From Dirt to Dollars

From Dirt to Dollars

Imagine this for a minute. You could make 34,980 bottles of wine that generate about $140 million per year, which calculates to about $4000 per bottle, retail value. In this scenario you own Château Pétrus. You discover that your bank account is overflowing like trying to pour an entire imperial into a half bottle and you realize you have to put your cash somewhere. What’s an extremely rich person supposed to do? I guess you could buy a place like Third Growth Château Calon-Ségur for $215 million (it was recently on the market at that price) but doing the math just doesn’t add up.

I‘ve been looking at the numbers and they’re interesting and even a little surprising, especially compared to just thirty years ago when a good bottle of Lafite was $35. The fabulous 1982 vintage of Château Lafite Rothschild was released at $41 per bottle but you could find it for about $35. The fabulous 2009 vintage of Lafite was released at $1300 per bottle but the average price you can buy it for today is $1830. So would you rather own Pétrus or Lafite? Before you answer, understand that the 2009 vintage produced 216,000 bottles of Lafite. This translates into a staggering $280,800,000 dollars of retail value. My answer? Lafite, please. Have a look at this chart I put together for your consideration:

Chart

Parsing through the numbers onthe chart above is revealing and even amazing but it certainly doesn’t tell thewhole story about being the owner of a classed growth Bordeaux. Because the Bordelaisunderstandably tend to be hushed about their business affairs, my best guess isthat the château itself retains at least a third of the retail release price.After all, there are brokers, négociants, and shippers to pay on the Frenchside of the pond, and importers, distributors, and retailers to pay on thisside, all of whom get a piece of the action, carving deeply into the margins ofthe winemaker.

Still a 33% take on $280 million a year sounds pretty good but operational costs also must be considered and they don’t come cheap. Certainly one of the things that contribute to the greatness of these estates is their vineyards and the meticulous care given to the vines and soil. The cost of manual labor involved in tending the vineyards all year around is substantial, with one or more workers assigned to small parcels. Harvest can be a big expense too, especially for estates like Château d’Yquem, when some sections of the vineyard are ripe but others are not yet, so workers have to stay for up to eight weeks going through the vineyards a dozen or more times to get the grapes at their peak. These are skilled workers too because they have to be able to recognize noble rot, from gray rot, from acid rot and bring in only the appropriate bunches that are ready to be harvested. Or if the château has many acres under vine like at Lafite (264 acres), this labor cost becomes very expensive. Even buying new oak barrels every year can add up a million dollars or more. The winemaking crew, the cellar crew, storage, and so on all deplete capital. Operational costs would be quite high for many of these châteaux but still they are able net significant amounts of money. I would think in a year like 2009, Lafite could manage to stash away close to $100 million, not bad for a year’s work.

Back to Château Calon-Ségur, $215 million sounds like a lot for a château that even in its better vintages only brings in maybe $7 to 10 million. It was originally reported that the château was being purchased by Jean-Francois Moueix, the owner of Château Pétrus – here’s a guy that could have definitely done something with the estate to bring it up to its Third Growth status, or beyond. But sadly, in the end, an insurance company, Suravenir Assurances, purchased it for 170 million Euros ($213,775,00 US). I say ‘sadly’ due to the fact that many fine wine estates are bought up by insurance companies because they have the resources to buy them, but not the wisdom to maintain or operate them properly. In fact many such estates go downhill quickly because big corporate boards don’t want to put any further money into the château. Lack of knowledge, passion, and commitment drives such once-great châteaux into the dirt, so to speak, with a few notable exceptions such as Château Latour, owned by French in industrialist François Pinault.

The numbers in the chart are just a glimpse but there can be no denying that owning a classified château in Bordeaux can be very profitable. Of course one wonders about the wisdom of the Marquis de Ségur, Nicolas Alexandre, who in the 1700s owned First Growth Châteaux Lafite Rothschild, Latour, and Mouton Rothschild, Second Growth Montrose, and other classified estates. He sold all of them except Calon-Ségur but at least not to an insurance company.

David Boyer

Photo: Château La Mission Haut-Brion, a truly beautiful estate, rendered from a photo I took in May 2012

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