Not surprisingly, last week's Bonham's auction featured some pretty ridiculous sales. Someone, for instance, coughed up $380 for the good but not great Ardbeg Alligator released two years ago for $100 (Keep in mind that Bonham's charges all kinds of fees so the seller didn't make anywhere near $380 but the buyer did pay it). But what really had me scratching my head was the price for Pappy Van Winkle. A 20 year old Pappy went for $654 and 23 year olds went for $892 and $773. Unlike the Ardbeg Alligator, these are bottles that are in current release. At last fall's release, the 20 year old was selling for $125 and the 23 year old was $240. If you go to places like the new Bourbon Exchange Facebook page (a site apparently set up for those who miss the pleasure of getting gouged on ebay), you will hear similar stories. Keep in mind, the Pappys listed at the Bonham's auction did not include a date; they did not appear to be older bottles. They were likely bottles that someone purchased within the last few years for the standard retail price.
This is exhibit one showing that there is a whiskey bubble in the secondary market that will likely collapse sometime in the near future. Currently, you have a situation in which people are willing to pay extraordinary prices for whiskeys like Pappy and the Buffalo Trace Antique Collection that are not truly rare. They may be hard to find right now, but they aren't rare in the literal sense in that there are plenty of them out there, and they are released every year. In fact, that's the Beanie Baby model. The product appears scarce because the company closely controls production and allocation, and in response, people hoard them. It's very easy for a market like that to collapse.
As an independent bottler, Van Winkle currently has a limited number of casks available for bottling, but that could change. Tomorrow, the company could find a way to acquire additional stock allowing it to double production, or Diageo could buy the brand and quintuple production, and pop goes the bubble...no more secondary market. Some more savvy collectors would still look for certain bottle codes, but that's not most people who are driving this market, as demonstrated by the amount paid for standard bottles in the Bonham's auction.
Even if production stays at current levels, there will eventually be a crash. As noted above, the allocations have led to hoarding (just go to any bourbon forum or website and you'll see photos of people's collections of dozens or in some cases hundreds of Van Winkles and BTACs). The fact that there is so much product out there is going to leave some hoarders holding so many that they will eventually have pressure to unload them. They will move, lose their job, go into debt...or die, and their massive collections will start to trickle into the secondary market. Eventually, people will realize that these are not so hard to come by. And by the way, the same is true of A.H. Hirsch 16 (the most common version with the gold foil cap); even though there isn't new production and it's from a closed distillery, there is a huge amount of it in collectors' hands.
Preston Van Winkle is none to pleased with the idea of a secondary market for his current products. As he told me:
As for auctions, I have no problem with people selling true collector bottles, ones that will never see production again or that are truly non-existent at retail. I have a BIG problem with people buying our products purely for profit. It takes away from legitimate fans who just want a bottle to drink. Often times the people who are in it for the gain are the ones who manage to get their hands on large amounts so that makes the problem that much worse.For my part, I look forward to a market correction which injects a modicum of sanity into this situation. It saddens me to see enthusiasts who had once preached "drinking the juice" now trying to capitalize on Pappy fever by unloading their bottles at ridiculous prices. It's especially ironic given Pappy Van Winkle's own creed, that he would make fine bourbon "at a profit if we can, at a loss if we must." He had his priorities straight. Maybe we can all take a lesson from the man whose picture is on that $892 bottle of bourbon.