Wine as an Investment Commodity

WINE USED TO BE something you drank, right? Well, not anymore, at least not exclusively. Wine has become a serious investment commodity, increasingly so in the past decade. More than ever wine has the capacity to appreciate in value, to the point where the current value of certain wines can far exceed their original purchase prices. Moreover, according to a joint paper by professors from Cambridge, Vanderbilt and HEC in Paris, wine as an investment outperforms such investments as government bonds, art and stamps. Not surprisingly, therefore, global wine auction sales more than doubled from 2005 to 2015, increasing from $165 million to almost $350 million in 2015. On top of that wine even has its own trading exchange—the London International Vintners Exchange, or Liv-ex, founded in 1999 in London and now doing over $100 million annually in trades.

So when presented with a wine collection how do you determine whether it constitutes an investment grade asset or is merely a very nice, but not especially valuable, collection of wines? There are several governing factors, such as the region from where it comes, the winery that produced it, the vintage from which it was bottled, and the conditions under which it was stored. An American Appraisal Association certified appraiser—one compliant with Uniform Standards of Professional Appraisal Practice—who also possesses high level wine credentials and experience can most definitely evaluate the situation and provide the assistance necessary. Email me at nkaplan@corkcounsel.com for more information.

A Tale of Two Wines (and Their Values)

THERE'S A LOT OF OLD WINE in the basement. It must be valuable.

Or maybe not. There can be a perception that as fine wines age they become more valuable, but that is actually not always the case. For instance, the 1999 Chateau Mouton Rothschild, a First Growth Bordeaux, cost $140 upon release and currently sells at auction for around $315. By contrast, the 1999 Chateau St. Jean Cinq Cepages, a Bordeaux blend from California, sold for $80 upon release and currently sells at auction for $36. Both have matured well and are drinking better than upon release, yet one has appreciated while the other has decreased in value. Why the difference?

Is it a matter of quality? It doesn't seem so. To the extent that critics’ scores provide a meaningful measure Mouton was rated 90 points by the Wine Spectator and 93 by Robert Parker, the two leading wine reviewers at the time. The Cinq Cepages received 95 from the Spectator and 90 from Parker. How about scarcity? Wrong again. St. Jean produced 13,000 cases of Cinq Cepages compared to 20,000 cases of Mouton. Longevity? Maybe, but maybe not. The reviewers suggested drinking the Cinq Cepages through 2015, while it was thought the Mouton would last until 2030. However, I drank the Cinq Cepages twice in the past few months, and I can report that it is extremely good and has plenty of life left.

So why did one wine more than double in worth and the other lose half its value? Basically, there are a small number of wines in the world that are deemed collectible, and they are the ones most likely to increase in value. Most are classified Bordeaux, but top Burgundies, Champagnes and some select wines from Italy and California can appreciate as well. They are often from wineries with long histories and track records for quality, and they are always of relatively limited production. But mostly they appreciate because they have a history of appreciating. It is somewhat circular, but the past success of these wines at auction breeds future success.

So how does one distinguish a collection of excellent old wines from one that is also valuable?

The best means is through an appraiser who is thoroughly conversant in the fine and rare wine market. More specifically, you are looking for an American Appraisers Association certified appraiser—one compliant with Uniform Standards of Professional Appraisal Practice—who also possesses high level wine credentials and experience. Email me at nkaplan@corkcounsel.com for more information.

Valuation of Wine

WON'T SOMEBODY think of the wine? A couple is getting divorced, and the wine cellar becomes a battleground. Usually one of the parties is the wine person and has a vested interest in trying to minimize the cellar’s value, while the other party sees the wine collection as a cash equivalent and is urging a high valuation. Who is right, and how do you do the best for your client?

Basically, there are three ways to value wine: Marketable Cash Value (MCV), Fair Market Value (FMV), and Retail Replacement Value (RRV). MCV is most favorable to the party in a divorce who will be retaining the wine, while RRV favors the party seeking to place the highest value on the wine. FMV is in between.

• MARKETABLE CASH VALUE is the probable proceeds of a sale less the expenses incurred in selling the wine. The word “probable” is key, as there are factors such as timing and condition of the wine that could affect the sale price. For instance, a forced sale, poor condition of the wine or less than ideal storage conditions would be relevant considerations and could lower the value of the wine.
• FAIR MARKET VALUE is most commonly used for tax purposes and is the price at which the wine would change hands between a willing buyer and seller, neither being under any compulsion to buy or sell. Note the absence of compulsion for this valuation. That can significantly affect the outcome, so reference to any recent tax valuation can inflate the value, at least in one party’s eyes.
• RETAIL REPLACEMENT VALUE is what will always be claimed by the party who is not retaining the wine. This is the amount required to replace the wine with its precise equivalent and maintain the oenological marital standard of living. An expensive valuation indeed, and one that is usually used for insurance coverage. 

So how to navigate these vinous waters? An American Appraisers Association certified appraiser—one compliant with Uniform Standards of Professional Appraisal Practice—who also possesses high level wine credentials and experience is a good place to start. Email me at nkaplan@corkcounsel.com for more information.