I haven’t given much thought to pawn-shop wine until now. When I think of pawn shops, I think of desperate sellers, shady buyers, and the guns, guitars and watches I saw when I used to visit pawn shops as a garage-band teenager desperately seeking a cheap electric bass.
I know that pawn shops are different today. In the United States, there is a wildly popular cable television show called "Pawn Stars" that is built around a group of men who run an upscale pawn shop in Las Vegas. Their patrons don’t seem to be especially desperate or shady and one of them even brought in a bottle of fine wine to try to offload for quick cash.
The pawn star wine was a bottle of 1921 Dom Pérignon (the very first vintage). Unfortunately, it had been poorly stored and badly preserved – a real mess. It was apparently the real thing, not a fake, but the value, what there might be of it, came mainly from the beat-up old bottle and its tattered label. The wine itself was a hopeless case. No deal was reached, as I recall; the high asking price was too far above what a pawn shop might expect to sell this collectible bottle for. The lesson seemed clear – fine wine and pawn shops just don’t mix.
So you can imagine my surprise when I saw an article by Victoria Moore in The Telegraph about an upscale pawn shop in London that was advertising its willingness to lend against fine-wine assets. Not moldy old bottles that walk in off the street, however. The market here was investment-grade wines with good provenance that have been stored at a secure climate-controlled facility. The wine acts as security for a loan equal to a percentage of its market value. Pay back the loan and get back the wine (which may not have physically moved from the wine warehouse when it is stored). Fail to pay the loan and the pawn shop owns the wine.
A quick search of the web showed that pawn-shop wine is not new and wine pawning seems to happen both in the
Pawn shop logic
Pawn-shop fine wine sounds illogical but it actually makes sense. Wine collections can be worth very substantial sums and, despite the jokes we all make about it, wine is not the world’s most liquid asset, at least not in the sense that you can use it to address short-term liquidity needs without fully surrendering ownership. Wine is different in this regard from traditional investments such as stocks and bonds. If you need short-term cash you can probably find someone to lend money against your listed stock portfolio but I am not sure how many traditional financial intermediaries would accept fine wine as collateral.
If you need to sell some of your Apple stock to make ends meet, you can always buy it back again later – it doesn’t really matter if the shares aren’t the actual ones that you used to own. Shares are shares. But many wine collections are quite specific, so specific assets do matter. It is not so easy to sell a rare vertical of Cheval Blanc and then buy it back again, for example.
And then there is the “lumpy capital” problem that occurs when investments are difficult or costly to break into pieces. Selling only part of a specialized collection could easily reduce the value of both the half you sell and the half you keep. Most of the normal financial options aren’t available if you want to have your cake (keep your collection together) and eat it too (generate short-term cash).
No, wine is a different sort of investment, and that makes a difference when you need short-term liquidity. It's easy to see how there could be a gap in the market, and apparently a few well-capitalized and well-informed pawn-shop owners have stepped in to fill it. Need quick cash to answer a margin call on your investment portfolio? No problem. See you on “Pawn Stars.”
Beyond the usual suspects
So will there be much of a demand for pawn-shop services in the near future? This depends more upon what happens in other financial markets (where the need for liquidity arises) than in the wine market itself. Wine-market trends through early October seem to continue the patterns we observed over the summer. The broad-market Liv-ex 100 index (the Dow Jones or FTSE of wine) was down 1.75 percent for the third quarter of the year, albeit still trading at a level above its 52-week low.
But prices of previously less-favored right-bank wines from Bordeaux have continued to trend upwards and investor interest in Burgundy, Champagne and the top Super Tuscans is still strong. Auction-market results suggest that buyers may be broadening their idea of what constitutes a blue-chip wine to include California (think Screaming Eagle and Harlan Estate) and beyond, a trend that I see as being a necessary. if possibly unsettling step. in the maturing of the wine-investment market.
How far beyond Bordeaux will the market push in its search for investment-grade wines? This is a question that Andrew Rose asks in his column in the October 2013 issue of Decanter. Rose wonders when Chilean or Argentinian wines might be given consideration by wine investors. But the question might well be asked about other New World wine regions. What about Napa beyond the top two or three cult wines? Or California beyond Napa, Washington and Oregon? Australia beyond Grange and Hill of Grace? New Zealand? South Africa?
If wine investment was just about making money, then it seems that its domain would be a lot bigger than it is. A number of South American wines already have a track record of appreciation as they age – particularly Almaviva, a joint venture of Château Mouton Rothschild and Concha y Toro – and if the absolute dollar amounts of gain are not large, they represent a big percentage profit. Looks like an opportunity to me.
But it seems to take more than potential profit to generate wine investor interest, as Rose notes The wines themselves must have a certain je ne sais quoi. I guess that’s just another way that wine investments are different from other types of investment!