Felix Salmon

On Wednesday, if all goes according to plan, I’ll be attending Marion Maneker’s first Artelligence conference, and interviewing art collector Adam Lindemann for a Reuters video after he and his wife have delivered their talk on “the truth and fiction of art as an asset class”. I’m also very much looking forward to the panel on art funds, which I hope includes one or two die-hard skeptics. (If it doesn’t, I’m willing to pinch-hit!)

The art market is becoming big business these days, as Kelly Crow’s business-minded profile of Larry Gagosian attests:

Dealers who track how he prices his gallery shows estimate he sells upwards of $1 billion worth of art a year…

He flies in a roughly $40 million Bombardier Global Express private jet and has a personal chef on call at his Madison Avenue headquarters. He has homes in New York, the Hamptons and St. Bart’s in addition to his home in Los Angeles…

Mr. Gagosian now needs to supply about 60 distinct shows a year with fresh art…

Mr. Gagosian employs a far-flung staff of close to 150, many hired from auction houses, museums and banks, to manage his empire. Sales directors at each gallery are assigned a few artists apiece, like account managers. In London, for example, Millicent Wilner, who has the account for Mr. Hirst, says she calls or emails the artist daily. Directors earn a 10% slice of the gallery’s commission whenever they close a sale, and a New York gallery director for Gagosian, Sam Orlofsky, said his colleagues often jockey for the right to sell the most coveted pieces in any show. “Sometimes it feels a little ‘Glengarry Glen Ross,’” Mr. Orlofsky said…

Plans are on hold, for now, to expand anywhere else, Mr. Gagosian said. He conceded he did some “exploring” in the Middle East last fall when he exhibited roughly $1 billion worth of art from his personal collection in a new pavilion on Abu Dhabi’s Saadiyat Island.

As Maneker points out, part of what makes Gagosian special and allows him to charge seven-figure sums for just about any artist he feels like anointing is not so much his pull with artists but rather “his control over a body of collectors willing to pay his prices because of Gagosian’s track record”.

At any given point in time, there are probably dozens of collectors who can be phoned up by a Gagosian gallery director uttering the magic words “Larry thinks you need this”, who will agree to buy whatever it is, on the spot, on the strength of nothing more than an emailed JPEG. Part of that’s due to Larry’s great track record in the past; part is also surely fear that if they say no, they’ll lose their precious privileged access to his artists.

The weird thing about this phenomenon is that the people buying into it know that it’s a bubble:

The dealer says he “lives in complete denial” about a successor. It’s a critical issue, since Mr. Gagosian plays such a central role in elevating and maintaining the amount paid for his artists’ work.

When asked what would happen to the market prices for Mr. Gagosian’s artists without the dealer there to support them, Jose Mugrabi, a major Warhol dealer who sometimes consigns pieces to Mr. Gagosian’s shows, said simply, “I shudder to even think of it.”

This bubble is hard to burst: David Segal, in a wonderful profile, hinted that there might be serious trouble at the gallery during the height of the financial crisis, but that didn’t last long, and now the Gagosian preeminence seems more solidly entrenched than ever. In the short term, that’s good for the contemporary art market: Larry simply won’t allow it to collapse, so it won’t. But in the longer term, as we all know, the longer that bubbles inflate, the nastier their bursting turns out to be.

One thing I haven’t seen anywhere is Forbes or anybody else taking a crack at estimating what Larry Gagosian’s personal net worth might be. Given that he’s the price-setter for most of the art that he owns, there are obvious problems in any such calculation. But when Crow says that Gagosian has “a lifestyle on par with his billionaire clients”, that might well be because he’s just as rich as his billionaire clients. And I’m quite sure that every major museum in the world is quietly trying to cultivate him in an attempt to get a significant bequest of whatever art he might be happening to hold when he dies.

I spent a large chunk of Saturday looking at The Clock. Christian Marclay’s video masterpiece is currently on show at the Paula Cooper gallery in New York, and is also part of the British Art Show, which is touring the UK and will open in London on Wednesday.

Still, like a lot of excellent video, it’s very hard to find. Wayne Rooney’s bicycle-kick winner on Saturday is out there, although the copyright holders were being very aggressive in taking it down from YouTube for most of the weekend. And the Grammy performances from last night are still pretty much nowhere to be found.

In the case of expensive entertainment media, I kindasorta understand what’s going on — or at least I would understand, if they had any strategy for profiting from the viral nature of these videos themselves. But in the case of the artwork, I’m just depressed.

Marclay’s work is truly magnificent — but it’s 24 hours long. It’s basically the world’s most expensive clock, laboriously pieced together from thousands of film and TV clips, each of which tell the time in some way. It’s synced to the actual time where the film is showing, so that if a clock shows 3:45pm on screen, that means it’s 3:45pm where you’re watching.

It’s an amazing work, beautifully edited. Like much high-end contemporary art, it marries a striking conceptual purity with a no-expense-spared perfectionism when it comes to technique — the film quality is first-rate, the edits are carefully put together so that you get whole sequences which echo each other and create mini-narratives within the narrative-free whole. And while it certainly works extremely well in a gallery context, one can’t help but think that its ideal presentation would be as a permanent clock, on the wall in one’s house, where you’d look over to tell the time and then get completely distracted and be late for whatever it was you were trying not to be late for.

After all, the main reasons that the piece is so hypnotic has nothing to do with the gallery setting. Instead, it’s just the nature of what’s known as “tick-tocks” in financial journalism: the deep-seated human desire to know what happens next, and which explains why so many people got all the way through Too Big To Fail. The film is comprised mostly of high-end Hollywood product, made by people who know how to keep you watching. Which creates a kind of surfing sensation: you never find out what happened after any given clip, but you’re already engrossed by the next one. According to one of the gallery assistants, people tend to spend a huge amount of time between getting up to leave and actually leaving: they can’t quite bring themselves to tear themselves away.

I would dearly love to be able to have a copy of this piece at home, getting to know its nuances — look, it’s the sequence with a whole series of dropped-in bits from Sam Raimi’s Spider-Man! — and looking out for the more subtle or hidden clocks and watches in scenes where they’re not immediately apparent. It wouldn’t be too hard, I don’t think, to set up a website where the film was constantly streaming in various timezones, and which you could just play, full-screen, in any web-connected home. And the amount of pleasure and wonder that website would generate would be enormous.

But I doubt that’s going to happen. The Clock is being sold in an edition of six, to museums around the world who will sometimes have it on show but who normally won’t. And museums, for all that they nominally serve the public, still like to jealously guard their work. Noah Horowitz, in Art of the Deal, tells the story of Anri Sala’s Intervista, a 26-minute video projection which was sold to the Musée d’Art Moderne de la Ville de Paris in 2001. When the museum found out that Sala intended to release a single-channel edition for private use, in the form of 220 VHS tapes, the museum worried about its own version’s “diminished singularity, reinforced by the disparity in price the museum would be paying for the installation versus that spent by owners of the single-channel VHS edition. In the end, the museum won out, with a final contract annulling the proposed edition.”

Marclay and his gallerists want to cement his position in the institutional art world, and as it’s going to be unnecessarily difficult for the world to enjoy The Clock – just as it’s unnecessarily difficult for people to see Lady Gaga’s Grammy performance from last night. At some point, we’re going to break through these barriers. But it’s not going to happen any time soon.

The 4th Davos Philanthropic Roundtable, held in Davos during the World Economic Forum, was one of the more surreal events to happen last week. Sponsored by Ukrainian oligarch Victor Pinchuk, it ostensibly served to examine the role of art in social transformation, both in theory and in practice. But the real message of the panel was that if you get a bunch of art-world types to sit on a panel and intone vapidly, you will produce no light and precious little heat.

The real fun was happening in the corridor outside the panel, where Damien Hirst and his assistants were helping make spin paintings for anybody who wanted one. (I’ve got two sitting by my desk — a heart that I made, and a skull my wife made.) The process was streamlined and effective:

And while insights into philanthropy were hard to find, insights into the psychology of the art market abounded. I finally got an answer, for instance, to the question of why someone like Pinchuk would go around spending hundreds of millions of dollars on shiny, evanescent art.

It’s all part of the same drive which brought Pinchuk to Davos in the first place, and which got him onto the boards of the IIE or the Global Business Coalition against HIV/AIDS—the desire for international recognition and respect. Buying art gets you some small measure of that, and the more expensive the art, the more respect you get, in the art world at least. But the art world is small, while the number of people who admire philanthropic ventures is higher—so Pinchuk is trying to combine the two, as improbable as that might sound. He even commissioned an utterly bizarre video laying out his vision of art changing the world.

The Davos lunch was an impressive demonstration of the power of money and patronage. Pinchuk held his own shindig on the sidelines of the WEF and rivalled it for star power: Damien Hirst and Jeff Koons even turned up in town just for this event, without any WEF credentials at all. And it goes to show how the art market has evolved since the war, from a realm of connoisseurship surrounding dead painters of brown portraits to one of living brand names who can be schmoozed and dined and even flown up an alp.

On the flight back from Davos I read Art of the Deal , a new book by Noah Horowitz taking a deep look at the art market in general and art funds in particular. It’s definitely not for a general audience — Horowitz writes, for instance, about “desubjectivization as a challenge to the ‘capitalist character of aesthetic relationships’ and networks as an anticommodification avant-gardist strategy,” and that’s only a little bit of a single sentence — but he did help me think more about the way in which the art market has become less and less about art, and ever more about people. That’s why and how artists can make good money from careers which are spent making virtually uncollectible art, like cooking Thai food or getting kids to stop gallery-goers and ask them questions.

In a world where plutocrats collect artists rather than art—where Pinchuk can show off Hirst like he might a new Rolex, or where Dakis Joannou can get Jeff Koons to do his yacht-painting for him—the aesthetic content of the art doesn’t matter nearly as much as the fame of the artist, and the degree to which the art is instantly recognizable.

Once upon a time, artists painted in schools, and it took a certain amount of education and taste just to be able to distinguish one artist’s work from another’s. Those days are long gone: all the most successful contemporary artists have their own unique schtick, and could never be mistaken for anybody else. It’s a necessary condition for success in the art world today: you need to do something no one else has done, and which can be recognized as being your work and nobody else’s in a fraction of a second. It’s not sophisticated, but it’s effective. And it has helped drive the art market to the point at which Koons editions are selling for vastly more money than old master paintings he’s buying for himself. It’s unsustainable, but it’s fun while it lasts.

If proof were needed that the crisis is over and that we’re back to idiotic business-as-usual, then look no further than the fact that Dealbook—Heidi Moore, no less—is running a long story about art funds. These ludicrous creatures have strong claim to being the most ridiculous asset class in the world, no one should ever invest in them, and they invariably fail.

Heidi takes a disappointingly evenhanded “opinions on shape of earth differ” tone, presenting various art funds, and even the hilarious Art Exchange, with a perfectly straight face:

Proponents, like the art research firm Skate’s, are trying to legitimize the emerging movement by making the market more transparent and providing guidance to investors new to the art world…

By investing through funds, wealthy individuals can own art without paying the large fees and heavy taxes usually associated with full ownership. Some money managers claim returns can run as high 20 percent.

The field, with $300 million in assets, is small but growing. In Paris, the Art Exchange has plans to publicly list at least six pieces, including one by Sol LeWitt, and sell shares to investors. The Russian asset management firm Leader — controlled by close associates of Vladimir V. Putin’s — created two art-related investments. Last summer, Russia passed regulations to allow art to be turned into securities, the second country to do so after India. Noah Wealth Management and the Terry Art Fund are starting portfolios in China…

A handful of companies are trying to bring transparency to the historically shadowy, unregulated arena. Skate’s — founded by a Russian investment banker and entrepreneur, Sergey Skaterschikov — has set out to be “the Standard & Poor’s of art,” said its chairman, Michael Moriarty.

Most tellingly of all, the story comes with a highly-respectful portrait of Mr Skaterschikov by a NYT photographer. Heidi does gesture at reasons to be skeptical of this re-emergent market, but overall her piece is a ratification of the asset class, rather than the stern debunking it really deserves.

The first mini-boom in art funds came between 2005 and 2007; as Heidi notes, most of those funds have already cratered, less than five years after being founded. Anybody who invested in art funds last time around will have lost their money—and anybody who does so today will suffer the same fate. All art funds fail; the only question is when, rather than whether. I have never seen a single example given of an investor (as opposed to a principal) in such funds who has actually made money on his investment, and I don’t expect I will.

The silliest fund of all is the Art Exchange, which takes the concept of art-as-investment to its logical conclusion, and which is selling off shares in pieces by Sol LeWitt and Francesco Vezzoli at €10 apiece. It’s got to be the most stupid investment that anybody could ever make: the only way that it could ever be profitable is through the greater-fool theory.

Art is by its nature a negative-carry investment: you have to pay to store and insure it, but it pays no dividends and throws off no cashflow. As a result, the present value of a share of stock in, say, Sol LeWitt’s “Irregular Form” is equal to the amount it will eventually be sold for in the future, discounted by whatever discount rate you want to use. Except then there’s this, from the official Art Exchange brochure:

Simple exit conditions

In Art & Finance Service’s market, an artwork can only be removed from the marketplace once a single shareholder possesses all the shares.

This is essentially a guarantee that the artwork will never be sold. There are over 10,000 shares outstanding, and some of them will surely be bought on a lark by people tickled by the concept of owning 1/11,000th of a gouache. Trying to find those people and persuading them to sell their shares is far more trouble than it’s worth.* But since the piece will never be sold, the value of the shares, on any kind of DCF analysis, is clearly negative.

There is a case to be made that the wealth-management arms of big banks can and should have experts in the art market on staff. High net worth individuals often have a significant proportion of their net worth in art form, and that changes their risk profile. On top of that, they will occasionally want to borrow money against some or all of their collection. Their financial advisers should understand how the art market works and how much financial value there really is in the collection, over and above the pleasure that the collectors get from owning and viewing the work.

But if any adviser is asked about the wisdom of investing in an art fund, the answer should come clearly and swiftly: don’t even think about it. It’s all downside and no upside, and people who invest in such funds would always be better off just taking their money and buying an artwork they like instead.

*Update: Nicolai Hartvig reports that if an investor buys 80 percent of the shares, he or she can force the sale of the remaining 20 percent. But if an investor can buy 80% of a Sol LeWitt, they might as well just buy 100% of one outright, from a gallery.

A couple of months ago, I bought this drawing from New York artist William Powhida. It’s called “A Guide to the Market Oligopoly System”, and it’s lots of fun, as well as being very astute.

It’s dominated by a big pyramid, with “the yearning masses” at the bottom — “submerged artists”, “deep in debt”, with enthusiasm rather than money. There’s a little dot over on the left, saying “you are probably here”. Powhida explains the economic condition that most artists find themselves in: There are always more people who like to earn their income as an artist than there is demand for them: there is a structural excess supply of labor. So, why do they persist? It’s a labor of love, or willful ignorance of the odds.

At these levels, art-making is simply not an economic activity, and as such it might be the purest art of all. There’s something quite noble about a labor of love, and indeed most artists, galleries, and museums at much higher levels of the pyramid are happy to continue to pretend that the art they’re showing is still a labor of love, even as it sells for millions of dollars. Art is getting bigger and glossier because that’s where the money is, but few artists (Takashi Murakami, perhaps?) will unabashedly admit that they make art for the money.

For the most part, then, as you rise up the pyramid, you encounter a steady increase in hypocrisy and artspeak, with the latter largely designed to obfuscate the former.

At the same time, however, it’s easy to sneer at the labor-of-love types: the art world has internalized the idea that labors of love are only worthwhile so long as they fetch a goodly number of dollars, or at the very least have a veneer of art-school sophistication — a veneer which becomes even more important if your art is popular or decorative or minimally functional. (Elsewhere, Powhida notes that “fashion isn’t considered art. Sorry!”)

The next level of the pyramid is what Powhida calls “the broad primary market”, which includes “tons of commercial galleries everywhere” as well as non-profits, pop-ups, co-ops, and the like. This is the point at which art starts being traded for money — the artists in question typically make a three-figure sum selling smallish works, with larger pieces at more respectable galleries going for a few thousand.

At this point, both artists and collectors start thinking in terms of what any given piece might be “worth.” Everybody in the system — artist, collector, gallery — has a natural desire to want to believe that an artwork is “worth” more than the collector paid for it, and that the trajectory of the artist’s future career will mean that in years to come, the collector will be able to sell it at a profit.

This is where the collector hypocrisy comes in: collectors love to say that they buy art just because they love it, and that they will never sell it. For them, just as for the artist, it’s important to keep up the pretense that what they’re doing is a labor of love; when collectors are caught flipping artworks to auction houses and making a profit on the deal, they’re sneered at, especially if they don’t immediately reinvest the proceeds in even more art. But the fact is that beyond a relatively modest initial level, no collectors will buy anything unless they think that it has real monetary value now, or will have it in the future.

This is why galleries are so important: they’re the mechanism through which an artist’s career can be tracked and reduced to a handy dollar figure. Everybody knows that there’s much more art than science to setting the dollar amount, and that’s why they always keep an eye on the auction houses, which are considered more objective. There’s an interesting tension here: galleries and artists love to see new records being set at auction, even as they hate the collectors who take their work to an auction house in the first place.

The auction houses are actually two full notches higher up on the pyramid, above the blue-chip galleries in London, LA, and New York and the major art fairs such as Art Basel and Frieze. At these levels, art becomes more explicitly a commodity: virtually everything bought here has some kind of immediate resale value, and you’ll probably be able to borrow cash money against it if you put it up as collateral. Galleries will nearly always buy back the work they sold you, if not at the price they sold it to you for, and much of the work will happily be accepted by the big auction houses.

The barriers to entry, at this level, are high: in the primary market, individual artworks start in the five-figure range and go right up into seven figures or even eight for massive works by megastars. Meanwhile, the same dealers operate a highly-exclusive secondary market where works can occasionally break the $100 million mark.

As its position on the pyramid suggests, the auction market is even more exclusive. It’s actually smaller, even as a secondary market, than the behind-the-scenes dealings of gallerists, and it’s also much more brutal in its assessments of an artist’s career trajectory. Auction houses are happy to sell relatively cheap works by up-and-coming artists, but they are much warier of more expensive works by artists seen as being on the decline. There’s still a market, for instance, for 80s superstars like Julian Schnabel or Eric Fischl, but you’re very unlikely to find their work at auction: they’ve been kicked out of the auction world, back down to the primary dealers.

It’s worth noting that this mechanism creates a very strong survivorship bias in the official art-market returns, quoted by Powhida at being 0.55% per year. Those returns are calculated by looking at pieces which have come up for auction more than once, but the fact is that in the big auction houses will often simply refuse to accept pieces which are no longer in favor, with the result that those works end up being sold in the opaque secondary market of galleries, and never get incorporated into official statistics. Auction sales are emphatically not a representative sample of secondary-market art sales more generally. What’s more, most art collections are built up in the primary market rather than the secondary market, and art indices give no indication of the rate of return on primary-market purchases, again because those numbers are so opaque.

Most people who buy art will, to a first approximation, “lose” all their money: like most other consumer products, it won’t or can’t be resold after being bought. Many of those people kid themselves that their work is “worth” roughly what it would cost them to replace it; they’re only disillusioned when they actually try to sell the thing and find no willing buyers. And even the clear-eyed often think of their art as a lottery ticket: it might be worthless today, but maybe, in the future, if the artist becomes hugely successful, it could be worth a fortune.

Art only really becomes an asset class at the very top of the pyramid: the auction houses, the museums, and the stars (a/k/a Damien Murakoons). Artists are constantly if slowly being inducted into this world, and museums are constantly receiving donations of art and buying it themselves, thereby taking it off the market. As a result, the total size of the market remains roughly constant, even the art which makes up the asset class is constantly changing. Right now, you’ll find Richard Prince and Francis Bacon in high demand; in ten years’ time it’ll be someone else.

One of the things I like the most about Powhida’s piece is the various different ways that he characterizes what you might think of as the y-axis: the thing that changes as you go higher up the pyramid. One sequence looks at the artists, who go from “submerged” to “emerging” to “established” to “stars.” Another looks at the artists’ net worth, which goes from “deep in debt” to “loaded.” Then of course there’s the price of art: “hundred$” to “thousand$” to “million$.” There’s a line characterizing the art from the collector’s point of view, from “speculation” to “investment.” There’s an upside-down pyramid, showing the art world in terms of effect rather than mass. And then there’s this:

You can argue the toss on some of these, but the main thrust is clear: the value of a work of art is to a very large degree a function of the city where it’s being sold. New York’s at the top of the heap (or, to be precise, Manhattan); Berlin punches well above its weight; Paris, the erstwhile center of the art world, is conspicuous by its absence.

Art schools, too, are ranked: Yale’s at the top, followed by Columbia, RISD, the Art Institute of Chicago, MICA, Cal Arts, UCLA, Bard, and Pratt. No foreign art schools are on the list, which is a shame, but Powhida is a very American artist.

In any case, I love this particular piece — I’m geeky enough to think that there should be much more art with footnotes — and I’m glad to own it. Naturally, I’ll never sell it. But I can still dream of a day when Powhida is famous and it’s worth a fortune.

Do finance types pay millions of dollars for art because of how good it is — or do they pay millions of dollars for art precisely because it costs millions of dollars? If there was any doubt before, you only need to listen to Lloyd Blankfein, talking about the art in his lobby:

Lloyd was overheard bragging to one extremely powerful hedge fund manager and renowned contemporary art collector (Richard Prince, Cindy Sherman, Andy Warhol among his acquisitions) to the penny what the canvas costs.

“Guess how much?” “Three?” “No.” “Four?” “No.” Blankfein flashes five fingers, says “Five….Five!” and breaks into a big wide grin.

You can only imagine how this went down with Julie Mehretu, the artist. “It took me a long time — six months or so — to decide I wanted to do this,” she told Calvin Tomkins earlier this year. “What would be the reason to make a painting for a financial institution?” The reason, in the end — or at least the stated reason — was the sheer acreage of space that Goldman was offering her: “I could never make a painting on this scale anywhere else”. Left unsaid was the obvious reason not to do it — that the painting would be reduced, just like everything else at Goldman Sachs, to a dollar amount.

Goldman, it’s clear, buys artists as much as it buys art (or buys regulators): remember how they coopted Ric Burns to make a puffy marketing documentary over which Goldman has editorial control. You can do that, when you have as much money as Goldman does. But increasingly I feel that when I buy art I 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 nothing but a pissing match between oligarchs to see who has the largest bankroll.

Georgina Adam has the gobsmacking story, for the Art Newspaper: according to the European Commission, works by Dan Flavin and Bill Viola are not art.

In its ruling a Flavin work is described as having “the characteristics of lighting fittings…and is therefore to be classified…as wall lighting fittings”. As for Viola, the video-sound installation, says the document, cannot be classified as a sculpture “as it is not the installation that constitutes a ‘work of art’ but the result of the operations (the light effect) carried out by it”.

It’s not just the EC which thinks this way: the ruling reinstates a decision by UK Customs, which charged Haunch of Venison £36,000 ($56,188) in taxes for importing a Flavin sculpture — four times as much as they should have done. Haunch appealed, and won, but now the appeal has been overturned by the EC.

The idiocies here are numerous — for one thing, it’s pretty obvious that no set of light fixtures would ever be worth £180,000 if it wasn’t art — and that the amount of money you get by taxing art at 5 percent is vastly greater than the amount of money you get by taxing the underlying light fixtures at 20 percent. The EC wants to have its cake and eat it here: on the one hand it’s only light fixtures, and so it’s taxable at 20 percent, but on the other hand it’s many orders of magnitude more valuable than any other set of fluorescent lamps.

On top of that, substantially all art is the result of the light effects being out by some carefully-constructed object. Try admiring a Rembrandt in the dark, if you don’t believe me.

This ruling sets the worst type of precedent, since I doubt there’s any practical way that it could conceivably be used by a customs office or anybody else to determine whether or not any given object is art. (But I haven’t seen it: can someone find a copy, or a link to it, somewhere?)

But most fundamentally, Flavin and Viola are art. Of course they’re art. We’re not in 1976 any more, when people could and did actually debate whether a Carl Andre sculpture was art. Today, neither Flavin nor Viola is remotely controversial; in fact, Viola is downright conservative in many ways, and both of them are firmly ensconced in the canon.

I hope this story gets picked up widely, and that the people responsible for the ruling get identified, and asked all the obvious questions over and over again. (Update: as well as the UK bright sparks who appealed the ruling to the EC in the first place, of course.) Meanwhile, a large portion of the European art industry is likely to be in panicky disbelief right now. The ruling can’t stand — but how is it going to be overturned?

(Via Cottrell)

The NYT has erred in the past, but generally it’s good about reporting prices paid at auction: the amount that the winning bidder pays for the item in question is the amount that the item sold for. That amount is then split between the person consigning the item to auction; the auctioneer; and, of course, the taxman. In the case of that Chinese vase, the hammer price was £43 million, the auctioneer charged £8.6 million commission; and the buyer also had to pay 17.5 percent sales tax on the commission, for a total of £53,105,000, or $85.9 million.

Which is why it’s depressing to see the front page of the New York Times today, saying that the vase sold for $69.5 million. (The web story says $70 million in its headline, and leads with the $69.5 million figure; the Guardian, too, gets it wrong, saying the vase sold for £43 million, while the Sun almost gets it right, adding in the commission but forgetting the VAT.)

The point is that the buyer doesn’t care what the hammer price is, only what he has to pay at the end of the day. If you’re willing to pay $86 million for a vase, you’ll pay that regardless of how many different parties get the money, or how that money is divvied up. The auction is mechanism for determining a buyer and a price, it just happens to be full of psychological tricks designed to make the final price as high as possible.

One of those psychological tricks is the hammer price, which is substantially lower than the final price paid: it makes you feel like you’re bidding less than you actually are. There are many other tricks, too, like the flattery and urgency of the auctioneer, the generally feverish atmosphere of the auction room, and the art of getting multi-millionaires with enormous egos to compete with each other to see who has the bigger wad of cash. There’s also the endowment effect, as explained by Don Thompson:

Each bidder starts with a top price in mind. When he momentarily becomes the high bidder, there is an “endowment effect.” He will pay more not to give up the painting, not to lose. Amid the tension of the auction, his reference point has changed to “I should win, this painting should be mine.” He is aware of the regret he would feel at losing what has become “his”.

On top of that, there’s the psychological ratification that comes with the existence of the underbidder and the public nature of the auction price, which is universally considered a benchmark, and is never considered an aberrant rip-off.

In this case, I suspect that other factors conspired to drive up the price, such as the fact that the auction was taking place at a second-tier auction house in the small English town of Ruislip. When would-be Chinese buyers discovered what was being sold there, with an estimate of just £800,000, they thought they were in for a bargain, and they flew in to snap it up.  I’d wager that most of them, being very willing to pay many multiples of the estimate, reckoned that they had a very good chance of walking away with the vase, and got themselves into that psychological state of all but owning it before the auction had even started. Which, of course, is exactly the state that all auctioneers want their bidders to be in — at that point they’re bidding to retain the item, rather than to buy it. And the price they’re paying, psychologically, is their marginal cost — the difference between their new bid and their old bid — rather than the full amount, including that hidden commission.

In any case, when a newspaper reports a hammer prices as though it’s the actual sale price of the artwork in question, it’s giving its imprimatur to a cheap psychological trick. After all, the auctioneer could just as easily say that the bids were for the final price, and that it would then take a percentage of that final price as its own cut. But no auctioneer ever does that, because prices are higher when the total price is opaque.

It’s the job of newspapers, on the other hand, to be transparent, not opaque, about what they’re reporting. So less of this hammer-price nonsense, please. The price paid is the price paid. It’s not — it’s never — the hammer price.

Anybody remotely attracted by this must be out of their minds:

The world lacks regulation of art securitization and art funds. With an exception of perhaps only India no country of any significant domestic investment market has a well defined regulatory framework for art funds… Well, as of this summer Russia not only has this framework but it already has the first pilot art securitization project on the way.

Leader, a powerful local asset management firm controlled by Putin loyalists, launched two closed end art funds on August 27 and is expected to complete subscriptions by the end of November. Skate’s has learned that once initial subscription period is over, Leader’s larger art fund (called “Sobranie” that can be translated both as “collection” and “meeting”) can raise anywhere between RUR 2 and 6 billion (US$ 63 and $189 million) in assets, and significant portion of those are expected to be large collections contributed to the fund in exchange for the fund units.

In other words, this is an art fund which powerful Russians buy into by handing over art rather than cash. The valuation of that art will be set by the fund, not the market — and of course if you’re a friend of the managers you might expect to get a particularly attractive valuation. Essentially, you swap full ownership of one big illiquid asset into partial ownership of a large pool of assets.

On the other hand, if you’re not a Russian friend of the managers, and instead are just investing cash, then there’s a real chance that you’ll be overpaying systematically for everything the fund acquires, and there’s always the risk that you’ll be massively diluted at any time. And that shiny new regulatory framework? Will be useless, if and when you come to need it.

Meanwhile, Bill Cohan says that he wants art galleries to be regulated by — wait for it — the Consumer Financial Protection Bureau:

Even if buying art is a rich man’s sport, there is still a need for some serious introspection among those who buy and sell art about putting an end to the questionable behavior of some dealers. And if that means that the art market needs to fall under the purview of the Federal Reserve at the newly created Bureau of Consumer Financial Protection — which of course no one in the art market will like — then so be it.

I’m not entirely sure if he’s serious about this, but of course it’s a dreadful idea. The last thing we need is some kind of formal ratification — by an agency of the Federal Reserve, no less — that art is a financial asset. The art market is broken, we all know that — but so long as everybody knows that the market is broken, there’s a limit to how aggrieved they can reasonably become if they go in with the idea of art being some kind of investment, and end up losing money.

The problem with any kind of regulatory framework for art dealers or even for art funds is that it gives them a veneer of legitimacy which they would then use to woo a huge new class of art buyers. The art market is minuscule in relation to more legitimate alternative investment classes, and even a small amount of “asset allocation” out of say old-school hedge funds and into art would create a lot of unnecessary disruption in the art market, mainly benefitting today’s dealers.

It’s much easier if we all just accept that the game is rigged against us, and that the only reason to buy art is to enjoy it. You can’t be ripped off if you’re paying for your own subjective enjoyment of an artwork. If by contrast you want to buy something which you’ll be able to sell at a profit in the future, you shouldn’t be in the art market at all.

(HT: Artnet)

Eli Broad hasn’t given up on his rallying cry, which I first wrote about two years ago:

“If 90% of your work is in storage you need to begin lending it to other institutions. Get art out of the basements,” he said at the conference, which took place in his hometown of Los Angeles at the end of May. He then told The Art Newspaper: “With all the money being spent to store and conserve work, it doesn’t make sense economically or morally not to share it with the largest possible audience.”

Lacma on Fire has a very funny response, explaining that museums have a finite amount of shelf space, but Broad sounds as though he’s running Hilbert’s hotel.

Broad talks as if everything in his 2000-piece collection can and must eventually be on permanent view. The art that’s not in his planned museum will be lent out, notwithstanding the fact that this would require the equivalent of about ten Whitney Museums, sitting empty out in the hinterlands.

The bottom line is that there is more art than museum space to show it. Thus museum installations, particularly of contemporary art, are ever-changing and (to use the fashionable term) “curated.” What’s so bad about that?

This is true, but at the same time I’m sympathetic to Broad’s cause, even in the wake of his rather self-aggrandizing decision to set up his own museum. So where’s the hole in LoF’s argument?

There are two, I think. Firstly, it would be great if museums could carefully curate shows, using the vast quantity of unexhibited work in storage at museums as a glorious resource from which they could pick and choose as they liked. Unfortunately, that’s not how the world works in reality.

In the real world, organizing loans is a huge pain, and museums tend not to do it unless they have to or unless they’re organizing some big blockbuster show. Museum curators at would-be borrowing institutions tend not to be very enthusiastic about navigating the enormous amount of politics and paperwork involved, and administrators at would-be lending institutions are no more excited about trying to put in place all the protections needed for lending out their art. It’s so much easier to just keep it stored in their own basement.

One complicating factor here is the fact that museum funders tend not to give any credit for shows elsewhere which use artworks borrowed from the museum they support. Funders want to see the crowds and the shows at their museums, not someone else’s. And so they have little enthusiasm for using their museum staff’s time to help glorify some other institution. As a result, the system of inter-museum loans is based on all manner of mutual back-scratching, on the idea that the loaner is doing the borrower a favor, which should at some point be repaid.

The sad consequence is a very large number of shows culled only from a single museum’s permanent collection. Such shows are nearly always pretty thin gruel, unless they’re at a one of a handful of super-high-end museums. Smaller museums, in particular, simply don’t have the permanent collections needed to be able to curate great shows.

So having foundations dedicated to lending out art is a really great idea, I think. Such foundations could and should work proactively with museums who might benefit from borrowing their art, and make it as easy as possible for them to do so; the result would be much better shows at small and medium-sized museums around the country.

What’s more, while there might indeed be “more art than museum space to show it”, the situation is slightly different in Broad’s field of very expensive contemporary art, where museums simply can’t afford to acquire works by today’s biggest artists. (Nor might they want to, at these prices, given how uncertain it is that the works will turn out to be particularly important.) At the same time, many museums would love to be able to put on shows of such artists, without necessarily wanting them in their permanent collections. They can get a fair amount of cooperation from the artists’ galleries, but entities like the Broad Foundation would surely make life a lot easier still.

Meanwhile, there’s no harm, and potentially quite a lot of good, when large-scale museum benefactors like Broad encourage museums to start lending out their collections more. Philanthropists with their eye on the health of art museums as a whole, rather than individual institutions, are a good thing. Even when, as in Broad’s case, they retain a certain degree of fallibility and ego.

Well done to Jessica Pressler for picking up on this astonishing photo from the house that Jamie Dimon is still trying to sell in Chicago; it’s now listed at $9.5 million, down from an original asking price of $13.5 million. That’s less than $1.2 million per bedroom: a bargain!

I’m trying to work out why Dimon would force his house guests to look at this picture every time they descend the stairs. The rest of the photos reveal Dimon to be decidedly conservative when it comes to his living style, in a high-plutocrat sort of way: lots of grand columns and overstuffed armchairs, that sort of thing. And, of course, a heavy bag in the gym.

But the portrait in the stairwell — that’s something else. This is the polar opposite of the smiling vacation photo on the mantlepiece: in fact, there’s no face at all, just sheer power and authority, presented as iconically as possible.

Dimon is rich and powerful, of course, but he’s careful with his public image, which is human and collegial. He’s not a bully. Weirdly, his private face seems to be more humorless and forbidding than his public face. Which just goes to reinforce the general impression that Joe Evangelisti, Dimon’s PR head, is doing a very good job.

Remember Art Capital Group’s lawsuit against Annie Leibovitz? It took pains to point out the sophistication of her advisors:

Each of the sophisticated parties were represented by able and sophisticated counsel and financial advisors and the likelihood that certain of the collateral would need to be sold to satisfy Defendants’ obligations under the secured loan agreement again was directly discussed with Ms Leibovitz, Leibovitz’ attorneys and Leibovitz’ financial advisors, Starr & Co.

That was enough for Cityfile to decide that Leibovitz cannot have been duped:

Friends of the photographer suggest that Leibovitz had no idea she was giving up so much when she took out the loan; they also seem to be shifting some of the blame to Ken Starr, the financial adviser who took the photographer on as a client in 2007 and who was also responsible for introducing Leibovitz to Art Capital Group. Pinning the blame on Starr, who boasts an insanely long list of celebrity clients, may be a hard argument to make…

Given the list of people who have entrusted their finances to Starr in the past, Leibovitz’s suggestion she wasn’t adequately briefed on the terms of the loan before signing the papers is a tad suspect. Presumably the accountant has dealt with desperate and slightly clueless celebs in the past. And if her plan to somehow extricate herself from the mess by pinning the blame on Starr, she may have an uphill battle ahead.

Now, however, her defense seems a bit more credible, given that Starr has been arrested and charged with five counts of fraud. The complaint gives a good idea of his sales pitch, and of the sophistication of his clients:

Starr’s clearly the kind of person who pushes “secure investments” which at the same time will grow by five to ten times, to clients who believe him. And he’s also Art Capital’s first line of defense against accusations that they were predatory in their loans to Leibovitz. I’m sure they’re very happy, today, that they’ve exited that particular deal.

Holland Cotter today does a great job of disproving Sotheby’s auctioneer Tobias Meyer’s infamous maxim that “the best art is the most expensive, because the market is so smart”.

His subject, of course, is the $106.5 million 1932 Picasso, which now holds the record for the most expensive work of art ever sold at auction. But that doesn’t mean it’s especially good:

It’s an entertaining picture. Picasso was a born entertainer, a comic ham. I think that’s the reason for his immense popularity, though it’s not what’s great, meaning original, in his art. The seed of that is found in early Cubist painting and collage, with their shaking-apart structures, razor-sharp slices into space, and disorienting confusions of art, language, time and accident. Everything about that work was new and not easy, and still is.

“Nude, Green Leaves and Bust” and other paintings from its period are old and easy, art as usual. They keep to the known, the pleasure zone; they keep old orders firm, artist over subject, man over woman, woman as thing, a pink blob with closed eyes.

Carol Vogel speculates, unsurprisingly, that the buyer was one of a select group of alpha males:

Dealers said several prominent collectors were thought to be bidding on it, including Kenneth C. Griffin, chief executive of the Citadel Investment Group in Chicago; Leslie H. Wexner, the Columbus, Ohio, collector; Steven A. Cohen, the Connecticut hedge-fund billionaire; Joseph Lau, a Hong Kong collector; and Roman Abramovich, the Russian financier.

At these levels, buying art becomes trophy-hunting, a silly competition to see who can spend the most money. The main reason for the price is not quality but size: the painting is a good 20 square feet, much larger than any of Picasso’s cubist masterworks. The painting is instantly recognizable as a big Picasso, and it will surely make its buyer feel very rich and powerful every time he sees it. But the price has nothing to do with quality.

What kind of interest rate do rich people pay when they borrow money? In the case of Annie Leibovitz, the answer is something over 44%. That’s the most interesting revelation from the latest court case to embroil the celebrity photographer, wherein a company called Brunswick Capital Partners says that it helped Leibovitz refinance her Art Capital Group debt with a $40 million loan from Colony Capital.

The refinancing happened in March of this year; the original loan from Art Capital, for $24 million, took place in September 2008. Which means that Leibovitz racked up at least $16 million in fees and interest payments over the course of 18 months — and that’s not including any payments that she did manage to make to Art Capital along the way. That’s a rate of something over $10 million per year on the initial loan, or 44%.

The depth of Leibovitz’s financial woes is evidenced by the fact that she paid Brunswick a $50,000 retainer plus $10,000 a month just to look for new lenders. And that’s before their $800,000 “success fee”. But obviously lending to somebody in such deep financial trouble can be highly profitable: just look at Art Capital’s profits on the deal. I wonder if the Center for Responsible Lending feels like getting involved here.

(I asked Art Capital if they had any comment about this; they said they didn’t, “because we’re bound by confidentiality provisions”.)

In his wonderful essay about Warhol and authenticity, Richard Dorment writes:

The single most important thing you can say about a work of art is that it is real, that the artist to whom it is attributed made it. Until you are certain that a work of art is authentic, it is impossible to say much else that is meaningful about it.

He ends the essay with the story of a highly important Warhol which was part of the collection given by the art dealer Anthony D’Offay to the English nation, but which D’Offay “has been forced to withdraw” from his gift as the Andy Warhol Foundation has refused to certify it as authentic. Without that stamp of official authenticity, the painting cannot be sold or exhibited at the Tate.

This curiously binary it-is-or-it-isn’t attitude towards Warhol looks even odder when you compare it with the market in Duchamps. Sarah Thornton, in the Economist, examines the market in Fountain, the iconic Duchamp urinal which was originally made in 1917 but which didn’t last long:

The urinal went the way of many of Duchamp’s early ready-mades; it was smashed or trashed. So insignificant was the porcelain pissoir at the time that no one can remember exactly what happened to it.

Decades later, beginning in 1950, Duchamp started authorizing curators to purchase urinals in his name; in 1964, he made an edition of 12 replicas in an edition of eight with four proofs. These fountains aren’t urinals at all: they’re earthenware sculptures modeled on the Stieglitz photo of the 1917 original. But they have real value — one sold for $1.8 million in 1999.

It turns out that the story doesn’t end there. There’s a 13th Fountain — a “prototype” which was signed by Duchamp and owned by Andy Warhol, and which was sold by Sotheby’s in his 1987 estate sale. Sotheby’s put an estimate of $2,000 to $2,500 on the piece; Thornton doesn’t say whether the estimate was so low because the auction house didn’t really consider it to be an authentic Duchamp in the first place. It was bought by Dakis Joannou for $65,750; he, for one, is happy to talk about its “historical importance”.

And there’s more! There’s a 14th Fountain, belonging to Gio di Maggio, and a 15th, belonging to Luisella Zignone; neither is signed by Duchamp, but both have been shown in museums. There might be a 16th, owned by Sergio Casoli, and finally there’s a 17th, which Arturo Schwartz, who oversaw the production of the of the 1964 edition, seems to be willing to sell for $2.5 million.

Duchamp purists says that these supernumerary unauthorized Fountains aren’t Duchamps at all — but they clearly have value. Museums will display them, collectors will buy them, and dealers will happily talk nonsense about them:

Daniella Luxembourg, co-owner of Luxembourg & Dayan, a New York gallery that recently held a Duchamp mini-retrospective, says the artist’s market has “the atmosphere of relics in a religion,” adding that “with globalization, the differences between what was signed by Duchamp and what was in his vicinity will become smaller and smaller.”

My feeling is that all of this is right and proper. The market price for something should be determined by the market; so long as questions about authenticity are clearly understood by both buyer and seller, there’s no reason to effectively ban trade in these things between educated and consenting adults.

The question of whether a museum should exhibit the questionable Duchamps is a little trickier, since doing so has the effect of ratifying their authenticity and increasing their market value.

The Economist has decided to run Thornton’s piece under the cute headline “Rogue urinals”, with a subhed asking “Has the art market gone Dada?”. The answer, of course, is no: the market has grown up, and doesn’t feel the need to by nannied by self-appointed guardians of an artist’s estate. Would that the same thing happened with Warhol.

(HT: Maneker)