Everything Is Bullshit: The Greatest Scams on Earth Revealed (7 page)

Whereas premium wines once modestly appreciated in price,
suddenly ten thousand dollar cases doubled in price in a year. Hong Kong
auctions of Chateau
Lafite
Rothschild commanded
prices at double their traded rates in the United States and Europe days
earlier.

Financiers took note. Banks set up fine wine divisions, and wine
investment funds began shopping for clients.
Liv
Ex
created its indices for fine wine. The Live Ex 50, which charts the prices of
the world’s top performing 50 wines, acts exactly like the
Nasdaq
500 does for
stock brokers
. Investors can buy what
essentially amount to futures by buying wine “en
primeur
”
before it is bottled.

According to James
Maskell
, who
created
Vinetrade
, an online marketplace for wines,
the Chinese preference for these elite wines is mostly about cachet. Bottles
are purchased as a symbol of wealth — or to use as a bribe. Over coffee
in San Francisco,
Maskell
tells
us
that
“the pricing is maybe 25-30% quality, 70-75% brand.” Since cachet
is all about rarity, demand for a wine (say, a 1982 Mouton Rothschild Bordeaux)
increases as supply decreases, accelerating the appreciation of wine prices.

This market consists of very few wines. According to
Liv
Ex:

“The top 25 chateaux in Bordeaux and a handful of properties
from other regions dominate. Indeed, our research suggests that just eight wines
– the five First Growths, plus
Petrus
, Cheval
Blanc and
Ausone
– account for more than 80 per
cent of a typical wine fund’s portfolio by value.”

But investors cannot simply buy top wines and wait for them to
appreciate in value. In 2008, Bordeaux producers raised their prices
dramatically to capture the profit margins made by speculators. Merchants and
investors balked, and suddenly the bubble popped. Investors undercut each other
in their hurry to sell. Cases priced at £15,000 sold for £6,000 or £7,000
before the market stabilized.

The top Bordeaux alone cannot satisfy demand, so today’s wine
investors need to predict the next wine to be anointed a member of this market.
Bordeaux second growth wines took off first, then elite French Burgundies.
Maskell
describes one investor who buys similar Italian
wines in the expectation that they too will become elite wines. Wine analysts
in London, New York, and Hong Kong,
Maskell
says,
“assemble huge spreadsheets with things like critic scores, drinking windows,
available supply and prices that they manually compile and
analyse
”
in search of the next wine that Chinese businessmen will buy to one up each
other. They speculate in human snobbery.

Is Wine a
Hoax?

Cachet
may drive up the price difference between fine wine and table wine. But how
great a role do quality differences play? The academic literature on this
question appears robust and damning: when tasting wines without reference to
their name, type, or price, almost no one can consistently identify them or rate
their quality.

In 2007, the California State Fair Commercial Wine Competition
named Charles Shaw California’s best chardonnay. “It was a delight to taste,”
announced one judge. In 2012, top French wines (including the premier cru
Château Mouton Rothschild) barely defeated wines from New Jersey in a
professional tasting. The Jersey wines cost 5% as much as the French wines.

These results are not aberrations. In 2008, a paper in The
Journal of Wine Economics found that consumers unaware of a wine’s price “on
average enjoy more expensive wines slightly less [than cheap ones].” Experts do
not fare much better. The study concluded: “In sum, we find a non-negative
relationship between price and overall rating for experts. Due to the poor
statistical significance of the price coefficient for experts, it remains an open
question whether this coefficient is in fact positive.” Further academic
evidence strongly suggests that experts cannot identify “good” wine.

The
100 point
scale for rating wine,
invented by Robert M. Parker Jr., is extremely influential.

According to the buying director of prestigious wine merchant
BB&R, “Nobody sells wine like Robert Parker. If he turns around and says
2012 is the worst vintage I’ve tasted, nobody will buy it, but if he says it’s
the best, everybody will.” When retired statistician and hobbyist winemaker
Robert Hodgson successfully lobbied to measure the accuracy of the system in
the mid 2000s, his results showed that the judging was completely inconsistent.
By having the judges rate the same wine multiple times, he found that:

“The judges’ wine ratings typically varied by ±4 points on a
standard ratings scale running from 80 to 100. A wine rated 91 on one tasting
would often be rated an 87 or 95 on the next. Some of the judges did much
worse, and only about one in 10 regularly rated the same wine within a range of
±2 points.”

Year after year, Hodgson replicated his results. When he
broadened his scope to hundreds of wine competitions, he discovered that the
distribution of medals “mirrors what might be expected should a gold medal be
awarded by chance alone.”

More sanguine critics — who do not dismiss studies like
Hodgson’s as “hogwash” —
often
point to the
shortcomings of tastings and the subjectivity of taste. But arguing that judges
taste too many wines per tasting, or that the 100 point scale enforces
artificial uniformity on subjective tastes, does not seem to address the way
these findings shake the foundations of the wine industry.

At the University of Bordeaux, for example, Frederic Broche
conducted an experiment in which experienced viniculture students tasted
glasses of red and white wine. The students described the red in language
typical of reds and the white in language typical of whites. The problem? Both
were identical white wines; the “red” had been tinted with food coloring.

So why then do critics and consumers bow down to
Lafite
Rothschild Bordeaux when objective analysis suggests
that the Emperor has no clothes?

Well, outside the world of
double-blind
taste tests, perceptions matter.
People are influenced by
wine critics, marketing, and fear of appearing foolish
. Another
explanation is that big-name labels and high price tags literally make wine
taste better. Numerous experiments have shown that people will enjoy a table
wine and a fine wine equally if they believe that both are fine wine. The
drinkers could be lying about enjoying the “bad” wine due to social pressure.
But an experiment involving a Stanford wine tasting group, a lineup of
identical wines presented under fake price tags from $5 to $90, and
a
fMRI machine measuring activity in areas of the brain
correlated with pleasure suggests otherwise. Drinking the same wine with a
higher price tag did increase pleasure.

Despite the substantial differences in wine production and
hundreds of years of history, the most significant determination of a wine’s
“quality” seems to be pure perception.

A Tale of
Two Startups

While
the cheap, industrial wine market operates by the same dynamics as the light
beer market, fine wine is all about experience — a point aptly
demonstrated by the contrasting experiences of two wine business founders.

After a year spent observing wine collectors and investors in
London, James
Maskell
believed that the industry’s
opaque network of
luddite
middlemen offered an
opportunity. With venture capital backing, he and a co-founder launched a
website called
Vinetrade
in 2012 as a marketplace for
buying and selling fine wines. Users could list their wines for sale and buy
from other investors and collectors with a few clicks.
Maskell
and his partner aimed to play a “classic intermediation game — connect
buyers and sellers, increase transparency, cut margins, and take a small cut”
for themselves.

Customers wanted to avoid fees of around 15% levied by middlemen
and to buy and sell without picking up a phone, so many people in the market
expected
Vinetrade
to do well. In early 2013,
however,
Maskell
decided to shut
Vinetrade
down. The most fundamental problem, he discovered, was that people resisted
ordering wine online. For hobbyists, it destroyed the fun of being part of an
elite group that unashamedly used words like “tannin” and “subtle.” For
investors, it denied them the opportunity to exchange information with
salesmen. “Even if they don’t admit it,”
Maskell
tells us, “people like having the posh voice on the other end of the line. They
want reassurance and they want to feel part of the ‘boy’s club.’”

In the stock market, most assets have an underlying value based
on objective facts. In wine, taste and quality is a factor of perception.
Investors deal, then, in perceptions of perceptions. In the small world of
insanely expensive wine, value and prices are determined by what the wine
clique is saying about a given vintage. Sellers could not afford to trade
conversations with salesmen for the efficiency of a computer screen because the
only currency in the market is everyone else’s take on given wines. It would be
like trying to predict the next “it” couple in high school without talking to
the popular crowd. “I think that we proved that people buying wine don’t care
about our data and don’t care about our graphs,”
Maskell
reflects. “They care about what people are saying.”

Two years earlier, Troy Carter took a different approach to a
wine startup — he bought a motorcycle and began driving around California
wine country. He rode up to small wineries, said, “Hi, I’m Troy,” and asked to
sample their wines. When he found a wine tasty and unique and the winemaker
pleasant and “authentic,” he offered to buy wine to distribute and sell through
his mailing list “Motorcycle Wineries.” Trucks drive the wine he buys from
California wineries to his San Francisco warehouse where he distributes them to
restaurants and individuals.

Carter’s goal with Motorcycle Wineries — other than
travelling and tasting any wine he wants — is to bring romance and
authenticity to the experience of buying wine. “If you just want wine that
tastes good, you can go to Costco,” he tells us. “But there is a large group of
people that want to have a unique experience. They want to discover wine at a
tasting or at a winery off the beaten path. They want the history of finding
something that was sitting in a cellar for a long time. That is what I
provide.”

Carter works only with tiny vineyards that use natural
winemaking techniques like organic grapes and follow traditional techniques
like
hand-bottling
. High labor costs renders these
wines more expensive. “Authenticity does not scale very well,” Carter says.
Nevertheless, his bottles cost around $15.

How did Carter convince winemakers to trust him?
By wearing leather.
“They’re the only clothes I own,” says
Carter, looking down at his understated leather pants and jacket. By showing up
on a motorcycle wearing leather, he looked the part of a man who travels the
world looking for unique wines. When he didn’t wear leather, he was not taken
seriously. “Winemakers ride motorcycles,” Carter tells us. “I don’t know why,
but they do.
Maybe because they have a romanticized vision of
wine.
Like I do.”

Romancing
the Wine Industry

People
inside and outside the wine world can argue whether a 1982
Lafite
Rothschild is incredible or a scam. But it almost no longer matters. The end
result of the fine wine market’s cherished
romanticization
of wines like
Lafite
is that now only corrupt
businessmen and oligarchs can afford it.

Given the way people use the language of wine to police class
lines, it’s tempting to look at this result with
schadenfreude
and to cite studies by wine economists as a sign that wine snobs are full of
it. For wine insiders, it’s easy to retreat to the safety of wine tastings,
where the value of fine wine is assumed, and to retort that these studies
somehow misunderstand wine. Neither response is quite right.

To discern why, it helps to understand what people mean when
they say “taste.” Taste buds detect the sweet, sour, bitter, umami, or salty
qualities of food and drink, but there is not a sum of each taste that equals
the taste of fried chicken or fresh strawberries. Information from all five
senses informs our perception of taste.

This is imminently apparent to anyone eating a meal with
a cold
and sinus congestion; smell and taste are closely
linked. The information provided by senses other than our taste buds can make a
surprisingly significant impact on how we perceive the taste of wine, and the
same is true for other foods and beverages.

Take color, which can trick us into tasting a nonexistent flavor
in food in the same way it tricked the wine students tasting white wine dyed
red. As the New York Times reports in an article on food coloring: