In today's global macro economic climate—low interest rates and lousy returns available from other investments—art has been bumped up to a widely recognized investment grade asset class, a safe harbor in a world of mass economic uncertainly bordering on hysteria. With the recent enormous values on certain paintings, art has become a fully-fledged commodity market. Especially art, with such well documented recent astronomical returns, right smack in the middle of the world’s most prolonged and deep recession. Which is a good thing (if you like art), as the audience has grown exponentially partly as a result of press and prices and continues to do so, more in the past 10 years than in the previous 100.
People have now come to expect a mostly fair, healthy, burgeoning trade with at least a little semblance to a transparent forum in which to transact business. Art is no longer just bought and sold, but rather, has all the attributes of a mature commodity market that is actively traded in high volumes, in public forums, along with readily available resources for reliable pricing histories (Artnet, Artprice, Artinfo). That is why we are here. If numbers like $100-200m weren’t screeching across the headlines, as they are, we wouldn’t be sitting in this classroom and no one would be interested in how much a Jeff Koons just fetched and why Damien Hirst’s market is down 30%.
Andy Warhol foresaw all of it, he took the timeworn notion of painting in a modest series and blew it up with industrial scale production. To quote Hirst: “They don’t just make dog food in factories they make Ferraris too.” Warhol saw art as a source of capital generation with the capacity to be used as a means of exchange, but never lived to see his vision come to fruition. Or at least not to the levels we are seeing today. His auction record during his lifetime was $385k for a work “200 one dollar bills” once owned by the Ethel and Robert Scull (see below) and subsequently sold merely 23 later years in 2009 for $43,762,500. The only thing worse than being behind the times is to be too far ahead.
People complain of over-production and limitless supply in the contemporary art sector, but they fail to understand that a real market that can sustain prolonged growth, needs not less works, nor even constantly innovative and original pieces, but rather more of the same to feed demand. We live in a world of brand driven, me-too-ism, where everyone wants what his or her pals have, something easily recognizable as much for what it looks like as for how much it costs. It’s much easier to gauge value when comparing like to like if there are loads, and, to boot, everyone can get a piece of what they want, or think they want.
The move away from the tradition of art being bought and sold in gentlemanly one on one dealings, and auctions that were largely colorless affairs attended by professionals only, dates back to a few momentous occasions which broadened the market to include contemporary art and raised the profile to wider audiences with ever increasing prices. Art went from being collected quietly in the manner of which LIoyd’s of London has operated for centuries, to all out grandstanding, glitz and glamour widely reported as much in gossip pages as in the financial press. And then of late, the art business went somewhere altogether different and came to mimic the cannibalistic ways of investment banking: with big bucks inevitably follows a certain bloodlust.
The first such event that transformed the art market into the mature platform it is today was the 1973 auction of 50 contemporary artworks belonging to Robert and Ethel Scull who became famous on the back of their Pop and Minimal art collection. Rather than being celebrated for cashing in on the foresight of their wise investments, for which they paid very little, they were castigated by artists and critics alike including protests prior to the sale outside of Sotheby’s, and accusations by Robert Rauchenberg of profiteering and lack of loyalty. Rauchenberg was said to have punched Robert Scull after the sale, which provocation did little to impede the momentum of what was to become a full on raging bull.
Another major turning point was the forced Sotheby’s sale in May of 1997 of contemporary art works purchased by cardiologist, Dr. Bernado Nadal-Ginard, who was convicted in U.S. District Court in 1994 of embezzling funds from Boston Children's Heart Foundation, Children's Hospital. A person who robs money earmarked for children’s heart surgeries is what I’d politely call a really determined collector indeed, but one who’s actions had the unintended effect of ushering in a time when recently made works by recently minted artists came to be seen as viable fodder for a high stakes evening sale. Such works would have previously been accorded lower day sale status, but after the huge successes (for better or worse), the floodgates were opened in the expansion of the definition of what would constitute expensive, and hence covetable art.
According to Judd Tully in a 1997 Artnet article:
“Prices realized, such as the record $343,500 for Barney's Transexualis (Decline) from 1991 (est. $100,000-$150,000), $167,500 for Whiteread's Untitled (Double Amber Bed) also from 1991 (est. $30,000-$40,000) and $233,500 for Kiki Smith's crouching Pee Body from 1992 (est. $60,000-$80,000) not only set individual artist records at auction but elevated these young stars (and other contenders, such as Robert Gober, Jeff Koons, Barbara Kruger and Cindy Sherman) to serious blue-chip terrain.
The records kept falling with Stacked (1988), Jeff Koons' vertical group of polychromed wood animals, carved in a litter (edition of three), which sold to an anonymous telephone bidder for $250,000 (est. $125,000-$175,000). Similarly, Robert Gober's wax human trunk from 1990, Untitled, brought $189,500 (est. $125,000-$175,000), selling to Zurich dealer Ivan Wirth of Galerie Hauser & Wirth. While not a record, Bruce Nauman's aluminum and wire Large Butt To Butt (1989) went to SoHo dealer David Zwirner for a huge $299,500 (est. $150,000-$200,000).”
The true globalization of the art market, led by emerging markets such as Russia, the Middle East and China, was yet another element that contributed to catapulting contemporary art into the forefront of the market and, in the process, elevating the market itself to a whole other level. Multi-national galleries such as the Gagosian model, coupled with the expansion of the auction houses—from opening worldwide branches, to initiating private treaty sales and primary market exhibitions such as Sotheby’s S2 gallery as well as the proliferation of art fairs opening each and every month at a location near you, all helped to create a new world order with art at the forefront of a new class of investments. Though they may be labeled variously as ‘Passion’ or ‘Treasure’ assets, under any guise, you have a phenomenon that is now approaching tsunami scale. And it isn’t going to stop anytime soon. That fact that art is now traded like shares or coal defines a new era in how art is perceived and transacted that will be with us for some time to come.
Don’t Shoot the Messenger (Part II)
A prediction: The market is getting so much press play, people will revert to thinking, speaking and writing about art from sheer boredom. But until that happens, let’s look a little more closely at the topic. In the book Rembrandt’s Enterprise, by Svetlana Alpers, it was mentioned that the artist bid up his own prints at auction, and his assistants painted coins directly onto the floor as a ruse to get him to pick up and try to pocket the change. When Picasso was asked what a painting was about, he was said to respond: “About 50 grand to you,” he was also known to have backdated his works to a period when they were more valuable and always strictly controlled his market. Art and money go way back.
Marcel Duchamp printed stock shares to sell his work as an IPO (Initial Public Offering) and had various harebrained ideas on how to make money, from dyeing fabric to inventing toys. Although none of his schemes ultimately worked, there was the underlying notion of equating art with money helping to pave the way for others, leading to where we find ourselves today in this frenzied art economy, where not only does art sell for a lot of money, but a lot of art is in fact about money.
It is my position that art has an inherent calculable value; besides, it’s been assiduously collected since it came off the cave wall. Picasso is the gold standard against which all is measured: His prints, paintings sculptures, ceramics, whether early or late in his career, are all sought after today with palpable fervor. The medium, size, colors, composition, subject matter and year of origin, are all relevant in determining the price of a work by the artist, although it is certainly true that just about every artwork has a different price depending on whom is standing in front of it. A seasoned pro or “important” client often demands and receives a better deal than a neophyte: Buyers beware squared.
When setting or considering the price of an individual artist, the simple parameters are size, cost of materials (an expensively fabricated vitrine vs. paint on canvas), age of maker, where the art is being shown, whether there are any commercial venues abroad, extent of involvement with public and private institutions, and finally, auction history. Basically at the early stages of an artist’s career, who’s selling, buying and writing about the work is as important, if not more so, than the artwork itself, and that is true for many years to follow. Eventually, the fair value of an artist’s work (if there is a God), and you trust in the notion of a meritocracy, will be established based on something other than the amount of ready cash thrown at it.
Strangely, the values of an artist’s output as his or her career matures, can be measured like an annuity in reverse, as the highest valued work typically is that which is made earliest in a career, hence Picasso’s backdating. Of course there are always anomalies and artist prices move within the realm of the momentum you see in other more traditional markets. When they hit a high at a given time, then don’t necessarily go on to establish further records in subsequent years, oftentimes prices will begin to trend down.
Artists, or the speculators that trade in their works, can shoot their load too quickly with sudden increases in prices that cannot be sustained; the art world is a fickle lot. For example, there are instances of artists who peaked in 2008, a kind of frothy, overheated top in the contemporary art market, never to bounce back to those levels since. The longer the softness lasts in relation to the prices of a particular artist, the harder it is to recover.
The actual process of buying and selling art is rather unlike any business on the planet. Sadly for those in the business of promoting the work of emerging, unproven artists, buyers approach the relationship like going into a supermarket, and attempting to negotiate down the price of a liter of milk, not paying for a year, then returning it due to the milk being rancid. In an art world afflicted with collective ADD (Attention Deficit Disorder), there is little or no use (or demand) for skill, criticism or connoisseurship when the singly recognized indicator of value is price and that alone.
I have no issue with the hot and heavy romance between art and money, but when it comes to offshoots of the phenomenon such as art funds and art financing, that’s where I draw the line. I do not concur with the occurrence of funds because they divorce the aesthetics from the art, and I cannot be so clinical and dispassionate in my choices. In any event, the kicker of owning art is the visual dividend afforded by living in close proximity to the works whether experienced by studied or casual glances.
Joe Roseman’s book on alternative investments entitled SWAG, an acronym for Silver, Wine, Art and Gold makes for an interesting read. While I agree with the concept that most of these are now all but fully-fledged asset classes, in an effort to coin a clever term, he misses the point: Substitute real estate and classic cars for silver and you have a more accurate picture. But sadly, when you collect and hoard treasure assets, we are left with cars we don’t drive, houses we don’t live in, wine we don’t drink and art we don’t look at. But these are no playpens for the inexperienced or under-informed: a Ferrari from the same year can sell for $40,000 or $40,000,000 and the same can be said for a Warhol (with a lot more at risk).
Private museums have eclipsed museum-museums to confer value, not to mention the death of the critic and art journal, soon to be followed by the end of galleries as we know them. Business journals like Bloomberg, Financial Times and Wall Street Journal are today’s art magazines. And the patrons are in the midst of becoming more known and revered than the artists.
In the not so distant past, the Gagosian quotient, i.e. an artist getting absorbed into the world’s most high profile gallery’s stable would add, in my estimation, a 20% increase of prices on average. This could be more systematically established by researching auction prices of artists in the year before and after joining Gagosian. But it seems that we are now in a Post Gogo universe, an age of artist free-agency where rich artists have cut loose from the gallery system; a new paradigm where the once all-powerful galleries stand to lose as much as everyone else.
Even the most expensive living artist can face a collective nose snub from the collecting public. An example is a group of Gerhard Richter pencil drawings I was offered, for which there is a separate catalogue raisonné (a log of all recognized works by a given artist). Despite the unequivocal virtuoso nature of the works and their large museum history, they are too esoteric, too far afield from the artist’s colorful abstractions or blurred photo-based realism to be wholly absorbed and embraced—for the moment at least. The market is too damn like-minded and capricious to assign value to such a largely unknown and under-appreciated aspect of Richter’s body of work.
Art’s trading floors for bulk business, aside from Sotheby’s and Christies, are the freeports, international fairs and offshore outposts of mega dealers, where clients trade according to the most advantageous tax jurisdiction. At present, with third party guarantees and dubious bidding by interested parties, auctions are like dog and pony shows for publicly setting (propping up) values. A rule of thumb is that sought after artists sell more expensively at auction than on the primary market (they are harder to come by and you need good personal relations with the dealer and sometimes the artist too), and lukewarm ones go for less at public sale than private gallery.
Now the auction houses on bearing down more than ever in going head to head with commercial galleries. In this vein, you have Sotheby’s S2 venture, a result of the fact that auction houses face a new degree of pressure to become more proactive, i.e. more year round profit making, in addition to regularly scheduled sales. But a problem in today’s Big Money art world faced by dealers and auction houses alike is chasing collectors in effort to draw out valuable works fresh to the market. I know of one who turned down the price of an office building to sell a classic Picasso, stating an often heard refrain: “what will I do with the money?”
In the newfangled art-finance landscape we now inhabit, all manner of technical graphing tools have come into play to try and help (novices presumably) make sense out of the soup. In this regard you have Artprice, Artnet Analytics and Moses/Mei: artist and art market tracking indices—but are they as pointless as they seem? After reading the web site of Moses/Mei, coordinated under a company called “Beautiful Asset Advisor, LLC,” I’d venture to say irrelevance isn’t a strong enough term. Breaking art down into such sophomoric and pedantic graphs and charts is at best foolhardy and worst gives a misleading picture indeed.
As the last fully unregulated multi-billion dollar industry, insider trading in art is not sanctioned but certainly permissible by buying ahead of unannounced museum shows. They say art is a good place to launder money, and with tighter monetary reporting regulations and banks selling client lists to governments like hotcakes, perhaps there is some truth to this. Taking into consideration all the above, are we approaching a climate ripe for regulation in the art market? The recent spate of art world lawsuits (mostly involving Gagosian) especially those asking the question: can dealers represent both sides of a transaction without disclosing such agency relationship, would certainly indicate the climate is ripe for some regs.
Art is a tricky thing to codify as just another offshoot of a financial instrument. As a collector, you are really no more than a mere custodian charged with ensuring the safekeeping of often very fragile and fleeting objects. On the secondary market, questions of authenticity and title are less clear than ever before and only getting more convoluted. Also, you can never overemphasize how illiquid art is in relation to shares and bonds. In other words, art is as much of a minefield for the uninitiated as trading in financial derivatives. From simpler times when art was collected with passion and dedication, albeit a passion with social cachet, somewhere along the way it became a bigger business than the business I initially ran away from when I began curating.
- Kenny Schachter
