if you don't give [quarterback] Bobby Hebert time to throw to [star receiver] Anthony Carter. Shire, I'd go out and get some new tackles and guards.”

“Where do I get them?”

“For the last few years, the Pittsburgh Steelers have fielded the best offensive line in football. They've got a lot of depth at those positions. We might be able to sign a couple of those guys. Who knows?”

Shire made a few calls, and before the sixth game of the season we assembled a new-look offensive line, complete with three former Pittsburgh Steelers: Tyrone McGriff, Ray Pinney, and Thom Dornbrook. We won our next six games, put as many as 60,000 fans in the Silverdome seats, made the playoffs, and defeated the Philadelphia Stars (owned by developer Myles Tanenbaum) 24–22 in the first-ever USFL championship game in Denver's Mile High Stadium. The deciding 48-yard touchdown pass was thrown by Bobby Hebert, who was given plenty of time in the pocket by our offensive line, to Anthony Carter with three minutes remaining in the game. Shire's buddy was right. Nobody “needed” another football team, but we were having lots of fun, and so were the sports fans in Detroit.

One great story I'll never forget took place during the off-season after our championship victory. Our head of personnel at the Taubman Company, Tom Bithell, came up with a terrific program to offer Panthers to local high school football teams as assistant coaches—at no cost to the high schools—during the fall. This kept our guys out of trouble and gave youngsters the opportunity to learn from gifted professional athletes. After Tom presented the program to the Panthers at an all-team meeting, his assistant received a phone call from a player who had been unable to make the meeting but wanted to sign up.

“No problem,” said Tom's assistant. “Just give me your number, and I'll have Tom call you back.”

“Great,” responded the player. “My number is 54.”

 

AS
it turned out, our fun was short-lived. The league began to unravel when the majority of the other owners voted to abandon our unique spring schedule, shift to the fall in 1986, and compete directly against the NFL. They initiated a lawsuit challenging the NFL's monopolistic hold on professional football. While we prevailed in court—winning damages of just $3—no merger ever took place. My friend Donald Trump, who joined the league in September of 1983 as owner of the New Jersey Generals, was an enthusiastic supporter of the fall schedule. He also blew through the team's salary cap and the USFL's unique economic structure with the signing of players like Heisman Trophy winner Doug Flutie. I like and respect Donald very much, but in his youth he could be a bit impatient.

We hired Vince Lombardi Jr., son of the legendary Green Bay Packers coach, as president of the Panthers to allow Shire to return to his financial duties. Vince was a terrific guy, but the league was imploding all around us. My beloved Panthers played out the last season in California as the Oakland Invaders. Bobby Hebert and Anthony Carter went on to have standout careers in the NFL with the New Orleans Saints and Minnesota Vikings respectively. And Max and I came away with a clearer understanding of how to make a small fortune: start with a large fortune and buy a football team.

It's important not simply to learn from failure, but to look beyond it. Neither the Harvard Business School class nor I knew it at the time, but the ill-fated USFL would demonstrate the appetite for professional football in markets the conservative, stingy NFL had always ignored. Today's Jacksonville, Arizona, Tennessee, and Carolina franchises would probably not have come to pass so soon without the surprising success of the USFL in those markets. And many of the USFL's innovations have been adopted by the NFL, including the
two-point conversion option after touchdowns and the coach's challenge utilizing instant replay.

In the Q & A period following my remarks, students and faculty zeroed in on the concept of going beyond needs satisfaction. We talked about the importance of the salesperson, the opportunity to assist customers lacking confidence, the critical role of service and convenience, the advantage of adding a touch of theater to your presentation, and the critical nature of the shopping experience. By the end of the hour, I think they all found more similarity in the challenge of marketing a frosted mug of root beer and a precious painting by Degas then they had ever thought possible.

But all was not well. I'm a visual guy. And in the portion of my slide show on Sotheby's I had featured a Modigliani painting,
The Dreamer,
which was being offered in our November sale of impressionist and modern paintings. The painting, which depicted a reclining female nude, would later sell for $4.62 million in New York. Apparently, a woman in the class was offended by the painting, and complained to the professor that she had been made to feel uncomfortable and wanted an apology from me. Fortunately, a number of her fellow students convinced the sensitive young woman that she might need to broaden her acceptance of art and develop a thicker skin before she left Harvard Business School for the rough-and-tumble world of business.

More problematic, however, was the subsequent coverage of my talk in the
Wall Street Journal.
The paper didn't mind the Modigliani. But it was taken aback by my reference to root beer and art in the same sentence. Of course, rather than present the entire thought in context, the reporter (who had not heard the lecture) simply condensed it to read: “Selling art is like selling root beer.” The A&W folks applauded the assertion, but the art world collectively gasped in shock and indignation (again). This was even worse than allowing dining room chairs to be displayed before auction in the general
vicinity of the tables they were designed to complement! It got worse. Subsequent third-and fourth-hand journalistic accounts of the quote all over the world—in multiple languages—shorthanded and distorted the meaning even more. Within weeks of my triumphant Harvard lecture, my words had been distilled by the press to their ultimate clarity—“Art is root beer”—thus giving a whole new meaning to the term “pop art.”