How Larry Gagosian is like Goldman Sachs

By Felix Salmon
November 9, 2012

My favorite part of the Gagosian deposition starts on page 283.

A bit of background: Charles Cowles asked Larry Gagosian to sell a painting for him, Lichtenstein’s Girl in Mirror. They had an agreement that Cowles would receive $2.5 million of the proceeds, but then Gagosian discovered that the painting was damaged, and also the global financial crisis happened, and it became pretty obvious that the work wasn’t going to sell for anything like that much money any time soon. At the same time, Gagosian was in negotiations to buy another painting from Cowles, for $2 million. Cowles was hesitant to accept — but then Gagosian offered $3 million for the pair, and Cowles said yes.

What Gagosian knew but Cowles didn’t, at this point, was that another collector, Tom Dean, had offered $2 million for the Lichtenstein. What Cowles knew but Gagosian and Dean didn’t was that Cowles didn’t actually own either of the works: one belonged to his mother, and the other had been pledged to the Metropolitan Museum.

To the transcript:

Q. Once you received an offer from Tom Dean for $2 million, wasn’t it in your interest to offer Charles Cowles as little as possible for the painting so that you could maximize your profit?

A. I didn’t have confidence that Tom Dean’s deal would necessarily close, but it gave me what I felt a little more confidence to make an offer.

Q. You can answer my question now.

A. That’s my answer.

Q. Sir, it was in your interest in your dealings with Charles Cowles in July or August of 2009 regarding the ultimate purchase by you of the Lichtenstein?

A. Right.

Q. To pay Charles as little as possible, correct? Sir, it’s a yes-or-no answer.

A. I just don’t know how to answer that question, honestly.

Q. Okay.

A. I really just wanted to get him an offer that he would accept for both pictures because we were stuck with the Tansey, and I felt that this extra million would appeal to him because it was a larger sum, and it did. He certainly had the prerogative to reject it. He never asked me what anybody was paying. He never asked who the buyer was, what they were potentially going to pay. He just seemed to want to get an offer.

Q. Because he never asked, you felt absolutely no duty to tell him, correct?

A. I didn’t feel a duty to tell him, because there are many transactions where a seller will just accept a certain amount of money and they don’t care what you sell it for.

The Q here is David Baum, of SNR Denton, representing Jan Cowles, the true owner of the Lichtenstein. The A, of course, is Larry Gagosian. And boiled down, Baum is asking Gagosian whether his profit motive, in buying the painting, was to pay as little as possible. Gagosian’s answer is one for the ages: “I just don’t know how to answer that question, honestly.”

Gagosian actually doesn’t come off too badly in the transcript as a whole, but this is where he’s at his slipperiest. Baum says that it’s “blatantly unlawful under New York agency law” for the same person — in this case, Gagosian — to represent both the buyer and the seller in a transaction. I don’t know anything about New York agency law, but that seems bonkers to me. After all, Cowles asked Gagosian to sell the piece in the first place precisely because Gagosian represents a deep pool of sellers.

Gagosian is a broker-dealer, no less than Goldman Sachs is. (Well, maybe his balance sheet is a little bit smaller.) He matches buyers and sellers, and he has to deal with a large amount of counterparty risk. (One of the reasons why he says the Lichtenstein deal was fair is that he says he was worried about whether Dean would actually come through with the $2 million.) And of course he has to worry about lawsuits, too: there’s a revealing point in the deposition, on page 194, where Gagosian talks about the time “when this matter became a litigation”. I see him thinking of his business in various ways: there’s the gallery shows, there’s the fairs, there’s the secondary-market deals, and then there’s the litigations. They’re all just part of what it means to be a dealer, these days: sometimes a deal becomes a litigation, and that’s just an occupational hazard when you’re dealing with egos this big.

But at the same time, Gagosian really only ever has one business, and that’s keeping clients happy. As a result, you’ll never get him to admit that he views clients as counterparties, or is trying to maximize his take at the expense of theirs. After all, the real money, in this business, comes from relationships more than it does from deals: a healthy long-term income stream is always better than a one-off windfall. That’s the “long-term greedy” philosophy which defined Goldman, and it’s certainly the way to succeed in the art world.

Which is why it’s worth seeing how the transcript continues.

A. I didn’t feel a duty to tell him, because there are many transactions where a seller will just accept a certain amount of money and they don’t care what you sell it for.

Q. In this case, Charles had told you that the minimum he wanted was $2.5 million?

A. Right.

Q. Now, you were offering him $1 million, correct?

A. I was offering him $3 million for two paintings.

Q. $2 million for the Tansey?

A. Right.

Q. And $1 million for the Lichtenstein?

A. Right.

Q. And do you think Charles made a bad deal?

A. In Charles Cowles’ case, it’s hard to say because he didn’t seem to even own the paintings.

Q. Let’s assume he did own the paintings.

A. Maybe his indifference to the number reflected the fact that his mother owned the Lichtenstein, I guess, I don’t know. The guy was a train wreck, let’s face it.

Q. Did you know he was a train wreck at the time?

A. In retrospect, looking at the circumstances, yes, I see that he was a train wreck.

There’s no point in being long-term greedy if you’re dealing with a train wreck. The transcript continues with Baum asking Gagosian why he didn’t offer Cowles a $500,000 commission on the sale to Dean, rather than buying the painting for $1 million and selling it to Dean for $2 million. And once again, Gagosian says “I don’t really know how to answer that”. So let me guess what the answer is. The answer is that if Cowles were a valued client of the Gagosian gallery, one who could be expected to provide a lot of custom in years to come, then Larry probably would have given him the choice — would have asked whether he wanted to share in the counterparty risk, or whether he just wanted $1 million up front.

But Larry understood — since reading people is his business — that Cowles was a train wreck, and that he wasn’t building a relationship here, he was just trying to get Cowles to agree to a deal.

As we all know, Goldman Sachs isn’t nearly as long-term greedy as it used to be. Its business is mainly trading, rather than investment banking and advisory work; its counterparties go to wherever they can get the best price, rather than being at all loyal to one firm. As a result, transactions are characterized by greed on both sides, and Goldman’s highly-remunerated traders try at all times to maximize the profit they’re making. They would look at what Gagosian did in this situation and consider it the obvious thing to do: you make full use of your balance sheet, you maximize your profit, and you move on to the next trade.

Gagosian, on the other hand, wouldn’t necessarily agree with them. He’s a shark, but he’s a shark with a smile, and he doesn’t want his clients to be afraid that he’s ripping them off. I suspect that he’s going to win this case: I can’t see that he did anything illegal. But the money at stake here is tiny compared to the value of his reputation as an honest broker. And you can see why some collectors feel the need to hire high-priced art consultants whenever they deal with Gagosian — or any other art dealer, for that matter. The dealer always has the upper hand, and it behooves any client to take full advantage of any negotiation help they can get.

7 comments

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Very nice, Felix. Entertaining article complete with surprisingly well-justified link-bait title!

Posted by absinthe | Report as abusive

It all comes down to agency, doesn’t it? If your real estate agent decided to buy your house for themselves, you’d suspect they were no longer interested in getting you the highest price possible. Things might be less black and white in the art world, but I doubt that any trial would result in Gagosian being found guilty of violating his legal responsibilities.

It’s fascinating how Larry signals to his major clients “this guy isn’t like you; he’s a train wreck that sells paintings that aren’t his”.

Are you going to Miami this year, Felix?

Posted by AngryInCali | Report as abusive

Jan Cowles should be suing her son for grand larceny, not Gagosian for doing his job. This case is grand standing

Posted by Anonymous | Report as abusive

Jan Cowles should be suing her son for grand larceny, not Gagosian for doing his job. The prosecutor is grand-standing

Posted by NYartdealer | Report as abusive

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