Vintage Portolio

Ted Hudgins had his first real exposure to the world of fine wines while working in upscale restaurants during law school.

"I had to work as a waiter and sommelier," he says. "You can't do those jobs unless you know wine."

Now a tax lawyer in Naples, the 46-year-old has never lost his taste for champion chardonnays and the best Beaujolais.

"It usually adds something to the weekends when I have friends over or I cook dinner," Hudgins says. "It's one component of the meal."

Hundreds of wines are available at supermarkets and liquor stores across Southwest Florida, many of them quite good and reasonably priced. But for a forward-thinking connoisseur such as Hudgins, this doesn't always cut it. He wants the best of the best and he wants it before everyone else. That's why he dipped his toe several years ago into the world of wine futures.

Among true oenophiles, wine futures are a small but growing part of their hobby-and, potentially, their portfolios. With wine futures, they can purchase wine years before it is bottled and years before it reaches store shelves.

It's a way of buying the wine early in its development, says John Farrell, chairman and chief executive officer of Haskell's Inc., a wine retailer based in Minnesota, with a store in Naples. "Bordeaux, for example, takes three years from the day it's harvested until it's released."

Farrell says prices are released six months after the harvest. This is called the "first tranche." First tranche prices are very low and allow investors to get the wine far more cheaply than if they wait and pay the ultimate retail price. It also assures they will get their hands on the wine they want, something that is often a gamble with the most sought-after vintages. Subsequent tranches usually follow, but the prices tend to increase each time.

"I buy wine that I believe I want to own, and I buy it because I believe the price down the road will be significantly higher than the price I can buy it for as a future," Hudgins says.

Not all wines are sold on futures. In fact, industry experts say only wines from the Bordeaux region of France and occasionally wines from California currently are sold early.

"You don't buy Kendall Jackson on futures. You don't buy Gallo on futures," says Michael D'Alessandro, owner of the Naples Wine Warehouse, a private firm that helps collectors obtain high-end wines. "It only occurs when the vintage is strong. Not every vintage is a futures vintage."

Investors in wine futures base their decisions on the ratings given by elite tasters who are given early samples of vintages. They also watch temperature changes and rainfall amounts in wine-growing regions to see how environmental factors might impact a harvest.

At Haskell's, managers have long dealt in wine futures, not only for themselves but also for their loyal customers. Over the years, they have seen the fruits of investing in the right future.

"One of the classic examples of wine as an investment would have been the 1982 Cheval Blanc," says Farrell. "We sold this wine for $900 a case (12 bottles). Today, it sells for $750 a bottle." That's $9,000 a case-10 times the original price.

That example highlights the quandary from some who get involved in wine futures: whether to pursue it as a hobby or an actual moneymaking investment.

"I would say the invest-ors are in the minority," says D'Alessandro. "Wine investments are one of the most risky commodities because there's not always a ready market for disposing of it. If you buy a bushel of corn, you know you have a market of people wanting to buy it."

Hudgins has tasted the temptation of wanting to sell his shares in a valuable wine before he's received it. It's called "flipping" and it's a temptation he resists.

"Make sure you want to own the wine," he advises. "When you look at it as a way to buy and flip, it loses some of the aura about it. Bad things can happen."

And bad things do occasionally happen in the world of wine futures.

Case in point: the sad story of a company called Rare LLC. The owner of the Colorado-based online wine retailer allegedly sold futures in wines he didn't own, and used investors' money to splurge on a lavish lifestyle. He was arrested late last summer and accused of bilking millions from his clients. For this reason, experienced wine collectors and dealers stress how critical it is to know your wine merchant, including his or her background and reputation in the industry.

"It's very important," D'Alessandro says. "Amateurs don't necessarily understand the business and the commercial end of how that product is transacted."

Most people start small. As with any investment, you don't want to get in over your head. Depending on the retailer, clients can sometimes buy individual bottles and put together a mixed case. However, most people commonly start their wine futures experience by buying a case or two of a single, promising vintage.

From there, the sky's the limit.

"I see clients that will spend $50,000 to $100,000 or more on certain [vintages]," says Philip Bohor-foush, a client services executive with Vinfolio, a San Francisco-based wine club. "When a great vintage comes along they're ready to commit and invest in it so they can secure those wines."

For Hudgins, wine collecting has been an enjoyable hobby. He's learned a little more about the process each time he's invested, and hopes to pass his passion and knowledge on to the next generation one day.

"I bought a case of 2000 Pichon Lalande for my daughter because that was her birth year. I bought it on futures," says Hudgins, who took delivery of it several years later and has it in the 500-bottle wine cabinet in his home. "I'm saving it for a special occasion, like when she turns 21."

Tips for Sampling Wine Futures

Know wine. It's hard to invest in something if you don't know anything about it, be it stocks, art or fine wines. Local wine merchants offer classes; many wine books are available at local stores; and Web sites, such as www.wine-searcher.com, provide information.

Know your wine merchant. Ask around among wine aficionados. Check out a merchant's reputation. Perhaps even check with a local Better Business Bureau. As in any relationship, be wary of people whose promises sound too good to be true and always tell you what you want to hear.

Buy what you like. If you're buying wine futures with the hope of reselling them, remember that prices sometimes don't rise as expected or buyers are scarce. If you buy a wine you enjoy, you'll at least have it to drink at your dinner table.

Store your wine properly. Make sure you keep your wine at the right temperature in the right type of storage, usually a wine cabinet or wine cellar. Poor storage can destroy expensive wine. You should also make sure your high-end wines are insured.

SOURCES: John Farrell; USA Today; Internet resources.