Bordeaux brokers often sell wine futures, as opposed to pre-arrivals, meaning that the wine is sold before it ever leaves the barrel. Photo Credit: Flickr CC user John
You’re likely familiar with the phrases “Bordeaux futures” and “Burgundy pre-arrivals,” but do you know what these terms actually mean? Even well-educated wine collectors mistakenly assume that futures and pre-arrivals are the same thing. In reality, while both terms refer to buying wines “en primeur,” they represent two distinct styles of presales. The goal of wine futures and pre-arrivals is to get immediate access to the finest wine without risk of the bottles selling out after release. Collectors view en primeur wine as a good guaranteed investment; famed financial advisor Suze Orman once said, “I couldn’t believe what happened with the value of my wine futures. I pinched myself and asked, ‘Did I just make more money on wine barrel futures than I did on the stock market?’” It’s true that many collectors have had success with futures, but this method comes with risks that every collector should consider beforehand. That’s why it’s essential for collectors to understand the nuances behind futures and pre-arrivals.
Muddled Definitions Confuse Collectors
Many wine collectors, wine bloggers, and wine journalists use “pre-arrival” and “future” interchangeably, but this is a mistake; these terms actually mean two different things. Generally, wine futures are presales that can take place up to two years or more before a bottle is released on the market. Most of the time, buying into wine futures means buying into wine that hasn’t even left the barrel yet; the wine has not yet been bottled, and as such, its quality is not guaranteed. By contrast, pre-arrivals are sold to collectors mere months before a wine is shipped out on the public market, long after it has been bottled. Pre-arrival sales typically take place in the six months between a wine’s bottling and the date on which it’s shipped off to importers. While the wine finishes out its aging process in bottles on the estate, brokers negotiate presale prices to ensure that their clients receive the bottles immediately after they are released. Often, the bottles have already been rated for quality by wine critics who get previews of the vintage or by the estates’ winemakers themselves.
That said, these two definitions aren’t always used in every sale, since specific language varies by estate, importer and collector. Some brokers will draft contracts claiming that they offer wine futures to collectors, when in fact they are selling pre-arrivals of wine that is already in the bottle. Similarly, some brokers will draft contracts claiming that they are selling pre-arrivals for vintages, even when the wine is still in the barrel. The lack of regulation around these terms makes it hard for collectors to choose the best option. This is why it is vital to read every contract with a broker carefully to ensure that the sale is labeled correctly. Don’t take the broker’s word for it when he says he is selling “pre-arrivals;” ask him if that means the wine is already in the bottle before you agree to buy from him.
Futures Get Collectors Ahead, But at a Risk
When you love Bordeaux wine, it’s hard to say no to an offer of bottles from the top estates in the region, especially when you can claim the best vintages years before they’re released to the public. That’s the main appeal of wine futures: collectors get a “head start” on the competition, securing bottles two years or more before they have the chance to sell out on the general market. While some vintages can be cheaper to buy in futures than in after-market sales, this is not the case for all vintages sold in futures. In the past decade, more collectors have turned to wine futures in Bordeaux because of an influx of wine purchases from China. Chinese collectors have been buying up hundreds of cases of Bordeaux wine upon release, making bottles extremely expensive and difficult to find after they hit the market. Buying futures meant getting in on early sales for reasonable prices before every case was nabbed by other investors.
However, many Bordeaux estates are actively pushing back against the boom of wine futures. Berry Bros. & Rudd buying director Max Lalondrelle explains that when some Bordeaux vintages fail to live up to the hype they receive from wine futures, collectors begin to question whether buying Bordeaux wine early is worth the investment. He says, “It is proving impossible, irrespective of the quality of the vintage, to tell our customers to buy into the en primeur system when there is absolutely nothing in it for them and for us.” In other words, even when vintage quality is high, the top estates cannot always guarantee a good futures investment years before the bottle hits the shelves.
No one can truly guarantee the quality of any wine two years before it is ready to be sold. In the past, Robert Parker would taste wines straight from the barrel to determine how well they were aging, but he has since stepped down from this role. He says that he will still taste wine from the bottle, but only after it is released. Parker says, “If you go to the good restaurants in the United States now, Bordeaux is disappearing and a lot of that is their own fault for not making the 2011s, ’12s and ’13s realistically priced.” Many wines in past vintages sold futures at much higher prices simply because Parker had tasted the wines en primeur before bottling, creating an investment bubble in which the futures price far exceeded the true worth of the bottle on the market two years later.
Tampering and Fraud in Wine Futures
Brokers with the best intentions can sell useless futures to collectors should anything happen to the wine before bottling. For example, in 2012, several vandals broke into the iconic Case Basse di Soldera estate, dumping gallons of the 2007 through 2012 vintages onto the floor. Soldera lost about 84,000 bottles in this incident, which was most of the wine being held in vats at the time. Anyone who had futures in these bottles would likely have lost out on investments, since Soldera only had a very limited number of bottles to sell in the wake of the vandalism. Most of these bottles would go to established, full-scale importers rather than individual brokers selling wine futures.
Even if the wine successfully makes it to the bottle without harm, and retains its high quality, collectors still have to worry about wine futures fraud. Futures seller Rare LLC was accused of taking investments from collectors, and never delivering the bottles after they were released on the market. Rare LLC is estimated to have lost investors $20 million worth of unpaid funds. Allegedly, founder Ronald Wallace earned $13 million from collectors investing in wine, spending the money on expensive cars, houses, and trips around the world. He was later ordered by the court to pay back $11 million to his victims. Many of the collectors who invested with Wallace had no idea that he was selling fraudulent futures because they knew they would not receive their bottles for another two years at least. This is a rare case, to be sure, but it’s one collectors should have in the back of their minds before investing in wine futures.
Pre-Arrivals Offer Safety Nets
Unlike wine futures, pre-arrivals are all-but-guaranteed bottles of wine. The likelihood of something going wrong after a wine has been bottled is far lower than while the wine is still in the barrel. This is because winemakers test the wine for spoilage before bottling, wine critics can more accurately rate the wine later in its life, and importers know exactly how many bottles they will receive from the estate. It is still a worthwhile investment to buy wine before it has been released, but collectors should turn to pre-arrivals rather than futures as often as possible. For example, one of the best en primeur investments of 2014 was Lafite Rothschild. This vintage sold for an initial price of $314 per bottle, which was a 25 percent drop in en primeur price from 2012, making it a good up-front investment.
The key to investing in quality pre-arrivals is to buy the wine in the spring at its lowest price, just before it goes on the market, then cellar the wine for 10 years or more to gain interest on the investment. A collector could buy a 2014 Chateau Montrose bottle before it is on the market for $97, and turn around to sell that same bottle for twice as much two years later, or after reaching its peak drinking age, up to three times as much as the original price. Similarly, Leoville Las Cases bottles go for about $104 en primeur, but could be worth as much as $500 after the wine becomes drinkable.
How to Safely Invest in Pre-Arrivals
To make the most out of a pre-arrival purchase, collectors first need to get a quality broker on their side. As a general rule, never buy wine from brokers who claim to sell bottles that are far below the average market price, since they are likely either peddling fake bottles or dealing in stolen goods. It’s also a good idea to get an estimated delivery date for the bottles in writing. Avoid anyone who tells you the wine will arrive “sometime next year,” or “next spring.” Good brokers can give you a specific estimate for your wine’s arrival on your doorstep, ideally down to a specific 2-month timeframe. If something happens that is out of the broker’s control, you should ask to be informed.
Above all, never expect any aspect of the process to be inherently part of the deal between you and the broker, including refunds. Ask the broker to put a refund clause in your contract in the event the wine doesn’t arrive to you as specified. Make sure that the broker can provide you with proof that they will receive the bottles he says he will get from the estate. Do not buy from a broker who claims he will get the wine, but who can’t tell you exactly how many bottles he expects to receive. Most of the time, these deals fall through, the broker never gets the wine, and the collector is out potentially hundreds of dollars. When you think you have found someone reliable to work with, try them out on a single pre-arrival bottle sale first to see how they conduct business; if they appear to be on the up-and-up, start investing in more bottles.
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