Felix Salmon

I’m not sure what’s more offensive, the SWAG acronym (it stands for Silver, Wine, Art, Gold), or Patrick Mathurin’s lede in Monday’s FT:

The art market defied the economic gloom to return 11 per cent to investors in 2011, outpacing stock market returns for a second consecutive year.

No, Patrick, it didn’t. Art doesn’t have returns, it just sits there, being expensively insured. It pays no dividends, and it can’t be marked to market, since the only way to find out the market price for an artwork is to sell it. Even the auction houses have no real idea what any given artwork is worth: look how many pieces fail to sell at auction, or sell for multiples of their estimate. For instance, Roy Lichtenstein’s I Can See the Whole Room . . . and There’s Nobody in It! sold at Christie’s in 1988 for $2.09 million, double its estimate of $800,000 to $1.2 million.

Besides, who are these “investors” who purportedly saw an 11% return in the art asset class in 2011? It’s not people who own art generally: a lot of people own art, but it’s not generally worth anything — we couldn’t sell it, for cash, if we needed to. A tiny sliver of the art world deals in works which really do have resale value, but it’s not true to say that even they went up in value by 11% in 2011, not with all the survivorship-bias and other problems in the Mei-Moses index Mathurin is citing.

Besides, Mathurin seems to be very bad at calculating returns even when he knows the sale price. That Lichtenstein, for instance, was sold again in 2011:

There were record auctions for paintings such Roy Lichtenstein’s I Can See the Whole Room . . . and There’s Nobody in It! which sold at Christie’s in November, making gains in excess of $40m for its seller, who bought it for $2m in 1988.

Again, no, Patrick, it didn’t. For one thing, the hammer price on the painting was $38.5 million, and it’s really hard to make a gain of more than $40 million when your gross income is no higher than $38.5 million. And then there’s the fact that Christie’s slapped a guarantee on the painting, almost certainly at $35 million. What that means is the seller only got 70% of the excess over that amount.

So the total amount going to the seller — assuming zero seller’s premium — would be $35 million plus 70% of $3.5 million, which comes to a total of $37.45 million. Subtract the $2.09 million purchase price, and you get a total capital gain of $35.36 million. Which is, admittedly, a lot of money, but it’s a good $5 million short of Mathurin’s $40 million.

And incidentally, if $2.09 million becomes $37.45 million over the course of 23 years, that works out at an annualized return of just over 13%. Again, that’s very good, if not spectacular. But that’s your winner. Set it off against your losers — and you’re always going to have more losers than winners — and your total art return is going to be substantially lower. If you bought $2.09 million of Apple stock in 1988, it would be worth more than $80 million today. But you didn’t just buy Apple, you bought lots of other stocks as well (even assuming you were buying stocks at all in 1988), and overall they didn’t do nearly as well. Single datapoints, as a rule, mean very little.

But if Mathurin can wheel out his Lichtenstein, I’ll wheel out my 2008 Lafite:

The greatest loser was Chateau Lafite 2008, which peaked in January 2011 at £14,043 a case and whose last average trade price, this month, was £8,108, a fall of some 45%.

I’m all in favor of buying art and wine, but they’re not investments. There’s never any shortage of wine shills and art shills who will talk about them as asset classes when they go up in value. All those people should be ignored. And there should be an absolute ban on talk of how the art market “returned 11 percent to investors” and the like. We should be getting smarter about this stuff — and, in fact, the art and wine press is quite good on such matters. It’s just the financial press which perennially falls down.

Yes, the Damien Hirst Complete Spot Challenge is a thing:

Visit all eleven Gagosian Gallery locations during the exhibition The Complete Spot Paintings 1986–2011 and receive a signed spot print by Damien Hirst, dedicated personally to you.

Carol Vogel, who says that the price of spot prints is somewhere in the $3,500 to $50,000 range, managed to get Hirst to explain the thinking:

Asked how he came up with the idea, Mr. Hirst responded in an e-mail: “I figured it would be pretty difficult to visit all the galleries, and totally admirable if anyone managed it, so admirable in fact that I thought they would deserve a work of art, so we came up with the idea to do the challenge. I’d love it if people manage it. I remember the golden tickets in Willy Wonka, maybe it’s a bit like that.”

And Greg Allen comments, calling the whole thing “a Black Friday riot for billionaires”:

How awesome that he invokes the utterly deranged Willy Wonka for this thing, which goes beyond difficult; I think it’d be positively hellish. Which is really perfect.

But does it have to be hellish? Even if you don’t have access to a private jet? I decided, with the help of Nick Rizzo, to put together an itinerary for an imaginary plutocrat — let’s call him Pictor Vinchuk — who wanted to curry favor with Hirst and take this bonkers challenge. The rules: he had to fly commercial all the way (I guess his jet’s in the shop), but he would travel first class and stay in the best rooms at the grandest hotels. And, just to make it a bit more interesting, he had to wait until after Davos to start his trip.

Mr Vinchuk’s itinerary starts in Geneva — an easy hop from Davos. We’re trying to make this trip as un-hellish as possible, so we’ve booked him in to the Beau Rivage hotel, arriving on Sunday January 29, where two nights in a lake-facing historical suite will run $10,471. Then on Tuesday January 31, we’ve booked Mr Vinchuk and his companion onto the short flight to Rome. Still, a pair of first-class tickets is $2,682. Another two nights in Rome, at the Hassler Roma Classic Suite, will cost $6,717.

And then comes the low point of the whole journey: there aren’t any flights with first-class seats from Rome to Athens! Poor Mr Vinchuk has to make do with business-class seats, at a minuscule $439.10 apiece. And then slum it at the King George Palace hotel, where his junior suite is a mere $469. All very low-rent. Fortunately we’re only spending one night there, before we hold our nose and get on the final business-class leg of the trip, two tickets at $655 each to Paris.

From here on in, things get much more familiar. There’s the premier suite at the George V hotel, which is $11,450 for two nights. There’s the pleasant train journey to London on Eurostar, $948 for two tickets in first class. And then there’s the lovely Linley Suite at Claridge’s in London, where we spend three nights, which is more than enough time to visit both the Britannia Street and Davies Street Gagosians. That stay will run us $7,288.

Then on February 8 we hop over the pond to New York. Those tickets are a pretty impressive $9,276 each. And we need to spend some time in New York, too, to catch up on friends and make sure to visit the three different Gagosians — on 21st Street, 24th Street, and Madison Avenue. So we’ve booked Mr Vinchuk in to a grand suite at the Pierre, which runs $16,077 for four nights.
On February 12 we leave for Los Angeles: a first-class ticket for that leg is $3,108, and three nights in a deluxe bungalow at the Beverly Hills Hotel is another $8,341. And finally on February 15 we hop a plane to Hong Kong — that’s $15,682 for two first-class tickets — in order to catch the show there before it closes on the 18th. We’ll spend two nights in the presidential suite at the Landmark Mandarin Oriental: that’s $2,524, checking out on the 17th.

Add it all up, and the trip comes to $108,572 for a 19-day itinerary, or about $5,700 per day. And of course there are incidentals, too: meals, cars, helicopters to Geneva, tchotchkes at Harry Winston, that kind of thing. But the main thing, of course, is that you end up spending more money touring the eleven different Gagosians than the value of the print you get for doing so. Otherwise, Damien might think you were taking advantage. And I think we’ve safely managed to do that.

Update: OK, back to the drawing board here: the eagle-eyed Greg Allen notes that the LA show ends on Feb 10, which means that if we get there on Feb 12, we’ll be too late. He also says that “the Spot Challenge is really a challenge to fill the vast emptiness of someone’s life, to provide purpose [sic of the biggest kind] to someone’s leisure time. It’s literally the answer for someone who doesn’t know what to do–not just with their money, but at all.” I feel offended on behalf of Mr Vinchuk!

Meanwhile, Jennifer Bostic reckons she can do the whole trip, for two people, for $13,206, including some pretty grand hotels at some decidedly cheap prices. Of course, the real cost here, as Allen says, is time rather than money. But I would be tickled very pink if a pair of underemployed hipsters did the whole tour for less than the value of the prints, sold them, and made a profit. Listen all y’all, it’s an arbitrage!

Jeffrey Goldberg is on something of an anti-Walmart campaign — and there’s nothing particularly wrong with that. There’s a lot of things to dislike about Walmart, including the fact, as Goldberg notes in his latest Bloomberg View column, that its stores don’t have windows. But having decided that he doesn’t like Walmart, Goldberg is attacking the company and its founding family on grounds which don’t stand up to scrutiny.

For instance, take this seemingly damning statistic from Goldberg’s column:

In 2007, according to the labor economist Sylvia Allegretto, the six Walton family members on the Forbes 400 had a net worth equal to the bottom 30 percent of all Americans. The Waltons are now collectively worth about $93 billion, according to Forbes.

This sounds outrageous, until you stop for a second and take note of the fact that Jeffrey Goldberg, individually, has a net worth greater than the bottom 25% of all Americans.

According to the latest data we have, 24.8% of American households had zero or negative net worth — add them all together, and you get zero. Jeffrey Goldberg’s net worth, it’s safe to say, is greater than zero. And while it’s definitely a bad thing that one in four Americans have no net worth at all, I don’t think you can really blame Walmart for that. Indeed, Walmart saves money for poor Americans — while it might not be a great employer, there are many more poor Americans than there are poor Walmart employees. From a financial perspective, Walmart has been a decidedly positive force in terms of bringing down the cost of living for those on extremely limited budgets.

Goldberg’s thoughts, on the other hand, are in a higher place. The main subject of his column is the new Crystal Bridges Museum of American Art, in Bentonville — a museum which Goldberg (or at least his headline writer) considers “a moral blight”.

What makes Goldberg say that? Well, while the museum itself is beautiful, he says, and contains much beautiful art, the “American landscape has been systematically disfigured by thousands of hangar-sized warehouses bearing the Wal-Mart name”.

This might be true — although to be honest I can’t recall ever seeing a Walmart erected anywhere particularly beautiful; they tend to pop up, in my experience, in vast and dreary expanses of exurbia. But even if Walmart is a beauty-destroying monster, that hardly makes Crystal Bridges equally monstrous.

Warming to his theme, Goldberg notes that the messages of Norman Rockwell’s “Rosie the Riveter” and Jacob Lawrence’s “Ambulance Call” stands in contrast to, respectively, the way that Walmart treats its female employees, and the way in which it’s denying many of them healthcare coverage.

Does Goldberg celebrate the fact that these messages are being displayed for perpetuity in the town where Walmart has its headquarters, and might somehow serve to remind Walmart’s executives of the broader American context in which they’re making their decisions? He does not. Instead, he thinks that this art does not deserve to be in Bentonville at all:

I’m not begrudging Alice Walton her inherited wealth. What I am begrudging are her priorities. Walton has the influence to help Wal-Mart workers, especially women, earn more money and gain access to affordable health care.

But her response so far to the needs of the people whose sweat pays for her paintings is a simple one: Let them eat art.

Talk about looking a gift horse in the mouth. Firstly, it’s not clear that Alice Walton does have a lot of influence within Walmart’s senior managerial ranks. Could Walton really help Wal-Mart’s workers earn more money and get better healthcare? Maybe she could; I’m not convinced. But here’s the thing: in what way does building a beautiful museum prevent her from doing just that? The only way, it seems to me, is if we’re in some kind of a zero-sum game, here, where the alternative to building the museum would be for Walton to take the money she would otherwise have spent on Crystal Bridges, and give it directly to Walmart workers.

Except, Goldberg says quite explicitly that he doesn’t begrudge Walton her wealth. Does he want her to give it away or not?

Let’s say that Walton has spent a total of $1 billion on this museum. According to its latest annual report, Walmart has 2.1 million “associates”: if you shared $1 billion between them, that would be an investment of $476 apiece in giving them more money and better healthcare on an ongoing basis. Even if you could somehow manage to use 10% of that value every year on a sustainable basis, that’s less than a buck a week.

Walmart is a public company, now — it’s owned by hundreds of thousands of individual and institutional shareholders. (Goldberg himself is probably a beneficial shareholder somehow, through a pension plan or insurance policy somewhere.) Walmart has been good to Alice Walton, and she’s giving back to Bentonville and to America by building a fine museum in a part of the country which is relatively starved for cultural goodness. Her impulses and her museum are admirable, whatever you think of Walmart.

When the East Coast liberal elite, in the form of Jeffrey Goldberg, sneers at Walton’s generosity and calls her museum a moral blight, that only serves to make us seem even more elitist and out of touch. It’s pretty clear that Goldberg would have preferred Asher Durand’s “Kindred Spirits” to have remained in New York, rather than being moved to Bentonville — maybe we have finer aesthetic sensibilities up here, and therefore the painting would be better housed in the Stephen A. Schwarzman Building on the corner of Fifth Avenue and 42nd Street. I’m sure that Stephen A. Schwarzman, for one, would like that.

But Arkansas is America too. And it’s fantastic that a wide range of exciting American art — including the likes of Jenny Holzer and Kara Walker — is being displayed in the heart of Red State America. Well done to Alice Walton for making that happen. Arkansas is a better place, now, thanks to Crystal Bridges, and Walton deserves our thanks. Not brickbats.

Patricia Cohen has uncovered the art-world scandal of the year: it seems as though Knoedler, the 164-year-old Upper East Side institution, closed abruptly on Wednesday in large part to protect itself against a $17 million lawsuit from Pierre Lagrange. Lagrange spent that sum on a Pollock which he then discovered contained two paints which had not been manufactured until after Pollock died. And now it seems that Knoedler regularly sold AbEx paintings procured by Glafira Rosales with the vaguest of provenance:

Neither Ms. Freedman nor Mr. Weissman can identify with precision the collector whom Ms. Rosales has said she represents. They acknowledged that they did not know of any paperwork that documented the provenance of those works. They have said they only know what Ms. Rosales has told them: that the works were bought by a unnamed collector in the 1950s directly from the artists.

In a letter written to Ms. Freedman in 2007, Ms. Rosales said the secret collector acquired the works on the advice of David Herbert, an art dealer who died in 1995. When the collector died, they were inherited by the owner’s son, whom she described as “a close family friend” who lives in Mexico and Switzerland and insists on remaining anonymous.

This “close family friend”, over the years, seems to have been able to come up with seven Diebenkorns, on top of dozens more works by the likes of Motherwell, Pollock, Rothko, Franz Kline, Clyfford Still and Willem de Kooning.

Given that these works had basically zero documented provenance, they were to a first approximation unsellable. Until — and this is key — they found their way to Knoedler, whose reputation was rock-solid.

Current and former Knoedler employees, including the above-mentioned Ann Freedman and Julian Weissman, would accept paintings from Rosales and sell them while quietly whispering all manner of unverifiable assertions about where they came from. This court document is quite a fun read: in the case of one Motherwell, it seems, Weissman first said that it belonged to Shaikha Paula al-Sabah, a princess in the Kuwaiti royal family, and then changed his tune:

By letter dated November 23, 2010, Weissman’s lawyer writes to Killala and reveals that the owner of the work when he had it consigned to him by Glafira Rosales was purportedly John Gerzso, the son of Mexican painter Gunther Gerzso. This is an entirely new twist in the story. Up until now, the owner was supposedly a rich Mexican closet homosexual very close to David Herbert whose family was in the sugar business.

The point here is that the art market, like the stock market, runs on a combination of trust and storytelling ability. The most expensive artists are nearly always those who can be credibly placed into central slot in the history of art; one of the main reasons that Abstract Expressionists in general are so expensive is because they have spent decades as the very heart of MoMA’s collection, which presented them as the pinnacle of 20th Century art, the artists standing on the shoulders of people like Picasso.

When gallerists sell paintings, they tell stories not only about the work, but also about the story behind the work, conjuring up romantic notions of dealings between Robert Motherwell and Mexican sugar magnates, brokered by “man named Alfonso Ossorio”. So long as the institution selling the work is trustworthy, potential buyers tend to take such stories at face value — and, of course, they have a vested financial interest in those stories being true, the minute they actually buy the piece.

Which is why it’s easy to see how Freedman personally owns a “Motherwell”, a “Pollock”, and a “Rothko”, all of which came from Rosales — like all the best salespeople, she probably truly believed what she was saying.

But Freedman would also have found it much harder to sell all those Motherwells if she hadn’t had the full institutional credibility of Knoedler behind her. That’s how galleries can be such lucrative businesses to be in: once you’re established, you can literally add hundreds of thousands or even millions of dollars to the value of a painting, just by hanging it on your wall. A fake Motherwell in a garage in Switzerland is worthless; in an Upper East Side gallery, it’s priceless.

Until the forgery is uncovered, of course.

I’m in Miami right now, for the annual bacchanal of conspicuous consumption that is Art Basel Miami Beach. There are two equally important things going on here (and by “important” I mean “not important at all”) — a tiny group of people spending huge sums of money on art; and a small group of people in extremely expensive shoes gossiping about who’s buying what.

But the money sloshing around the art world is, ultimately, small potatoes. Any one artwork might sell for an astonishing amount of money, and it’s hard to read quotes like this, on the front page of the Art Newspaper, with equanimity:

“It is easier to have ten Damien Hirsts than to have ten yachts… besides, your yacht becomes more interesting with a Damien Hirst on it,” says the Mexico-based collector César Cervantes.

But compared with the sums of money in finance, the entire contemporary-art circus is basically a rounding error.

That’s why I was very happy to see William Powhida’s Derivatives show at Postmasters. There has always been socially-engaged art, but right now, at a time when the art market is booming, almost no one in the art world is really engaging the much bigger world of finance. Art about art is common, as is art about gender or art about sexuality or art about war or art about the built or natural environment. Art about finance, on the other hand, is all but unheard-of.

The biggest piece in the show, by far, is Griftopia, a 5-foot-by-10-foot reworking of the Matt Taibbi book of the same name. Frankly, it’s more Powhida than Taibbi, but there’s a lot of both of them in there, and I love the way that it presents the connections between various key financial-world players in the most coruscating light possible.

But it’s also, as Blake Gopnik notes in the video above, a work of art about the way in which the entire financial crisis is utterly incomprehensible to anybody who doesn’t study it day in and day out for months. Everybody wants easy answers or villains, but in fact everybody was to blame, and Powhida’s piece is a great way of showing how difficult it really is to understand this stuff. The CFTC, for instance, has a prominent part in the work, and goes unexplained: if you don’t know what it is — and 95% of the people looking at the work will have no idea what it is — then you’ll begin to get a good idea of just how beyond your grasp the financial crisis lies.

Here at Art Basel, everybody is in their comfort zone — the art world knows how to buy and sell and backstab and gossip, and it does it very well. And wading into the belly of the beast, Postmasters has brought Powhida’s works down to Miami, the natural home for high-impact pieces for people with short attention spans. I doubt they’ll do very well. But you never know: if people are still feeling the pain on the condo they bought at the top of the market because they thought it would be nice way to make a profit while having a pied-à-terre down here, Powhida might just pique their interest.

Update: I’m now informed that anything of Powhida’s which Postmasters hadn’t sold in New York has now been sold in Miami. Except the Griftopia piece.

Back in May, Sarah Thornton started worrying about the system of third-party guarantees and irrevocable bids at high-profile auction houses. I struggled to see what the fuss was about:

What’s Thornton’s beef with private sales, especially when the final price is public? A $50 million Warhol is a $50 million Warhol, whether the sale takes place in public, in private, or somewhere in between — and whether the sale is deliberate and orchestrated or whether it’s chaotic and unpredictable.

Now, however, Thornton has answered my question, in a new post. It turns out, according to her, that a $50 million Warhol — or, more to the point, a $43,202,500 Lichtenstein — might not be quite what it seems after all.

It is strongly believed, for example, that Guy Bennett, an art advisor acting on behalf of the Qataris, negotiated third-party guarantees on the top lots at both Christie’s and Sotheby’s recent contemporary auctions in New York. During the prestigious evening sale at Christie’s on November 8th, Mr Bennett was seen to make the winning bid of $38.5m for Roy Lichtenstein’s 1961 painting, “I can see the whole room!… and There’s Nobody in it!”. Christie’s normal buyer’s premium (or commission) on this would bring the final price up to $43.2m, which was the price reported by Christie’s. However, high-powered guarantors often negotiate a 50-50 split with the auction house of as much as 30% of the overage (the amount generated above the guaranteed price) and an additional 50% of the buyer’s premium. The market believes the Lichtenstein was guaranteed at $35m. If Mr Bennett, who bought the picture, had negotiated such a deal, the real price he paid would have been $40.3m.

This is more complicated than it needs to be, and of course it’s all based on what “the market believes”, which might not be fully accurate. But in principle, there’s definitely the possibility that something fishy might be going on whenever a guarantor buys a painting at auction for more than its low estimate.

There’s a lot of opacity when it comes to fine-art auctions, but the one thing which is always fully transparent is the final sale price. Sellers can negotiate deals when it comes to the commission they pay the auction house; buyers can’t. The buyer’s premium is set, and is public, and can always be used to find out the total amount of money which was spent by the buyer on the work of art in question. That’s why art-price databases use auction results: they know exactly how much was spent, even if they don’t know who the buyer was.

But now, with the system of third-party guarantees, we no longer know for sure that the reported price was in fact the price actually paid by the buyer.

The reason is this: in return for providing an irrevocable bid for a certain artwork (normally, but not always, at the low estimate), the auction house agrees to split some of the upside with the guarantor. Take that Lichtenstein. Its low estimate was $35 million; let’s say that someone called Guy Guarantor provides an irrevocable bid at that price. In return, he gets a deal from Christie’s. If the painting sells for more than $35 million, he’ll get 15% of the increase in the hammer price over and above $35 million, and he’ll also get 50% of the total buyer’s premium.

As it happened, the Lichtenstein was hammered down for $38.5 million — that’s $3.5 million more than the low estimate at which Guy Guarantor was providing the irrevocable bid. The total reported price for the painting was $43,202,500, including a buyer’s premium of $4,702,500. So Christie’s takes 15% of $3.5 million, or $525,000, and adds it to 50% of $4,702,500, which is $2,351,250. The total — $2,876,250 — is the amount that’s owed to Guy Guarantor under the terms of their deal.

That’s all fine, as far as I’m concerned. The buyer pays a total of $43,202,500, and that money gets divvied up between various parties. Christie’s gets some, Guy Guarantor gets some, and the seller, of course, gets most of it. As long as we know the amount the buyer is willing to spend on the painting, the auction market remains as transparent as it’s ever been.

But what happens if Guy Guarantor is the buyer? According to Thornton, the agreement is still in effect — which means that as he’s handing over a check for $43,202,500 with one hand, he’s simultaneously receiving a check for $2,876,250 with the other. The total amount the buyer pays, in this instance, is not $43,202,500, but rather $40,326,250.

That makes a difference. For one thing, if the work actually sold for $40,326,250 rather than $43,202,500, it would no longer be an auction record for the artist: “Ohhh… Alright…”, a 1964 canvas, sold in the same sale last year for $42,642,500. Is “I can see the whole room” the most expensive Lichtenstein ever sold at auction? According to Christie’s it is. But given Thornton’s reporting, there has to be some doubt about this.

I’ve got a call in to Christie’s about this, and we’ll see what they say, but I’ll only really be happy with one thing: a clear statement that a guarantor — or any other buyer, for that matter — cannot get any kind of rebate when he ends up being the high bidder. In order for published auction prices to mean anything, we need to know that the buyer actually paid the sum reported. Right now, we don’t know that — and in the case of the $43,202,500 Lichtenstein, there’s solid reason to believe that the price as reported by Christies, and embedded in places like the Artnet auction database, could actually be a lie.

(Incidentally, the Lichtenstein is a great poster child not only for auction-house opacity, but also for contemporary-art price appreciation. It was last sold for $2,090,000 in 1988 — and before that was sold for $450 in 1961. That’s a 50-year CAGR of somewhere over 25%.)

Update: Christie’s gets back to me, with this statement. The emphasis is mine:

When a third party agrees to finance all or part of Christie’s interest in a lot, it takes on all or part of the risk of the lot not being sold, and will be remunerated in exchange for accepting this risk. The third party may also bid for the lot. Where it does so, and is the successful bidder, the remuneration may be netted against the final purchase price. If the lot is not sold, the third party may incur a loss.

This seems to me an admission that the recorded final purchase price may indeed not be the actual price of the artwork to the buyer. And that therefore we can not trust that, to take just this example, a new artist record has just been set for Roy Lichtenstein. And, I can’t see how the third party will ever incur a loss, unless they never wanted the artwork in the first place. The worst-case scenario, for the guarantor, is that they end up buying the artwork for the amount they said they were willing to buy it for.

Update 2: TGDC and Auros, in the comments, make the case that Guy Guarantor really did pay the full $43,202,500:

He paid in in the form of the $40.3mm in net cash paid PLUS forgoing the $2.9mm he would have otherwise gotten had he not won. The guarantee is a sunk cost/gain since it happens in advance and is irrevocable. At the margin, he decided he’d rather have the painting than the $43mm in cash he’d have if he didn’t make that final bid. That is the market price.

If Guy had decided not to make a further bid above his original irrevocable $35M, he would’ve gone home with a paycheck. The service he provided, for that paycheck, has been renedered, whether he bids or not. The paycheck has to be considered separately from the cost of the art.

I think that TGDC is wrong that Guy Guarantor would have had $43 million in cash if he hadn’t made that final bid. In fact, to make that bid he needed only $40.3 million in cash. But the case here is definitely colorable. It just doesn’t change the fact that the buyer didn’t actually pay the amount he’s reported to have paid.

Update 3: I feel like I’m disappearing down a rabbit hole here, but I’m going to make one more stab at the question of Guy Guarantor’s cash situation. We can basically bring it down to two choices: either he buys the painting, or he doesn’t. (We’ll assume it’s hammered down for $38.5 million either way.) If he buys the painting, he’s down $40.3m in cash, and up one painting. If he doesn’t buy the painting, he’s up $2.9m in cash. So it’s reasonable to say that, in cash terms, the difference between buying and not buying is the difference between -$40.3m and +$2.9m, which is the headline $43.2m figure.

So here’s the question. When you make a purchase, is the amount you spend on that purchase the amount you spend on that purchase? Or does it make more sense to think of it as the difference between the amount of money you have after the transaction, on the one hand, and the amount of money you would have spent if you hadn’t made the transaction, on the other?

In the case of art, there’s a case to be made for looking at it either way. But by convention, sale prices never include sales tax. If I buy a painting at auction in New York and hang it in my New York apartment, I have to pay sales tax on that. But the price of the painting is not the full amount I pay; it’s just the price of the painting, sans tax. If auction results exclude sales tax for those people who pay it, they should also exclude the opportunity cost of guarantors’ foregone profit, I think.

You work hard, have a long and storied career, rise to the top of your profession, and become a multi-millionaire by doing so. How many people, in that situation, will say that the amount of money they’re being paid is “absurd”, “impossible to understand”, and “daft”? Well, Gerhard Richter, for one:

“It’s just as absurd as the banking crisis,” said the 79-year-old German, speaking to reporters on Tuesday at the press launch of a major retrospective of his work opening at London’s Tate Modern.

“It’s impossible to understand and it’s daft,” he added, speaking through an interpreter.

Asked how he thought the art market had changed in the last few years, he replied in English: “It became worse.”

Are there any bankers out there who feel this way? There must be, surely, somewhere — people pulling down seven- or eight-figure salaries, who think that it’s simply ridiculous to imagine that they’re really “earning” that kind of money, or adding that kind of value to the world. At least Gerhard Richter can point to his luminous paintings as an obvious example of how he’s making the world a better place. It’s hard to do anything similar when you’re structuring CDO-squareds.

One thing that bankers and painters have in common is that their services are Veblen-like: the more expensive they become, the more demand there is for what they do. Someone like Adam Lindemann who would evince no interest in an artwork priced at $500 can suddenly become very eager when it’s $500,000. And the phrase “reassuringly expensive” might have been designed to reflect the pricing strategies of banks looking to provide M&A advice to CEOs.

And in art, just like in banking, a healthy ego is often necessary if you want to become wealthy and successful. But occasionally, someone like Gerhard Richter is at least willing to come along and say that the whole market has gotten ridiculously out of hand. According to Artnet, 151 works by Gerhard Richter have sold at auction for more than $1 million, and ten have sold for over $10 million. In 2011 to date he’s already reached $92,412,177 in auction sales, and we haven’t even had the fall auctions yet.

Those sums didn’t go directly to Richter, of course — but they certainly helped to drive up the prices of his new works, which aren’t reflected in the Artnet database. And it is a bit silly: he puts the same amount of effort into creating a new work now as he did decades ago, but now is paid millions for each one. Couldn’t that money be put to better use buying less expensive art?

Greg Allen is a true polymath: he’s a filmmaker, curator, art collector, web entrepreneur and a philanthropist. He’s an artist in his own right: he likes to play with conceptual art-about-art-about-art works. He even has an MBA in finance from Wharton. And now he’s set up the Jetty Foundation, which has made a bid to lease from the state of Utah the site of Robert Smithson’s most iconic work. (And, according to Tyler Green, the Greatest Post-War Artwork in the world.)

The backstory is here; basically, the land used to be leased by the Dia Foundation, but that lease expired and now everything is up in the air. Greg explains:

In the simplest terms, I’m bidding for the lease because it seems irresponsible not to…

When I called the Department to ask to be notified if the State decided to open the lease for competitive bidding, I was told I’d be added to the list. At that moment, it occurred to me that parties other than Dia were expressing interest in the lease.

As weeks passed, with no resolution, the possibility that Dia might not automatically get a new lease grew, along with the uncertainty of Spiral Jetty‘s fate.

At the core of Greg’s bid is a pretty mind-bending three-way distinction between the artwork itself, the intellectual property it represents and the land it is made of. Here’s Greg trying to explain things to Tyler:

“I made very clear in my application letter that by creating this foundation and by pursuing this lease, we are acknowledging fully the artist’s estate as the owner of the intellectual property of the artwork and Dia as the owner of the title of the artwork (as donated by the estate). I was making no claims on any of those items. I think that’s a distinction that the state itself had not really thought through in its own process.”

Greg dryly says in his own post that he “will not speculate” on “no-doubt invigorating conceptual implications” of this idea — but I’m pretty sure that very few people other than Greg Allen would have come up with the idea that they could somehow own the Spiral Jetty without actually owning Spiral Jetty. I particularly like the way he talks in his post about “Dia’s undisputed ownership of the Spiral Jetty artwork”, as though it’s self-evidently obvious that you can separate the land comprising the object, on the one hand, and the object itself — and that they could be owned by two different entities.

Indeed, if Greg’s bid is accepted, there will be no fewer than four entities with ownership claims here: the Jetty Foundation, with the lease to the land; the state of Utah, which owns the land; the Dia Foundation, which owns the artwork; and the Smithson Estate, which owns the intellectual property rights associated with the artwork. Clear? I didn’t think so.

With more conventional art, these kinds of distinctions make no sense at all. For instance, I own William Powhida’s drawing of the market oligopoly system; he, however, owns the intellectual property and so I need his permission if I want to reproduce or sell images of it. My ownership is of the object, not the intellectual property. The object is the artwork: I could never sell the paper that the drawing sits on without selling the artwork itself.

In the case of Spiral Jetty, however, Greg seems to be asserting that what we have here is something closer to architecture, where a building can be owned by one person and the land underneath it by another. (Unsurprisingly, this is not good news when it comes to property values.)

But in the case of lend-lease buildings, the lease on the land is, as a rule, held by the owner of the building. It takes a former investment banker like Greg Allen to come up with the idea that the leaseholder could be different from the owner of the building, with all the “invigorating conceptual implications” that implies.

And of course there are big differences between Spiral Jetty and a piece of architecture. Spiral Jetty is the land: it doesn’t just sit atop the land. (Indeed, right now, it’s under water.) When Smithson made the work, what he was doing was pretty simple, conceptually speaking: he took a piece of Utah, and made it art.

Today, Spiral Jetty is still art and it’s still a part of Utah. But art is big business and big money now and Spiral Jetty has become both valuable and politicized. A large part of the subtext to Greg’s bid is that the Dia Foundation has done a bad job of handling local Utah politics and that a Jetty Foundation would be significantly better at that kind of thing than Dia is.

But the Jetty Foundation’s interests are not fully aligned with Dia’s. For one thing, of course, they’re bidding against each other to lease the land. And then there’s this, from Greg’s post:

Should the State decide to award Dia a new lease on the site, I would hope that the Foundation’s role will be constructive and catalytic in bringing the importance of site and local engagement to the fore for the decades ahead.

This is a clear statement that the Jetty Foundation will continue to exist even if it doesn’t get the lease and ends up with no right to anything. Greg has created a pressure group, basically, and one of the entities that the group exists to pressure is the Dia Foundation.

I can’t imagine that Dia will be overjoyed by Greg’s arrival on the scene, or thanking him profusely for taking on the burden of dealing with local Utah politics. Instead, I’m quite sure they’re hoping fervently that they will be re-awarded the lease to the site and that the Jetty Foundation will then wither quietly away. That solution is still the easiest and most obvious one. And it would surely create fewer tensions on the site than awarding the land to a foundation which Dia neither controls nor approves of.

Randy Kennedy has a bullish article on Artnet’s nascent art-auction business, which is doing better the second time round than it did the first time round, but which is still tiny. I’m skeptical: value in the art world is very much reliant upon the institutional authority of auction houses and galleries, and Artnet’s auction system is designed to strip out all of that information. It can work for fungible editioned works of relatively modest value, but I do think that most collectors are always going to want a bit more hand-holding before buying art, not to mention the opportunity to actually see the art object before buying it.

That said, the decline of the Sotheby’s and Christie’s duopoly is real, and this is a great opportunity for Artnet or anybody else to try to make a name in a new world with many more players. Here’s some data which Artnet pulled for me, showing total global auction sales, split between the duopoly and everybody else. While sales totals rise and fall, the one constant is the decline of the big guys’ market share:

Next year, it’s more likely than not that Sotheby’s and Christie’s between them will have less than half the global auction market for fine art (which is the data used for this chart). A large part of this is the rise of China, which has hundreds if not thousands of auction houses, and where the big two have very small market share. But even outside China I think that Sotheby’s and Christie’s are both vulnerable, in theory, to lighter-weight business models like Artnet’s auctions or art.sy or the VIP Art Fair. Many of them will fail — but some will succeed. The big two will be faced with a tough choice: do they compete directly with the new entrants, or do they protect their own high-margin core business?

The right-hand column of page A3 of the NYT — the first thing you see when you turn the front page — has historically been home to slightly silly luxury-goods ads from high-end New York retailers. Today is no exception, with Tiffany at the top and Brooks Brothers in the middle. But there’s clearly money in e-retailing again, because the bottom slot has been bought by 1stdibs, which uses the space to advertise this “rare umbrella stand in the form of a collie dog by Piero Fornasetti”, yours for $4,600.

I couldn’t help but think of the famous $15,000 umbrella stand that Tyco CEO Dennis Kozlowski had in his Fifth Avenue apartment. Has there been massive price deflation in such things? As it happens, I had a meeting at Artnet this morning, which has a comprehensive database of auction results for such things, and they couldn’t find a single dog-shaped umbrella stand coming up for auction ever.

But then I found a description of the Kozlowski umbrella stand, and it’s definitely not a Fornasetti:

The stand is a sculpted terrier on its hind legs with a brass ring through its paws to hold umbrellas.

So there’s no chance that the umbrella stand on 1stdibs was formerly owned by a convicted felon. But we do now know that we’re about 31% of the way towards the point at which a universal touchstone of corporate greed and profligacy becomes a purchase so mainstream that it’s advertised in the Monday New York Times. Is this a sign of another bubble? And if so, is the bubble in dog-shaped umbrella stands, in online retailers, or in New York Times readers with thousands of dollars to drop on umbrella stands? Much as I’d be tickled by the first, I suspect the answer is some combination of the last two.

I’ve been puzzling over Sarah Thornton’s post on the Warhol market, especially as I recently had drinks with someone expressing a very similar view. There’s something here, but I’m having difficulty putting my finger on exactly what it is:

“These sales are no longer auctions,” says Allan Schwartzman, an art advisor. “To attract material at the top end, auction houses pre-sell the material to ‘irrevocable bidders’. They are deliberate, orchestrated events.” Indeed, Christie’s evening sale featured 11 irrevocable bids, Phillips had ten, whereas Sotheby’s had only two. These deals spare the work the ignominy of being “bought in”, but they can create misleading benchmark prices that tend to flout ordinary rules of supply and demand. Guarantees can help auction houses by securing an important artwork around which an entire sale can be promoted. They may also appeal to a collector’s gambling instincts. If he chooses to be the guarantor, he can either win the work or win a financing fee or both. Whatever the case, when the work sells on one bid, a guaranteed lot is effectively a private sale done in public.

My first reaction to this was incomprehension. At an auction, all bids are irrevocable. If a painting has an irrevocable bid, that just means that a favored collector has managed to get his bid in first, before anybody else. That kind of deal makes a lot of sense for all concerned: the seller and the auction house are guaranteed a sale, while the bidder either gets the painting they want at a price they like, or else gets a percentage of the upside over and above their bid.

There are differences between this kind of thing and a normal auction. For one, there’s no underbidder, in a world where the existence of an underbidder has historically helped to ratify auction sale prices in the eyes of the art world. But that’s a minor point, I think: the main value of auction prices is simply that they’re a very public indication of how much someone was willing to pay, on a certain day, for a certain work of art. And that is unchanged in this context.

And I’m still unclear on what Thornton means when she says that these deals “flout ordinary rules of supply and demand”. The supply of any given painting is always fixed at exactly 1, and the auction house is still a place of competitive bidding: the higher the number of bidders, and the more aggressive those bidders are, the higher the final hammer price will be. The only time the rules of supply and demand are flouted is when the number of bidders is exactly 1 as well, and then, yes, as Thornton says, the final price does look rather like a negotiated private sale.

But what’s Thornton’s beef with private sales, especially when the final price is public? A $50 million Warhol is a $50 million Warhol, whether the sale takes place in public, in private, or somewhere in between — and whether the sale is deliberate and orchestrated or whether it’s chaotic and unpredictable. I can see how someone who thrills to the theater of the auction house might feel a bit cheated if many lots end up selling on a single bid. But the theater is really just a mechanism to get juices flowing and prices rising: it’s not the point of the auction.

Thornton does hint at something more nefarious going on, although she doesn’t quite come out and say it:

In any given contemporary auction week, a fair number of the Warhols will have been either consigned, underbid or bought by the Mugrabi family, sometimes in partnership with Larry Gagosian (who sits across the narrow aisle from Mr Mugrabi at Christie’s and one row ahead of him at Sotheby’s)…

Interestingly, the Warhol players often find themselves coming together…

The lots that are underbid by dealers or go from dealer-collector to dealer-collector inflate prices and create the appearance of trading volume in a way that is hard to track. And irrevocable bids often lead to public performances of private deals that are far more opaque than auction houses let on.

Here’s what would seriously undermine the validity of the auction prices. Let’s say the private deal was indeed far more opaque than auction houses let on, and included some kind of embedded put.

Here’s a hypothetical: Mugrabi wants to increase the value of his vast Warhol collection, using Sotheby’s as his vehicle. So he puts a painting up for sale, and Gagosian guarantees to the auction house that he’ll buy it for $50 million. Because it’s an irrevocable bid, Gagosian pays no buyer’s commission on that bid — and Mugrabi is a favored client of Sotheby’s, so he pays no seller’s commission. No one else is willing to pay anything like $50 million for the painting. So it comes up for auction, it’s sold to Gagosian with a single bid, and $50 million is transferred from Gagosian to Mugrabi via Sotheby’s. And then, a couple of weeks later, Gagosian exercises his put, and sells the painting back to Mugrabi in a quiet private transaction for the same $50 million.

What has all of this theater achieved? Mugrabi and Gagosian are back where they started: Mugrabi has his painting, and Gagosian has his $50 million. But now there’s a big $50 million public auction benchmark making Warhol look really hot. As Thornton puts it, “collectors and dealers with an affinity for Warhol have a clear sense of the auction room as a marketing platform”.

Now I don’t believe that anything quite that explicit and egregious is actually going on behind these irrevocable bids — although nothing would really shock me, in the art world. But maybe nothing that explicit and egregious needs to go on, if the number of clued-in dealers and collectors is small enough, and they all simply act in their own long-term best interest by bidding up each others’ work and attracting an ever-increasing number of ignorant plutocrats to the high end of the Warhol market.

Dealers have been buying paintings at auction for enormous sums for many years, because they know that in doing so they raise the value and desirability of the rest of their artists’ work. You don’t need an irrevocable bid to do that, although it helps if there’s an eager underbidder somewhere. Is Thornton implying that something much less ethical might be going on in the Warhol market? I’m not sure. But if she’s not implying that, then I don’t really understand what she’s saying.

Update: Thanks to absinthe, in the comments, who points out that irrevocable bidders do pay buyer’s commission if they win. So the cost of setting the benchmark is the buyer’s commission, which, on a $50 million hammer price, is just over $6 million. Even split two ways, that’s a lot of money.

If you want a great example of how the entire business of the art world is built on opacity and information asymmetry, the Christie’s auction of a big Andy Warhol self-portrait next week is a good place to start.

But first let’s go back to this time last year, when Sotheby’s was auctioning off a similar self-portrait: same size, different color, different wig. This information is high up on the official Sotheby’s page for the painting:

According to our research, there are only four other self-portraits from this series in this size. They are located in the following collections:

Self Portrait (Green), Fort Worth Art Museum
Self Portrait (Yellow), Andy Warhol Museum, Pittsburgh
Self Portrait (Blue), Andy Warhol Museum, Pittsburgh
Self Portrait (Red), Private Collection

Scroll all the way down to the bottom, however, and you find a loophole: “It is believed that only five of the 108 in. square format self-portraits depicting this exact image exist”.

My emphasis added — and it’s important, because the Christie’s red self-portrait is not the red self-portrait listed by Sotheby’s. Instead, it’s one of two slightly different self-portraits in the same size; the other, a green one, is in the Guggenheim.

Now see how Christie’s explains where the other paintings are. The release quotes Amy Cappellazzo, Christie’s co-head of post-war and contemporary art, as saying that “with all other examples in museums, it will be the last chance that buyers will have to bid on a work that shifted art history”. It then goes on to explain:

Warhol painted only seven large scale self-portraits in 1986. All the other versions are in museums or in foundations open to the public. A purple Self-Portrait was acquired in 2010 for $32.5 million for a private museum; other examples belong to Guggenheim Museum, New York, The Fort Worth Art Museum and the Andy Warhol Museum in Pittsburgh.

It’s very easy to simply assume, when Cappellazzo says that all the other paintings are in museums, that she means just that. But really it isn’t true. Of the seven big paintings, only four are in museums: one in the Guggenheim, one in Fort Worth, and two in Pittsburgh. There’s also the one that Christie’s is selling — and then there are two more: the purple one which Sotheby’s sold last year, and the red one which Sotheby’s said was in a private collection.

(And when Cappellazzo says that Warhol painted only seven large scale self-portraits in 1986, that’s not really true either: the Tate, for instance, has a huge 1986 self-portrait on show right now, which looks almost identical to the Christie’s one. It’s just not quite as huge: it’s 80 inches square, rather than 106 inches.)

So what does Christie’s mean when it says all the other paintings are in museums (or, later on, “in museums or in foundations open to the public”)? If they’re public, it should be easy enough to find out where they are, right?

Wrong. Ask Christie’s and they’ll suddenly go very quiet when you ask them for the location of the purple self-portrait and the other red one. (Although they will say that the other red one isn’t really red, it’s “coral”.) They obviously know where those paintings are, or think they know, but they’re not telling.

And so we enter the murky world of art-world rumor, which has it that the red one is owned by Peter Brant and the purple one by Bernard Arnault. Brant does have a foundation which is kindasorta open to the public — it’s by appointment only and you make appointments by email. I tried emailing them to ask if they have the red Warhol; they never replied. But I’m pretty sure that the foundation has never shown the Warhol and there’s certainly no public indication that the foundation even owns it.

As for Arnault, his Gehry-designed museum doesn’t even exist yet, and again, there’s zero public acknowledgment that he was the buyer of the purple Warhol last year.

When I asked art collector Adam Lindemann about all this, he replied succinctly that “they always say it’s the last one until someone else needs or wants to sell”. The fact is that auction houses are essentially art dealers and art dealers make their money by putting the best possible spin on the art that they’re selling and by knowing the secrets of who owns what. In this case, while Sotheby’s just said that the red self-portrait was in a “private collection”, Christie’s has upgraded it to being in a museum, or something tantamount to a museum. Which if you ask me is a bit of a stretch.

One of the weird things about conspicuous consumption in the art world is that for all that it’s conspicuous it isn’t public — outside the big public museums everybody tends to be very secretive indeed about what they own and what they don’t. That allows collectors to sell art quietly without admitting that they did so. And it also allows dealers and auction houses to make claims about where paintings are which are very difficult indeed to fact-check. Even when those claims are about “foundations open to the public”.

Adam Lindemann has replied to my post on art as a game. He makes a number of points worth responding to:

First, your idea of challenging me to buy a work of art that would have no economic value sounds clever but is in fact naïve from many perspectives. The notion that great art can be of no value, or that one should “buy what you like” even if it is worthless, is an opinion often held by those who have no background in art or willingness to learn and appreciate art in its full context.

There’s a bunch of stuff to unpack here. For starters, there’s more to art than great art. Is it possible for great art to have no value? Maybe not — I can see an argument which says that for art to achieve greatness, intrinsic qualities aren’t enough; it also needs a certain amount of institutional support which in turn guarantees that it will have monetary value. And so I suppose a reasonable (if rather puffed-up) answer to my question might have been “I only buy great art, and great art always has value”. But most collectors buy a lot of art, including art which doesn’t aspire to greatness, or art which hasn’t achieved greatness yet and which is awaiting the institutional support which might confer greatness upon it. (This covers, among other things, just about everything by so-called “emerging artists”.)

And of course people should buy what they like. Buying art you don’t like is something done only by schmucks or by dealers — and the latter will never admit it. So the question is only whether people should buy what they like even if it is worthless.

My view here is very much that they should, and I continue to hold that view even if it’s also held by people with no background in art or willingness to appreciate it in its full context. As I said back in December, when I buy art I tend to want to buy unlimited editions or other work with no resale value. Because the art-as-luxury-object game has become completely disconnected, at this point, from the art-as-art game, and has become little more than a pissing match between oligarchs to see who has the largest bankroll.

So I would say that I buy worthless art precisely because I appreciate the full context of expensive art. And that’s simply not something I want to — literally — buy into.

Lindemann continues:

Economic value is how the world recognizes aesthetic, social or historical value in art. The concept that there is something fresh and undiscovered that you alone you would cherish and that no one else would assign any economic value to if they discovered it, too, is idealized and naïve (an object of personal or sentimental value is another matter).

Economic value is one way that the world recognizes aesthetic, social or historical value in art. It’s far from the only way. Indeed, the fact that masterpieces are frequently described as “priceless” is a good indication that there’s much more to art than economic value. Look at the old masters that Jeff Koons is collecting: all of them are cheaper than many of Koons’s own works. Does that mean that the world has officially recognized that a big Koons sculpture has more aesthetic, social and historical value than the old masters in Koons’s collection? No. But a big Koons sculpture is a much more effective way for an oligarch to flaunt his wealth than a smallish Courbet bull. And so it sells for more.

As for worthlessness, I’m not talking about “something fresh and undiscovered that you alone you would cherish and that no one else would assign any economic value to”. Instead, I’m talking about the natural state of 99% of the art which has ever been produced. Much of it is loved; virtually none of it can be sold, whether or not it has aesthetic, social or historical value. Right now, in fact, my family is grappling with the issue of what to do with the substantial body of work of a now-forgotten artist; LACMA has said they would be interested in a donation of a couple of works, which they wouldn’t do if the pieces didn’t have significant value, but there’s no economic value to these paintings in the sense that there’s any kind of a market for them.

I do agree with Lindemann here:

We are all a product of our cultural surroundings and this process begins from the time the doctor cuts the umbilical cord. So there is no fresh and unbiased view of anything, least of all art. The search for the work of art valuable to you and you alone is futile and pointless, art history is a dialogue.

I’m certainly not looking for a work of art valuable to me and me alone. Indeed, I’ve been known, upon buying a piece, to post it and write about it at length — to share my enthusiasm for it with as many people as possible. I’m just being realistic — in the case of all the artists I know personally, the supply of their work is significantly greater than the demand for it. In that context, anybody wanting to buy their work can and should do so in the primary market. These people are constantly trying to find willing buyers, and they’re not having a huge amount of luck; there’s no reason for me to believe that if I put my own piece up for sale then it would easily catch a bid.

Lindemann, of course, moves in different circles. He buys only the work of artists represented by established galleries — the kind of galleries where there’s an implicit promise to buy the work back if you ever tire of it. That’s fine — but if I choose not to play that game, that doesn’t mean I’m looking for art valuable to me and me alone. It just means that I don’t need to know that there’s a secondary-market bid out there before I buy a piece.

Lindemann then admits that he views collecting art as a business:

Next, regarding your complaint that I treat the art business as a game, well, yes and no. As you’ve noted in your blogs, any business is a game of buying or selling, whether stocks, bonds etc… I am a collector, but I am also a businessman…

I couldn’t be more serious about collecting, and you might not feel art is an investment, but there is a lot of money changing hands.

This is a fair point: if buying and selling art is a game, then buying and selling stocks is a game, too. But that kind of mindset — reducing art collecting to the level of stock-market speculation — is exactly what I find distasteful. There is indeed a lot of money changing hands — and Lindemann is indeed a businessman. But when you look at the art world through the eyes of a businessman, something important is lost; for one thing, you stop thinking about art as something to buy, and start thinking about art as something to invest in. Art moves from being a consumption good to being an investment.

When you buy art, you should be looking for something you love. When you buy an investment, you should be looking for something which is going to increase in value over time. Conflating the two helps to persuade people like Lindemann that spending millions of dollars on art is a sensible thing to do. But it also massively reduces the universe of artworks you can choose from, and exacerbates the star system whereby a handful of artists sell for millions of dollars while most struggle to sell anything at all.

Finally, Lindemann says that I’m “mistaken” when I say he can afford to lose millions investing in art, and that I’m attacking his credibility when I call him a plutocrat. He also asked me, in an email, to go light on the personal stuff in my response. So I’ll leave those objections unanswered; they’re not central to our differences in any case.

The main point here is the difference in the way that each of us buys art, and thinks it should be bought. I like to buy work that I love, ideally directly from the artist, with no eye to ever being able to sell it. Adam prefers to buy work which has garnered so much institutional ratification that it can cost him millions of dollars — and even then has significant economic upside potential. He also sells work, when he can do so at a profit — that’s the game he likes to play. It’s a game which reduces something complex and beautiful to a banal P&L. Which means that even as his pieces are selling for enormous sums, they’re being cheapened at the same time.

Adam Lindemann and Amalia Dayan make a great couple: they’re both immersed in the upper reaches of the art market, with Adam mostly buying and Amalia mostly selling. I spoke to them at the Artelligence conference — an entire event devoted to the dubious concept of “art as an asset class” — after they presented a slideshow of works which were sold at auction in 1973 and which are worth lots of money today.

Lindemann is a fascinating character: he treats the art world as a game, with the score kept in dollars. And Dayan, of course, is a great enabler — the lesson of looking at the current value of those works sold in 1973, she said, is that “if you buy great, great art, and the right work by the right artist at the right time, you win huge time.”

But of course that argument is fundamentally tautological, since Dayan’s definition of “great, great art” is precisely whatever art is most expensive right now. Similarly, when Dayan says that Picasso and Warhol are “quite consistently good, always,” that statement only really makes sense once you realize that in her mind, “good” is a synonym for “expensive.”

I asked Lindemann for the maximum amount of money he would ever spend on a work of art if he knew its value was going to zero, since I thought that might be a good proxy for the aesthetic value of great art, as opposed to its speculative value. But he was honest enough to tell me that he’d never buy such a work, no matter how cheap it was. When Lindemann collects art, he wants his work to be valuable and important to others — his own aesthetic enjoyment in the work isn’t enough.

There’s a telling back-and-forth at one point in the interview, when I ask Lindemann about late Jasper Johns, and Lindemann starts sneering about the polite, established artist living in Caribbean luxury and selling new paintings for $3.5 million apiece at Matthew Marks. Lindemann’s a provocateur, but when Dayan says, laughing, that now he’s said that “we can not buy anything at Matthew Marks any more,” she’s not entirely joking. The art world is all about building and establishing relationships, and being rude about a major gallerist’s biggest-name artist is never particularly endearing.

And Lindemann’s view of Robert Scull, the collector who sold his collection at that 1973 auction and was pilloried for it, has to be put in the context of Lindemann’s own brush with infamy when he allegedly flipped Jeff Koons’s Hanging Heart back to the gallerist he bought it from for a profit of almost $20 million. (“Our role is against the dealers,” says Lindemann at one point. “We try to get one over on the dealers.”)

Lindemann refuses to comment on the Koons deal specifically, saying only that “I never bought anything I intended to resell” while his wife looks on with a priceless look of skepticism. And he does then admit that he has flipped art in the past. But the bigger message of this interview, I think, is that what we’re seeing here is a plutocrat at play. Lindemann loves buying and selling art — probably more than he loves the art itself. And he can easily afford to lose millions of dollars if a deal goes wrong. It’s a fun game for him. But it does ultimately put the lie to the idea that art is some kind of long-term store of value, rather than a plaything for plutocrats.

Anders Petterson of ArtTactic put together a presentation on the Warhol market for his talk at Artelligence yesterday. There are some astonishing numbers in it, none more so than the fact that Warhol paintings accounted for 17% of all contemporary-art auction sales in 2010. But there’s much more where that came from.

Between Warhol’s death in 1987 and today, the value of his paintings has gone up by more than 30 times; his estate, which was valued at some $220 million when he died, would be worth some $7 billion today. The public market in Warhols dwarfs that of anybody else: Jeff Koons and Damien Hirst between them, for instance, were just 3.1% of contemporary-art auction sales last year. And the money is all at the top end of the market: paintings which sold for more than $5 million accounted for 8% of all the lots, but 69% of the value. Privately the numbers can be even bigger than the $72 million auction record set by the Green Car Crash: a huge Mao has been shopped around in Hong Kong with a price tag of $120 million.

In public, the early work dominates the market: fully 90% of Warhols sold at auction, by value, were painted in the 1960s, with just 5% each from the 70s and 80s. And that includes big sales like the 1986 purple self-portrait which was sold by Tom Ford for $33 million last year.

So what’s going on here? How has Warhol come to dominate the contemporary-art market like this? There are three main reasons.

First is the sheer quantity of Warhol works: some 10,000 over his lifetime, many of which are still in private hands. That results in a steady flow of about 200 paintings a year coming up for auction, which does wonders for the liquidity of the market and the confidence that collectors have in the valuation of their works.

At this level, collectors are hyper-conscious of dollar value: Adam Lindemann told me at the conference that he would never buy a work if he knew its value was going to go to zero while he still owned it. But art is generally so unique that you never really know how much a piece might be worth until it’s sold. Lindemann, during his presentation, discussed a Barnett Newman work sold by Robert Scull in 1973 — a large zip painting, titled L’Errance, from 1953. Lindemann, like Judd Tully, put an estimate of $20 million on its value today — but no one really has a clue how much it might fetch, since Newmans come up for sale so very rarely.

Warhols, by contrast, are pretty much the easiest unique artworks in the world to value. You can never be entirely certain, of course, and sometimes they sell for well above the auction house’s estimate: the $72 million Green Car Crash was hammered down at $64 million, against an estimate of $25 million to $35 million. But with the proviso that error bars in the art world are always very large, it’s fair to say that they’re smaller for Warhol than for any other artist.

What’s more, there’s a lot more uncertainty to the upside than there is to the downside — because there’s a large constituency of collectors with a vested interest in supporting the Warhol market whenever it looks like it might be softening. Foremost among them is the Mugrabi family, which owns more than 800 Warhols: according to ArtTactic, they either bought or were the underbidders on a whopping 31% of all Warhols which came to market during the difficult years of 2008 and 2009. And in 2010 they kept on buying at auction, to the tune of $36.8 million. Essentially, there’s a “Mugrabi put” in the Warhol market, which has a lot of value to collectors.

And it’s not just the Mugrabis, either. Dealer Larry Gagosian also provides important support for the Warhol market, as do Philippe Segalot and Christophe van de Weghe. There are also major collectors who are usually willing to step in and buy at the high end of the market, including Peter Brant, Aby Rosen, Laurence Graff, and Stevie Cohen. All of them know that buying high only serves to increase the value of the rest of their collection.

Finally, Warhol has more institutional support than any other contemporary artist. There are lots of artists who get caught in an upward price spiral, as collectors compete with each other to own a limited number of works. But such spirals are prone to sudden collapse. If an artist is in many major museums, by contrast, that helps to reassure collectors that the work really does have long-term art-historical importance. ArtTactic reports:

The number of [Warhol] museum exhibitions has increased more than ten times since 1996, and in 2007, at the peak of the Warhol market, 127 museum exhibitions were showing Warhol. 26 of these were solo shows…

Another important back-up and support mechanism for the market is the Warhol Foundation… Through cooperative exhibitions, loans and permanent placement of works in museums nationwide, the Foundation has ensured that the many facets of Warhol’s complex oeuvre are widely accessible and properly cared for.

The big artists who are following the Warhol model these days are Damien Hirst, Jeff Koons, and Takashi Murakami. If they really want to learn from his success, the next step will be to assiduously cultivate museum shows around the world. It’s not easy to do that, since museums like to be independent when it comes to such decisions. But that’s what’s going to ultimately make the difference between a flash-in-the-pan, on the one hand, and the next Warhol, on the other.