After last month’s auction sales saw a more subdued sales environment across the major auction houses, a new filing with the UK government reveals the clearest indication yet that at least one of them is struggling. London-based Phillips saw its losses in the UK double from 2021 to 2022, after rising costs due to inflation outpaced sales growth amid a “market slowdown,” according to the October filing.

In the filing, the Phillips board of directors, including executive chairman Ed Dolman—who served as CEO from 2014 to 2021—recommended against paying a dividend to investors, after a report from UK auditing firm Buzzacott described its position as in a “current net liability,” meaning that financial liabilities outweigh assets.

Generally, a board’s decision not to issue a dividend can signal financial strain or a lack of confidence, even for a private company, as the Wall Street Journal explained last year amid a spate of major companies failing to pay out to investors.

Owned by Leonid Fridlyand and Leonid Strunin, the founders of Russian luxury retailer Mercury Group, Phillips remains reliant on financing from Mercury, according to the March and October disclosures, which the auditor’s report said put the house’s financial position in a state of “uncertainty.” It echoes similar findings noted in a report from this past March that appeared in the Guardian, when Buzzacott stated that the ability of Mercury Group’s individual owners to provide support could not be guaranteed, leaving “significant doubt” around the auction house’s ability to continue.

The October report makes clear that, amid the downturn, the auction house is currently unsure how much financial support it can rely on from Mercury. In it, the directors pointed to “continued access to funding” and a lack of a “binding commitment” for funding from Mercury as an ongoing risk to the auction house’s financial stability. It also cited a “general reluctance” among art sellers in a “volatile” marketplace as an additional challenge faced by Phillips last year. In the same financial documents, Phillips directors noted that Mercury Group’s owners “as individuals” had confirmed they would not, in the next year, seek repayment of financial support they had already put toward developing Phillips.

Not even a surge in revenue could make up for the hurdles Phillips faced in a more difficult sale environment in 2022. Last year, Phillips generated £208.6 million ($262 million) in revenue in the UK from auction and private sales combined, a figure that accounts for 20 percent of its reported overall sales figure of $1.3 billion. While revenue increased by $38.3 million from 2021 to 2022, or 8.5 percent, the report cited that “inflationary pressure” in transportation and shipping forced a surge in costs of 25.7 percent. The resulting loss for its UK operation more than doubled from £5.6 million ($7 million) in 2021 to £13 million ($16 million) in 2022. Those rising costs saw the company’s profit margin in the UK drop by 4 percent, from 57 percent to 53 percent between 2021 and 2022.

In October, Phillips directors said in a report included in the filing, they’re aiming in the future to “keep costs stable.” When Phillips reported it made $1.3 billion in sales in 2022 last December, it withheld any indication of decreased profitability. Instead, the house suggested publicly that the sales growth was a sign of the company’s health, allowing it to expand its operations in Asia. (The big three auction houses project their year-end sales annually around mid-December; Sotheby’s did so last week, and Christie’s says it plans to report theirs on Monday. A company representative said Phillips does not plan to publish its 2023 sales results at this time.)

In a statement to ARTnews, a Phillips spokesperson said “filings made in the UK in October 2023 contain information that is now more than a year old. They only take into account Phillips’ operations in the UK, excluding any operations outside of the UK. They do not represent an accurate view of Phillips’ global financial status.”

Phillips, as well as its competitors, Sotheby’s and Christie’s, do not typically publish their overall financial performances from year to year, particularly if they underperform or the market is weak. Sotheby’s CEO Charles Stewart recently disclosed that the house’s 2023 sales reached a collective $8 billion, the same figure reported in 2022. While such sales figures are often reported, revenue or profit margins are not usually published annually, which are more accurate measures of financial health.

A Phillips spokesperson told the Guardian this past March that after Mercury Group acquired the company in 2012, the new owners made “significant investments” in developing the house, and that its objective was to “repay the investment in due course.” (A representative for Phillips did not respond to an ARTnews inquiry on whether the October 3 directors’ decision signified a stall in achieving the stated goal.)

By the end of 2022, according to the October report, there were signs of a “gradual slowdown” in sales across the art trade, a shift that many New York galleries recently told ARTnews they experienced during the first half of 2023. Gallerists specializing in early-career artists told ARTnews that over the past six months collectors held off on completing acquisitions, even after long-running inquiries into the practices of artists.

Further indicators of strain came during the important contemporary evening sales this past November in New York, in which Phillips, for the first time in years, debuted no artists. Recent years had seen Phillips emphasize a strategy of introducing early-career artists through its sales, pointing to records set for younger talent as a key metric of its success and growing influence in the trade. In 2023, Phillips debuted 123 artists across other sales.

Since Russia’s invasion of Ukraine in February 2022, the media and US and UK governments have more closely scrutinized the financial maneuvering of high-profile figures in the luxury and art sectors, many of whom are Russian. That scrutiny has only increased since Israel began airstrikes and a ground invasion in Gaza, raising tensions across the Middle East.

While it went unmentioned in the October report, UK public records show that in April 2022 Mercury Group owners Fridlyand and Strunin officially changed their nationality from Russian to Israeli.

“The company’s shareholders have been steadfastly committed to the company and continue to invest in Phillips’ future,” a spokesperson for the auction house said.