June 15, 2015 - Auctions play a big role in the age-old industry of hot dog sales in New York City. Every five years, the parks department holds an auction for food cart permits, which earns more than $4.5 million per year, from the collective pushcart bidders. A vendor’s winning bid then becomes a flat “rent-like” fee that they pay annually to the Parks Department for the permit. They are further required to sign five-year contracts and then are expected to increase their flat fee by 5%, annually during that contact period.
In 2013’s auction, the highest bid went to the location just outside the Central Park Zoo and was for an astounding $289,000. Central Park itself seems to be prime real-estate for frankfurters, as all 20 of the permits for the area exceed $100,000 each.
The New York Times reports, “a lot of visitors (are) in need of sustenance. So while vendors are adamant about not divulging details about what they make, most pushcart sites presumably turn a profit or they would not attract such high bids.”
The downside to all of this is that non-seasoned individuals, who walk into the business with the proverbial dollar signs in their eyes, can quickly overpay for these permits. This overbidding comes well before they factor in barriers like mandated flat pricing structures for product, or the cost of overhead in the form of insurance, taxes, suppliers, etc. Costs add up quickly and those dollars become fewer and fewer, sometimes forcing these “winning bidders” out of business.
We find the same phenomenon at our industrial auctions. When the really desirable assets hit the auction blocks, buyers are often sucked into the frenzy and will overpay. Hot Dog!