Felix Salmon

The art of Griftopia

Felix Salmon
Dec 2, 2011 16:43 UTC

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.


“….but in fact everybody was to blame…”

You truly believe that???

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Why you can’t always trust auction results

Felix Salmon
Nov 21, 2011 20:15 UTC

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.


TFF, the fact that a single buyer was willing to pay price X at a public auction actually gives you a substantial amount of information about what the painting would sell for to another buyer. If no other buyers were interested in the painting at between 35M and 38.1M, it would have sold for the low guarantee of 35M. So we know that there was at least one other buyer willing to pay some amount between those two numbers. If we know more about the bidding process, we could further refine that number. If the bidding is fine grained enough, then using the purchase price as a “value” is a reasonable rough estimate.

Felix: I think others are correct that 43.2 is essentially the real price, since it is the difference in the buyer’s financial assets (minus the painting) between buying and not buying. I have one niggle, though. Since the bidding is not infinitely fine-grained. What matters is what price the painting would have sold for if the gaurantor had not made the final bid. If this is, say 100k less than the final purchase price, then 65% (or whatever the deal is) of that difference should be taken off the price. If the steps were much wider, and this difference was 500k or even 1million, that ends up making a pretty big difference in the actual purchase price.

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The art market: just as absurd as the banking crisis

Felix Salmon
Oct 5, 2011 15:07 UTC

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?


Richter has been my favorite artist for years. Personally, I believe he is this era’s Picasso. He has invented numerous forms of art and transformed abstract expression. I think it is wonderful that an artist gets to realize the value of the great work they create, while they are alive. It is all too rare.

Is any painting worth millions of dollars? Like anything, it’s worth what the market will bear, and his work is not high priced because it is “reassuringly expensive”. It’s high priced, because he evokes expression like few others, and in some cases, like no one ever has. Why should there not be an artist that is a billionaire? He makes millions of people feel better and as a result the world is better for it.

Richter will get richer.

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Who owns Spiral Jetty?

Felix Salmon
Jul 8, 2011 07:50 UTC

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.



You need to spend some time talking to a dirt lawyer before you write these pieces.

The splitting up of land ownership akin to medieval “how many angels can fit on the head of a pin” acrobatics has a long history. What this investment banker is doing is nothing new. It only seems new to you. A good example is Rockefeller Center or the Chrysler Building. Both buildings sit on leased land (Columbia U. owns the RC land and Cooper Union the Chrysler land) but no one thinks that those institutions get to control the IP associated with those landmarks unless somewhere in the actual ground leases those rights are given to the landlord vs. the leaseholder.

The ultimate division of rights under the lease will govern what the Jetty Foundation can do with the Spiral Jetty. Utah can’t grant rights to the lessee it doesn’t have a right to grant (mineral and water rights are a great example out West – often those rights are separated from the actual possessor of the land). Perhaps they will build a swanky desert tent camp for visitors. Perhaps they will be allowed to charge for admission (with Utah getting a cut). The right to control access to a property is valuable and in this case certainly worth bidding for (though one wonders how many actual visitors there would be even if the site gets amenities that would make it more amenable to visitors a la Marfa).

Sometimes you come off as the greenest cub reporter. You don’t have to speculate when discussing this when a 30 minute call to a competent real estate attorney in Utah would have educated you fully on what the possibilities are here.

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Chart of the day, auction-house market share edition

Felix Salmon
Jun 22, 2011 20:29 UTC

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?


Some outstanding Fine Art is being sold on collective websites such as The Curator’s Eye (www.curatorseye.com).

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Canine umbrella stand datapoint of the day

Felix Salmon
Jun 6, 2011 19:26 UTC

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.


That umbrella stand looks like a bad piece of kitsch from the 70s, and worth about 50 cents.

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Are Warhol auctions being gamed?

Felix Salmon
May 24, 2011 04:31 UTC

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 there is one bidder, no auction has taken place. I think it is deceptive at best. I suppose if you have a collection and you need to protect the value, publicly buying a painting at a set price can serve that purpose.
I would hope that the number of bids would be publicized so people could determine whether price could be a sham. Otherwise, I could see where this could be a tool to get unsuspecting buyers to believe paintings are more valuable than they really are. Auction houses could provide kickbacks later on to cover cost of the buyers premium so that the sale was really just a performance. I would stay away from Warhols knowing this. Let’s say
this happened in the stock market. Stock was sold to give the perception of value. Other people buying them thinking that they paid a fair value, but when they went to sell there were no buyers. That could be percieved as fraud. Eventually someone gets left holding the bag.
Maybe there aren’t any laws against this in the art world, but it is deceptive at best. If you have to pay someone to tell you how valuable a piece of art is, maybe you shouldn’t buy it. It is all just a big ego thing anyway isn’t it? Who can waste the most amount of money and smile about it.

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Adventures with Warhol, 1986 self-portrait edition

Felix Salmon
May 5, 2011 16:06 UTC

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”.


One way of looking at art is that it is all market capitalization and no intrinsic value. An auction house attempts to create an artificial intrinsic value, whether they want to convince buyers that Warhol is Important, Purple is a power color, or an item is the last chance to buy it until it goes back in the Disney vault doesn’t really matter. Once you believe in a world where art can be $300k or $30 million, logic falls away. The consumption may or may not be conspicuous, the value, even with impeccable marketing materials, is definitely not.

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Adam Lindemann and the game of art

Felix Salmon
Apr 29, 2011 22:40 UTC

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.


I like buying art at auction by good artists selling for a lot less than it would sell in a gallery. It does have to appeal to me. Most art isn’t a financial investment at least to the person who buys it from a gallery. A lot of times it is treated like used furniture.

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