Auctions have been widely used to sell everything from horses (the earliest recorded auction dates back to a horse sale in 500BC in Greece) to land and property. The fundamental principle is that the bidders determine the value of the item being sold and bid accordingly. As such, they are seen as a very democratic method of sale.
That democracy relies on the auction acting as a neutral ground for bidders to agree on a maximum value of that item at that point in time.
So what happens to the auction model when auctions set inflated reserves and misleading estimates on items?
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In January 2020 a cask was listed whose estimate was well over the true open market value of that cask in our opinion. We explore why we believe the estimate to be so misleading and why this is so worrying.
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A Working Example: Lochindaal 2009
One of the lots in the auction in question is a cask of 2009 Lochindaal (a very heavily peated whisky from Bruichladdich). The value of this cask is estimated at £18,000-£20,000. Plus an 18% (including VAT) buyer’s premium.
The casks details are as follows:
- ABV = 63%,
- RLA 114.9
- Bulk litres (114.9RLA ÷ 0.63) = 182.4 litres
If you are the winning bidder at £18,000 the invoice total will be £21,240 including commission.
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For members of the public it can be tempting to simply multiply the number of potential bottles in the cask (260 x 70cl bottles at cask strength, 260 x £80 = £20,800), and while this is not the way to do it, even then you’re not breaking even.
The reason you shouldn’t just multiply bottle count by bottle value is because you also need to take into account the VAT, Duty, uplift costs and bottling costs that you need to add on top of that £21,240.
Let’s break down the costs using our free cask calculator:
- VAT on purchase price = £4,248
- Duty @ £28.74 per RLA + VAT = £3,963
- Cost of uplift of cask and shipping bottles = £700 average
- Bottling fees at an average of £10 +VAT per bottle = £3,127
Total Bottled Cost= £33,7278
Price per bottle to meet costs = £128
At the upper end of the estimate, paying £20,000 for the cask puts the bottled cost at £36,110 and the price per bottle at £139 just to meet costs.
Let’s Put This Into Context
The Whisky Exchange have for sale a 10 year old Lochindaal by the respected independent bottler Hidden Spirits: The current retail price, including VAT, is £145 per bottle, or £120.83 excluding VAT. This bottle also sells on a regular basis at auction for £80.
So buying the Lochindaal cask at the price they estimate would mean you would be paying MORE than the retail price at the Whisky Exchange for a comparably aged bottle. It would therefore be cheaper to go an by 258 bottles (the estimated cask yield) straight from the shelf rather than buying the cask.
So What Is A 2009 Cask Of Lochindaal Worth?
At the moment casks of 2009 Lochindaal are worth in the region of £10,000 – £14,000 on the open market from our experience.
If you want verification of this use our cask calculator again. This produces a price per bottle of £67-£85 – clearly leaving a margin for both the bottler and the retailer.
The average wholesale margin is around 60%. If you want proof of this here is an excerpt from Diageo with relation to how to price products:
You’ll want to be at 60% gross margin, with a plan in place to get to a margin above 60%. We’d suggest not starting production if your gross margin is not at least 50%.
You can read more here: https://www.distillventures.com/insights-and-trends/startups
So Why Has The Estimate Been Set So High?
In our opinion there are two possibilities.
The first is that the seller has placed the reserve on the cask at £18,000. As an estimate can be no lower than the reserve, so the auctioneer have had to put an £18,000 estimate to reflect the reserve.
If this is the case then the auctioneer are not solely responsible for the estimate, rather the estimate was dictated by the reserve set by the client.
The other possibility is that the auctioneer believes that the cask is worth £18,000 to £20,000.
How Can The Public Be So Easily Misled?
Arguably, the whisky cask market is the last asymmetric market.
What exactly do we mean by an asymmetric market? It’s simply a sale/purchase relationship where one side of the relationship has a lot more knowledge than the other. Unfortunately, asymmetric relationships are ones that are very easy for the person with more knowledge to exploit.
A balanced market is one where the buyer and seller are both in informed positions. What defines a balanced market is the ability for a buyer to research the price they are being asked to pay.
For example:
If you want to research the value of a car you can use Auto Trader.
If you want to research the value of a fund you can use Morningstar.
If you want to research the value of a house you can use Zoopla.
You can now verify the value of almost anything online with a quick search. The sheer volume of data available means that in almost every selling situation the buyer can almost guarantee they are going to pay a fair price.
Except casks.
There are no publicly available indexes or price guides about the value of casks. If you are inside the industry you will have access to this privileged information and you are able to build up your own database of the value of casks which are sold on a regular basis.
The reason for this lack of information is quite simple: casks are not generally for public consumption or ownership and therefore a publicly available index would not serve any purpose to the industry (and as such the information is kept strictly private).
Another reason for the lack of a whisky cask index is that no two casks of whisky are alike. As such you cannot ever create a meaningful index of the value of whisky casks.
The Scotch Whisky Association
The Scotch Whisky Association also recognises that pricing casks is very hard for the public.
In their leaflet ‘Personal Investment in Scotch Whisky In Cask’ they warn about the opaqueness of the whisky cask market:
“There is no external market for matured or maturing Scotch Whisky, no “Whisky Exchange”, no officially published list of buying and selling prices for whiskies from different distilleries and of different ages, no established mechanism for selling. Scotch Whisky is not a regularly traded commodity on an open market.”
So How Do You Know You Can Trust Us?
At Mark Littler LTD we provide independent and open advice about all aspects of buying and selling antiques and whisky and have over 300 verified reviews from happy customers.
Since 2016 our aim has been simple – to provide a trustworthy source of information to help people make a sound decision when they are selling their items. To date we have sold millions of pounds worth of antiques and whisky (both casks and bottles).
It was our intention to stay as an advisory service only to those looking to sell a cask. But in the last 18 months we have seen such a wave of hyperbole and, well, frankly lies, with regards to cask investment we decided we had to take a stand. As well as providing casks for sale we have addressed the consumer seller imbalance by creating over 50 freely available resources on whisky investment and education.
We decided to apply the same guiding principles to help people buy a cask as those we use when we help people sell a cask, principles that have earned us over 300 five star reviews.
We have written and filmed content covering every aspect of buying casks so that people can understand how buying a cask works in order to make an informed decision about what is best for them. This takes time and not an insignificant amount of investment, but we think it is worth it to make sure people are being told the truth about owning a cask of whisky.
We hope you found this article informative, and if you have any questions you are always welcome to email us or give the office a call – you’ll find our contact number and email address at the top of all our website pages.
