Vinous Merriment, Charity Highlight Annual Napa Valley Auction

The grandest publicity event in the world of wine, the Napa Valley Wine Auction, observed its eighth and most successful resurrection last Saturday night, ending four days of vinous merriment with the stated goal of giving money to charity.

Some $465,000 in wine was sold to 474 bidders and an estimated $375,000 will be turned over to three local hospitals, a record surpassing the $340,000 of last year.

But this event isn’t just the auctioning off of expensive wine. It began a week ago today with a series of wine and food events that can destroy a diet in a flash. And it didn’t wind down until Sunday evening with a gala 75th birthday party for Robert Mondavi, the man who more than any other helped create the mystique of this valley.

The socializing is intended to woo the rich and unfamous, nouveau wine buyers whom the wineries hope to turn into fanatical collectors.

The success of the Napa Valley auction annually amazes those who have been here since the start, with some cynics wondering what new gimmick will be created to generate interest this year. The amazing thing is that even as the cast of characters changes, bidding rises.

Our Wine Heritage

A reason is wine quality. The Napa Valley is the closest thing this country has to wine heritage; the name itself drips with rich historical tradition and the image of greatness in fermented grape juice. The fact is that the wines made here are probably as good as the collectors think they are, inflated prices notwithstanding.

This auction is, however, not for bargain hunters. Prices paid for unreleased wine usually exceed what the wine would fetch on release. For instance, a case of 1987 Saintsbury Pinot Noir sold for $380, or more than $31 a bottle. A year from now, the wine probably will be released at about $20.

One way this kind of bidding makes a measure of sense is through tax benefits. Since this is a charity auction, buyers can claim a tax deduction on anything they paid for a lot of wine over the donor’s stated “fair market value.”

Take the Saintsbury Pinot Noir, for example. The winery FOB price of that wine to the trade when released will be about $130, meaning that the person who bought it for $380 can claim a tax deduction of $250 as a charitable contribution to the Napa Valley hospitals. In effect, the government subsidizes the purchase of the wine.

Knowing this, wine collectors with savvy tax attorneys buy some lots of wine at fairly reasonable prices--after taxes are calculated. Especially interesting were one-of-a-kind lots sold to wine merchants, who would turn around and sell them for what they paid, after having taken the tax benefit.

In the past, some sophisticated buyers would take what was then known in the trade as a double dip. They would buy wine at an auction such as this and take a tax deduction for their “contribution” over the fair market value of the wine. Then they would donate a portion of their wine, with its new fair market value, to another charity and wind up having paid nothing or very little out of pocket.

Not an Uncommon Practice

For example, assume a winery put a fair market value on a case of wine at $60 and a buyer paid $2,400 for it (not an uncommon example). Then the buyer could claim a tax deduction on $2,340, arguing that at least one other bidder felt the wine worthy of a price one rung below $2,400.

Then, let’s say a year later he donated 10 bottles of this wine to a charity. By then, he can say, the wine has appreciated in value and he is thus giving to the new charity not wine worth $60 a case, but $2,800 a case. (Those doing this typically had to get an independent appraisal of the fair market value.)

Such a scheme used to permit some merchants to pay almost nothing for the wine yet gain a world of free publicity for being such a magnanimous bidder.

However, the tax law that went into effect on Jan. 1, 1987, changed the second half of this tax shelter, according to Dick Poladian of the Los Angeles office of Arthur Andersen & Co., a Big Eight accounting firm.

Poladian said the tax code “still allows a deduction for gifts of appreciated property . . . but the spread is now considered a tax preference item for Alternative Minimum Tax purposes.” Poladian called it a “slap you on the back of the hands tax,” one that requires that the donor of appreciated goods to charity do two different calculations. The higher tax is paid.

Atlanta wine merchant Frank Stone, one of the savviest of auction bidders and a long-time buyer at the Napa auction, said the new tax law has forced him to make much narrower judgments about what he can and can’t buy, based on whether the purchase likely will lead to him having to pay the Alternative Minimum Tax.

Stone said that prospect “takes away any incentive” he might have had for buying certain lots of wine.

Moreover, Andy Lawlor, a private wine collector from Dexter, Mich., said the Alternative Minimum Tax reduces what a collector can donate to charity. Still, Lawlor and his wife, Linda Lutz, made significant private donations to the Napa auction this year and Lawlor also was a major buyer.

Putting On the Brakes

The elimination of a portion of the wine tax shelter was one reason a number of retailers who used to be big bidders here were not this year. Stone, Paul Smith of Northridge and Charles Mara of Syracuse attended but bought little. David Breitstein of Canoga Park and Sam Spector of Reseda, previous major bidders here, didn’t attend.

Still, bidding on 351 lots of wine brought in a record $424,790, an average of $1,208 per lot. Last year, the average lot went for $1,100. Another $23,000 was raised in a silent auction.

Top bidder was Robert Powell, a resident of nearby Rutherford, who spent $31,760 for a dozen lots including the biggest single purchase, $13,000 for the right to blend 20 cases of 1988 Domaine Mumm Cuvee Napa.

Asked why he was willing to spend that much for the sparkling wine, Powell, a real estate developer, said, “They (Domaine Mumm) are my neighbor, and I jog by their new winery every morning. I just wanted to be neighborly.” At a time when so many wineries’ neighbors are going to court to block expansion plans, it was a refreshing note.

Second high bidder was Jamie Coulter, a Wichita, Kan., Pizza Hut franchisee, who paid $29,220 for various lots of wine including $12,000 for a single 12-liter etched bottle of Far Niente Cabernet Sauvignon. Interestingly, the owner of Far Niente, Gil Nickel, has a major interest in another fast food operation, Kentucky Fried Chicken.

The auction was conducted at Meadowood Country Club, under a huge white tent that shaded the sun, but acted as a sauna for temperatures hovering around 100 degrees most of the late afternoon and early evening.

Sparkling water, lemonade and wine were available to cool off with, but auction organizers missed a grand opportunity to promote other Napa Valley wines. The wine table was laden with Chardonnay and Cabernet, decidedly not hot-weather wines. The Napa Valley also makes some superb Chenin Blancs, Gewurztraminers, and rose’ wines, perfect for the heat, but nary a one was available to sip.

The sparkling water ran out before the sun set.

Corks Begin to Move

The weather was so hot that under an adjoining tent, where wine bottles stood for the silent auction, corks began to ooze their way out of the bottle, endangering the wine inside.

Organizers said winning bidders on wine without firm corks would have their bottles replaced by the wineries, but Robert Kohl, a Beverly Hills bidder and constant attendee to these soirees, laughed and said he had the answer to any loose corks.

“Last year at the silent auction, I bought a bottle and the cork was loose, so I just took it back to my table and drank it with dinner,” said Kohl, who bought $4,130 worth of wine this year, concentrating on older wines no longer commercially available.

Another top bidder was Robert W. Nichols of Capital Management of Los Angeles, who bought $13,600 worth of wine.

Total proceeds from the auction, including nearly $200,000 from the sale of tickets to a Friday night candlelight dinner, was in excess of $800,000.

Wine of the Week: 1987 Robert Pecota Sauvignon Blanc ($9.25)--An appealingly fresh turn for a winery whose style is usually bigger and rounder. The freshness of new-mown hay is offset by complex elements of oak and richness, indicating the wine will improve in the bottle, but it’s excellent now.