How Goldman Sachs is Annie Leibovitz’s last hope

By Felix Salmon
August 17, 2009
story on Annie Leibovitz before the really new and juicy stuff appears:

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You need to get almost 6,000 words into Andrew Goldman’s story on Annie Leibovitz before the really new and juicy stuff appears:

Under the terms of the agreement, says a person familiar with the loan, Art Capital could be entitled to up to 22.5 percent of all the proceeds from the sale of any of Leibovitz’s work—even for two years after she’s paid off the loan. And that percentage could increase to close to 50 percent if she were to default…

Goldman Sachs, which helped finance the loan, now seems to be distancing itself from Art Capital and reaching out to Leibovitz. “We are deeply troubled by recent developments concerning Annie Leibovitz and Art Capital,” says Goldman spokeswoman Andrea Raphael. “Goldman Sachs owns a portion of the loan underwritten by an affiliate of Art Capital to Annie Leibovitz, but we have no involvement in the current sales-agreement dispute between Art Capital and Ms. Leibovitz. We have proposed to Art Capital that we terminate the current loan agreement with their affiliate so that we can work directly with Ms. Leibovitz to help her resolve her financing needs.”

Allow me to make the subtext explicit. Art Capital talked Annie Leibovitz into signing a draconian agreement — one which she was all but certain to be forced to default on. The terms were onerous enough to begin with, since they gave Art Capital sole right to sell any of Leibovitz’s work while any of the loan was still outstanding and for two years thereafter. But the terms become really predatory if and when Leibovitz defaults, to the point at which Art Capital expects to make an annualized return on its investment in the 40% to 50% range.

Art Capital did not, however, simply have $24 million lying around when it extended the loan to Leibovitz. As a result, it sold part of the loan to other investors, including Goldman Sachs. And Goldman Sachs, while it’s happy to make lots of money, does not want to be painted as a predatory lender. So Goldman is now Leibovitz’s best hope: if Goldman can buy out Art Capital, it might be able to come to a more Annie-friendly agreement.

The problem is that Art Capital is internally valuing its loan to Leibovitz at much more than $24 million. Goldman could offer to pay Art Capital back in full, with interest, but Art Capital has every reason to reject any such approach, since they would make much more money by allowing the loan to default and then exercising all their contractual rights.

There’s only one reason why Art Capital would take the deal with Goldman, and it’s hinted at earlier in the piece:

Edwynn Houk, her gallerist until last year, had no trouble selling her images. Leibovitz, however, could never get around to signing the prints. A buyer might have paid in full but still not get his picture for two years. “Nothing seems easier to me,” Houk says of the stack of photos perpetually collecting dust in her studio. “It’s a mystery why it took so long.” It was a complaint Houk was unable to register with Leibovitz directly because of her habit of postponing their scheduled calls. “Our record was sixteen months,” he says with a sigh.

Or, as John Cook puts it more succinctly, “who wants to spend $50 million on pretty pictures when a raft of lawsuits is in the offing?”

The fact is that so long as Leibovitz refuses to cooperate with the people she’s contractually obliged to cooperate with, it’s going to be really difficult to monetize her archives. Marion Maneker has done the math:

Leibovitz’s prints have sold at auction for as much as $50,000. Her portraits of Keith Haring, Muhammed Ali and John Lennon and Yoko Ono together are the works that have repeatedly attracted auction bids in the $35-50,000 range. Not really enough to drive a $50m valuation.

Since no physical prints are mentioned in the suit as collateral, ACG seems to be selling the copyrights to Leibovitz’s work as well as her labor. How would a buyer paying $30-50m realize the value from those copyrights? Surely they would not be expecting to make 1,000 prints of Haring, Ali, and Lennon/Ono (that’s a joke, btw), so what’s the commercial value (as opposed to the fine art value) of Leibovitz’s artistic output? The ability to sell postcards or plates with images of Whoopi Goldberg flailing in a bath of milk? (Ok, another joke. But also more than a rhetorical question.)

The contours of the standoff are now becoming clear. Leibovitz can, in theory, make a lot of money from her archive — Goldman (that’s Andrew Goldman, not Goldman Sachs) sketches a plan whereby she would sell 40×60 prints of 200 of her most iconic prints at $25,000 apiece. If each print came in an edition of 7, that’s $35 million right there. But that kind of monetization needs Leibovitz’s full cooperation — if she doesn’t sign the prints, they’re not going to be worth anything like $25,000. It’s pretty clear that Leibovitz has no intention of cooperating with Art Capital, and there’s a very good chance that she’ll make it quite clear to anybody thinking about buying her archive from Art Capital that she won’t cooperate with them, either.

If that’s the case, then it’s going to be very hard for Art Capital to get anything remotely approaching the $50 million valuation it place on the archive, or for that matter the expected ROI it foresaw in the event of Leibovitz defaulting. Which means that it might after all be willing to sell the loan to Goldman Sachs to refinance with Leibovitz’s full cooperation.

Still, doesn’t Goldman Sachs have better things to do than refinance personal loans to celebrities? I’m sure the Squid is none too happy about having been dragged into this ugly dispute. And I’m equally sure it doesn’t want to be in the business of collateralizing photo archives, especially with a counterparty who’s known to be as wildly erratic as Annie Leibovitz. Maybe they should just sell the loan to American Express instead, and have Annie pay it off in kind, with celebrity advertising photoshoots.

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