“People don’t like contemporary art, but all art
starts life as contemporary – I can’t really see a difference.”
Damien Hirst, contemporary artist.
Purchasing contemporary art is now by some
distance the most common route into the art world. Assuming that all art over a
certain period of time which is of any investment value has been purchased, the
art investor is left with contemporary art. This shouldn’t be a drawback to
investing in art. To use an investment analogy, look at contemporary art as the
tech start-up whereas classic or pre-war art might be a more mature share with
generally steady growth.
What is contemporary art? Definitions vary,
depending on who you ask (and even then, it can depend on which market they’re
looking to sell it to). Take Christie’s as an example: everything since 1970 is
given the “contemporary” tag, while anything before can merely be “20th
century.” Sotheby’s doesn’t stray too far from this definition, with everything
post-war to 1970 being “early contemporary” and everything post-1970 being
“late contemporary.”
The definitions don’t end there, however. If one
were to say “modern art,” what time period does it evoke? Most people would
answer, “everything from the last few years until now.” In fact, modern art is
everything from 1900 to 1970. To confuse matters, vintage cars are generally
defined as being pre-1970s and yet modern art started in 1900? If it helps,
think of art as being on a much longer scale than cars, which were only
invented at the beginning of the 20th century.
Without bickering too much over the definitions,
it is important to have a grasp of what’s going on when you first enter the
market (be that through a fair, a gallery or just by approaching a dealer, more
of which later). 1970 is a good drop-off point. Anything after there can be
considered contemporary, regardless of whom you’re buying from or selling to.
This includes two-dimensional works such as Kawara’s Today series of paintings (featuring that day’s date in white paint
on a black canvass) to Chris Ofili’s Elephant Dung (also a series, believe it
or not) right through video installations.
Part of the journey here – as with any journey –
is not to be afraid of what you will encounter. That is particularly true of
contemporary art. Broadly speaking, artists in the classic period set out to
define beauty on a page or through sculpture. That genre of artists still
exists in the contemporary sphere. Generally though, contemporary art’s goal is
not to make you wonder at beauty; its goal is to make you wonder full-stop.
The most successful contemporary pieces of art
have all evoked something; more often than not, something far from beauty.
Loathe as we are to use the expression “wow factor,” it is very applicable to
where the smart money goes in contemporary art investment. And if your reaction
is less “wow,” and more of an expletive of your choice (and despite the
expletive, you could live with the work), then you’ve probably hit on
something.
Take some famous contemporary pieces to
illustrate the point; Andy Warhol – arguably the most famous of all the
contemporary artists and one whose raison
d´être was to evoke a reaction – made a painting from his own urine. If an
artist did this now, it would be looked on as old hat. But imagine how it was
received at the time. “The painting is made from what?” We’re not saying we
approve. We’re saying that the reaction of those people who first saw the
picture and realized what it was made of – that’s a “wow” factor in
contemporary art.
Marcus Harvey’s work Myra is another, more recent (and hygienic) example. It was
featured in Sensation, an exhibition
focusing on shock art by young British art graduates. It was an 11ft by 9ft
painting of child murderer Myra Hindley – shocking in itself. However, Harvey
went further and created the picture by using paint-covered images of
children’s hands on the canvass. It’s enough to make you wince now, even after
you’ve probably already heard of it. When the show opened, relatives of
Hindley’s murder victims complained and men threw eggs at it. The painting
needed full-time security. Marcus Harvey, fresh out of art school, had arrived.
There’s a clever line towards the 2011 movie, The Social Network that might capture
all this rather succinctly. The egoist character Sean Parker is in the middle
of a stand-off with the far more amicable Eduardo Saverin. The interaction goes
like this:
Sean
Parker: You think you know me,
don’t you?
Eduardo
Saverin: I’ve read enough.
Sean
Parker: You know what I’ve
read about you?
A
pause.
Sean
Parker: (Whispers) Nothing.
In contemporary art, you want to back the one who
people are talking about, not the one who people like but are saying nothing
about. Remember this above all else when setting out in contemporary art. There
are far more details to the industry than that, however (if only it was that
simple). The cynic in many of us would like to believe that contemporary art is
a few splashes of paint on a blank canvass claiming to symbolize something.
They’re out there for sure. But they’re not the ones driving the industry.
A work becomes meaningful at least in part
because of its price. Contemporary art is analogous to modern celebrity: many
celebrities are famous for being famous. The same could be said about many
piece of art. And they get famous through high prices, which act as signalling
for other buyers in the market. If there were no reported auction results, it’s
unlikely that several pieces would be regarded so highly. And just like modern
celebrity, what’s considered fashionable today might be yesterday’s news very
shortly; it’s a fine balance.
Research is essential. Even with all the advice
you find here and elsewhere, there is no substitute – as with any field – for
knowing as much as, or more than, your peers. Having knowledge of different
artists and trends in the contemporary art industry will be the difference
between breaking the bank and making a return. Most of the people who make
money from investing in art are passionate about it, so it’s easy for them to
research: it’s not work to them – it’s something they might be doing even if
there were no financial return in it.
One of the things that art as an investment has
over other traditional investments, is that it is still under-researched (in
our opinion). Whereas stocks on the LSE or AIM are researched to the most
minute detail, how many investors from other fields know which up-and-coming
contemporary artists’ works have grown in price more than any others. They
probably don’t know where art trends are headed, or what makes one piece sell
while another doesn’t. Despite this, they continue to pour money into art and the
trend is likely to continue. While you may not be a quantitative analyst, your
newly-acquired knowledge of the art world can give you an advantage over people
that are.
Be particularly wary about taking advice from art
journalists (a somewhat ironic piece of advice, coming as it does in a document
advising on art investing). Many art journalists work for publications, which
have vested interests. They may receive money from galleries, dealers or
collectors. In some cases, they may even possess works of artists they report
to be good investment choices. Inform yourself certainly, but don’t put too
many chips on an artist on the basis of what an art journalist says. They won’t
take the financial hit if their hunch is wrong – you will.
Critics occupy a similar space to journalists.
One famous example of the conflict of interest inherent in these roles was
exhibited by David Sylvester, a British art critic. Sylvester used to review
pieces by William de Kooning at the same time that de Kooning was providing him
with new works. The man was almost literally writing himself extraordinary
profits. Luckily, art critics usually have little influence on the contemporary
art world, artists’ success or the prices of works. As senior art critic at the
Village Voice magazine and 3-time winner of the Pulitzer Prize for criticism,
Jerry Saltz says, “at no time in the past 50 years has an art critic had less
of an effect on the market than now.”
Elsewhere, remember that you can’t say
“contemporary” without “temporary.” Art magazines and journals from just ten
years ago are littered with the names of the hottest new artist and their
latest exhibition. Where are they now? Many of them have had fleeting moments
in the spotlight. The cull-rate is quite huge, illustrating how difficult
trying to purchase right in the market can be. As a general rule-of-thumb,
around 2% last more than 15 years at the major galleries. Around 80% of works
will never again receive the price they achieved at auction. Some odds.
Despite this, good investments in contemporary
art are found on a regular basis. Like many investments, you won’t know if it
gives a good return until many years later. Even if an artist is “hot” as the
industry likes to put it, it doesn’t make it a good investment when you buy it
at an affordable price. Affordable may mean cheap or it may mean expensive,
depending on where the value of the work goes in the future. Time will be the
ultimate judge of that.
In this document, we will look at several aspects of the
contemporary art world: the artists, collectors, galleries, dealers and
auctions. We will show that the contemporary art world is particular in ways
that more traditional spheres of art are not. It is more dynamic, more liquid,
more fickle and in most cases, more surprising. There are several rules of
thumb, which don’t apply as much to other spheres and we’ll give you good
background on these rules so that when you do begin trading, you’ve got a head
start on where you are at this very moment. Enjoy.
“All great contemporary artists, schooled or not, are essentially
self-taught and de-skilling like crazy”
Jerry Saltz
It can be tempting for outsiders looking in at contemporary
artists to believe there’s more hot air to the industry than any real talent.
But the statistics surrounding artists in the contemporary art world are quite
phenomenal. For example, it is thought that around 40,000 artists living in
each of New York and London. Of these, there are between 50 and 100 “superstar”
artists making 7-figure salaries. In the next tier, there are around 300 or so
artists who display in major galleries (and probably responsible for generating
some of the hot air that gives the industry a bad name). The next 5 to 10,000
are represented by mainstream galleries and their salaries are generally very
volatile.
Therefore, in two large metropolises with a combined population of
around 40 million people, at best 2,000 artists are making a steady living. Or
one in 20,000 people. At any one time, 15,000 artists in London alone are
thought to be looking for representation from an agent. Even the most
world-weary cynic would find it hard to have some sympathy for the contemporary
artist given these figures. It should serve as a reminder each time you see a
sought-after artist that they have already made it past several hurdles.
There’s probably something exceptional about them that attracted a mainstream
dealer or one of the superstar dealers (more of which later).
Who are the great contemporary artists? And what defines great?
For our purposes, a great artist is one who has staying power; an artist who
isn’t “today’s thing”. The staying power will also give them long-term value
from an art investment perspective. When Andy Warhol notoriously said, “in the
future, everyone will be world-famous for 15 minutes,” it was probably inspired
by contemporary art as much as contemporary celebrity. The maxim applies to
several contemporary artists. The artist Ed Ruscha is a case in point: Ruscha
was the darling of the New York and London contemporary art scenes in the
1980s. In the 1990s, his paintings disappeared from gallery walls. Such is the
fickle nature of the industry and the inherent danger of investing in
contemporary art.
Returning to Andy Warhol for a moment; Warhol was undoubtedly
part-marketer, part-artist. We will let the reader decide what proportion of
each! However, this is relevant as most of the most successful contemporary
artists have a real handle on both. The flowery language that on-lookers
associate with the contemporary art world has become far more sophisticated
over the past few years. Artists have to be quotable. It’s not that Andy Warhol
invented this. Artists were given mouthpieces in the Renaissance as well. He
certainly sought to capitalize on it, however. Most contemporary artists are
the same. Good sound bites make cover. Good cover generates publicity and publicity
sells art.
The constant need for publicity drives at least some artists to
wring every last piece of publicity-generating potential from their works. A
good example is provided by the names now chosen for the works they produce.
Whereas once Girl with a Pearl Earring sufficed
as the name of a painting, these days the name of a work can be as creative as
the piece itself (and sometimes more). Damien Hirst stands out in this field
with titles for his pieces such as Isolated
Elements Swimming in the Same Direction for the Purposes of Understanding
or The Physical Impossibility of Death in
the Mind of Someone Living. Hirst is not alone, however. It’s a veritable
trend. Big White Cock is another one.
Although it is in fact the depiction of a farmyard animal by Terence Koh, the
intention with the naming is clear. Artists know a name like this can generate
talk around a piece, drawing the eyes of readers in auction catalogues to their
work and thus think hard before giving a name to each piece.
Take your pick of the contemporary artists that spring to mind and
look for their quotes. Artists looking to sell their works are like politicians
with paint-brushes. Here’s Jeff Koons: “Art to me is a humanitarian act and I
believe that there is a responsibility that art should somehow be able to
affect mankind, to make the world a better place”; one from Felix
Gonzales-Torres: “Always think about practise…theory is not the endpoint of
work – it is the work along the way to work”; and then Cindy Sherman: “the still
must tease with the promise of a story the viewer of it itches to be told.”
None of these are blurted out without thinking. They are well-thought of sound
bites by intelligent contemporary artists.
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| Jeff Koons' Ballon Dog: "A humanitarian act." |
Where artists are concerned, mystique sells, just as it does in
most industries. When an artist dies young, it gives them a certain allure that
the living probably don’t always have. Art dealers, galleries and collectors
buy into this as much as anyone else; remember that Vincent van Gogh didn’t
sell any pieces during his lifetime (aside from those he sold to his brother).
These days, the majority of his pieces reside in the Vincent van Gogh museum in
Amsterdam. It receives 30,000 paying visitors a week. Many of the exhibits on
show are the letters he wrote to his brother, which help to reinforce the
narrative of a troubled artist.
Artists aren’t all about allure of course. Phillippe Seaglot, a
respected New York Art consultant says that you can pick great artists early.
According to him, if you can’t, they’re unlikely to ever amount to anything.
For the record, his list of the best contemporary artists contains a number of
household names: Jeff Koons, Jean-Michel Basquiat, Cindy Sherman, Richard
Prince, Felix Gonzales-Torres, Charles Ray, Mike Kelley, Martin Kippenbgerger,
David Hammons, Andreas Gursky, Damien Hirst and Maurizio Cattelan. Inevitably, most
of the artists’ work he lists are at the higher end of the market. Most
consultants don’t want to disclose the next up-and-coming artist unless they’re
holding some of their pieces.
A good place to start for investment is a new type of art. When
Saatchi bought into the yBa’s (young British artists), it almost created a
brand in itself. A new art movement can be a profitable place to look at art
purchasing. Think of all the new movements down through the years and the money
that would have been made if somebody got in on the ground in that movement.
What many of these movements had in common with one another was their ability
to infuriate people, often provoking them into the timeless adage, “that’s not
art.” As soon as an art investor hears, “that’s not art,” about something new,
their ears stand up.
To give an idea about where this has happened before in various
ways, one doesn’t need to look too far or deep into art movements. Think of the
likes of cubism and Pablo Picasso (someone who was a very accomplished
classical painter before turning to experimentation), minimalism by Mark
Rothko, comic art by Roy Lichtenstein and even impressionism by Claude Monet.
In the past, the style and subject matter of artists could be
reasonably easily defined. Even the work of artists themselves could sometimes
categorized into different genres or periods. For example, Van Gogh had his
blue and yellow periods. The same can be said for today’s contemporary artists.
As an example, Damien Hirst’s work falls into six separate categories: tank
pieces such as the stuffed shark, the “cabinet series,” which is a collection
of old-fashioned pharmacy cabinet displays, spot paintings (usually produced by
assistants and not Hirst himself), pieces painted on a spinning potter’s wheel,
butterfly paintings and finally, photorealist pieces. Hirst is still relatively
young so perhaps more categories will be added as time goes on.
It’s something of a tautology, but the works you like will dictate
which artists you look to more. This is relevant because it can provide a
useful filter when looking at and research art. Investing in art is part
enjoying the piece and part appreciating the artist themselves. The scope of
what makes contemporary art is far wider than it was for traditional art, so
filters will be required. Which is better? The candy-sculptures of Felix
Gonzales-Torres or the (to some people) distressing Untitled by Jean-Michel Basquiat? Or even the Balloon Dog of Jeff
Koons? The range of just these three pieces shows the breadth in work
categorized as contemporary and how narrowing down research to certain artists
can be useful.
There is no close relationship between the
ranking of artists in terms of popularity and talent and the price that their
works bring. For example, the rise in contemporary art prices is due in no
small part to other schools of art rarely coming on the market. The shrinking
supply of traditional art is due to the rise of museums in emerging economies
and private collections all over the world. Needless to say, it has been a boon
for contemporary artists. As a result, the narrative moves away from
traditional art towards contemporary art and as a result, the prices rise.
Outside of the prices their pieces generate,
another good indication that artists have become an industry in themselves are
the spin-off products and places their names are now used to market. Damien
Hirst’s Pharmacy restaurant in
Notting Hill and products such as cars named after Picasso (with the permission
of the Picasso estate) are cases in point. Does Damien Hirst even know how to
cook? It’s certainly not what he is best known for. Be aware that many artists
are becoming more business savvy and if they are business savvy themselves,
there’s a good chance that their paintings will be worth more as well. We’re
not saying that they’re in it for the money – rather that they know how to make
it, and if they make it, the people who invest in their pieces will similarly
benefit.
The example of Picasso is indicative. One visitor
to his studio stood in front of one of his pieces for five minutes before
asking:
“What does it represent?”
“Two thousand dollars,” came his response.
It’s notable that few women arise on the best contemporary artists
lists of most experts in the field. This could represent an opportunity for new
investors. The 20th century’s three most famous artists are Cindy
Sherman, Frida Kahlo and Georgia O’Keefe. Outside of these three, there are few
names that will raise any eyebrows for those outside the inner circles of
contemporary art.
Another point to note is that the rising prices recorded for
contemporary art (just look at a book on contemporary art from a few years ago
and how it has dated already by way of example), encourages new artists to
enter the field. This can be a good and a bad thing for an investor. It
certainly creates new opportunities. On the down-side, it means more research
and constantly keeping ahead of the pack; neither of which are an easy task.
Nevertheless, if any investor were to broadly follow the guidelines we have
provided, you won’t go too far wrong.
.Collectors
“Few
people in contemporary art demonstrate much curiosity. The majority spend their
days blathering on, rather than trying to work out why one artist is more
interesting than the other, or why one picture works and another doesn’t.”
Charles Saatchi.
Charles Saatchi is well-versed on what works with
art. And by that we mean not only what works on the page, but also what works
in terms of the mechanics behind art collecting. Saatchi is arguably the
world’s most famous collector along with a couple more collectors. He first
began collecting art in the 1980s when he was still more famous for being the
creative head of the largest advertising agency in the world. Saatchi’s agency
was the brains behind, “Labour isn’t working,” and “BA: The World’s Favourite
Airline.” In other words, he had a good
eye for what people want to see and hear before getting involved in
contemporary art: no bad thing.
In the art world, Saatchi is credited with
creating Damien Hirst (both the artist and the quotation machine). This has
been highly lucrative for both and is as good an indication as any of the power
that Saatchi yields as a collector. In fact, depending on the artist and the
event, he can sometimes be curator, backer or owner of art collections. He is
one of the few super-collectors. A group who are not only extremely wealthy but
also have their interest in an artists’ work create a market for the artist.
The group is small but undoubtedly growing. To the ranks of Charles Saatchi and
others like Frank Cohen, have come others from Russian, Chinese and
middle-Eastern backgrounds.
 |
| British Airways: The World's Favourite Airline, if you're to believe Charles Saatchi. |
The list of super collectors can be viewed as a
list of influencers. They are the ones walked around art fairs unattended hours
before everyone else is even enter. They don’t pay to enter the fairs –
everyone else does. Their endorsement for a piece of contemporary art shows
liquidity in that part of the market. It also hints that there might be further
purchases made by the collector of the same artist and as such, generally
pushes up prices across the board. It’s the contemporary art world’s somewhat
naïve form of technical analysis. Naïve it may be, but it has generated money
for people who have followed it. The more well-known names outside of Saatchi
and Cohen include Bernard Arnault of LVMH, Eli Broad, an investment banker and
Ronald O. Perelman a venture capitalist and Francois Pinault, owner of Gucci.
People can speculate on the real motives behind
these collectors, but for our purposes, it’s more relevant to analyse how they
work and how their actions affect the market at large. Saatchi is perhaps the
most interesting of the largest group of collectors because of his ability to
create a buzz around an artist (just as he could previously do with commercial
brands) and let’s be fair, a good eye for art. More than any other collector,
it seems he has a finger on the mechanics of the contemporary art world and
entered it in the late 1980s with the ability to spot trends and opportunities
that existed in the market at the time (and sometimes persist to this day).
Like any good collector, Saatchi has a firm grasp
of marketing (the best place for your works is an exhibition at a museum or an
exclusive gallery), economics (he often corners markets to create a scarcity of
supply or buys in bulk and asks for quantity discounts) and even finance
(sometimes playing financial backer to exhibitions showcasing his own artists’
work). Aligned to a strong set of industry contacts and an eye for spotting
trends, it’s a truly impressive set of skills for any collector to possess and
gives him a lead over his competitors in the market. It’s also a set of skills
anyone looking to set out in the world of contemporary art investing should
aspire to.
Saatchi is sometimes credited (wrongly, in our
opinion) with the emergence of “shock art,” which itself helped give him a
reputation among art collectors. This was an example of his marketing prowess
and one of the skills that we refer to above. In 1997, the Sensation show at the Royal Academy in London included over 100
works by 40 yBa’s (an industry acronym for young British artists), which almost
entirely focused on shock art. Even the name chosen for the exhibition was
bombastic. The art generated publicity – Saatchi’s speciality. Nearly 300,000
people visited the show that year, more than any other exhibition in the UK in
1997.
Freeze exhibition of student art has provided a happy
hunting ground for him over the years, with him sometimes purchasing entire
collections of students. This is an excellent filter for any art collector –
the Freeze shows the best of young
British talent. Who else would become the best artists in the years ahead?
Sure, artists can spring from anywhere but the Royal Academy of Art has already
applied such strict filters that they have done much of Saatchi’s work for him
already.
Positioning, in the most physical sense, is also
essential for contemporary art. This is true for investors at the bottom of the
market as it as at the top: art needs to be presented well. Saatchi pioneered
the now common stark white setting for contemporary art spaces at a former
paint factory in an exclusive part of London. He also published a book to
publicize those same pieces of art hanging on their wall: Art in our Times – the Saatchi Collection. The steps he took to
become such an influential art dealer seem somewhat obvious now but pieced all
together, they make a highly impressive how-to guide for someone looking to
enter the contemporary art world.
Saatchi didn’t stop with the Royal Academy
(sometimes ironically – or jealously- referred to as the Saatchi Gallery). In 2006, he created an online space for unknown
artists to exhibit their works known as yourgallery. The site quickly gained
several thousand artists keen to exhibit their work and allowed many to sign to
galleries through the site. Again, it showed Saatchi’s innovation and how his
tentacles have spread to the furthest corners of the art world, touching even
on those unknown artists who haven’t made it to the Royal Academy for whatever
reason.
We have included this chapter to show the
influence of large collectors on the market as a whole. Charles Saatchi is just
one of many – and unquestionably the most successful and influential. His
endorsement for an unknown artist is like the endorsement of Warren Buffett for
a small unknown company. Watch the stock price rise exponentially as soon as
the famous investor purchases anything and you’ll get a glimpse into how prices
react to Saatchi purchasing a work as well.
We should sound a note of caution here, however.
Even Charles Saatchi is unlikely to get it right forever. His genius has been
in reading and creating trends, but it’s worth remembering that Saatchi &
Saatchi was overtaken in the advertising world just as Charles Saatchi might
one be in the contemporary art world. As much as collectors like Saatchi would
like to put their success down to turning art investing into a science, it is
scarcely true. At least, not yet. The famous collector Ron Lauder divides
paintings into three categories: “oh,” “oh my” and “oh my God.” He claims to
only collect the last type. This approach, although it seems to work for him,
would hardly make it into the Scientific American. The anecdote we provided
about 15,000 artists trawling the streets of London looking for representation
is a small (or not so small, as the case may be) indication of how dynamic this
industry is.
Charles Saatchi was and is shrewd and
intelligent. It’s not particularly shrewd or intelligent to be a “me-too” in
the world of contemporary art, even if you sometimes can make good returns on
this policy. His example shows more than anything that brains, creativity and
innovation make money in art. That is as true for art collectors as it is for
the artists themselves.
“All my dealers are the best of people. ..they
earn every dollar of their commissions as they are in full partnership with
their artists. I can sit in my studio and do nothing but paint.”
Harley Brown.
Looking at super collectors is a useful way of
see the mechanics at the upper end of the art world. It’s even useful to see
where some trends are emerging (although the best investors will be able to
spot these even before the biggest collectors). Art dealerships are the
incubation houses of any successful contemporary art, however. It an artist can’t
make it past an art dealer, the reality is that they’re unlikely to make it at
all.
Dealers go hand-in-hand with art galleries,
holding their own dealerships as they do. A good dealer, like a good collector,
plays a number of roles at once. They need to wear several hats: that of
marketer (notice how this comes up again and again in contemporary art),
relationship manager (a dealer is hamstringed if they don’t possess wealthy
clients as well as access to marketable talent), and art experts. Their rank includes
the likes of Tim Marlow at White Cube, Harry Blain of Haunch and Venison and
Ileana Sonnabend of the Sonnabend Gallery. They can sometimes play the role of
curators or university historians of art. It’s not difficult to see why they
sometimes have as much influence on the market as those bearing the cash.
Of all the roles in the contemporary art world,
dealers is probably the most difficult. Statistically, it doesn’t have anywhere
near the same number of casualties as the category of artists but then again,
it requires more financial input than that of the artists. It’s also more of a
do-or-die profession than that of artist: whereas an artist’s first exhibition
may not go down so well, there’s a chance their second and third may be better
received. As for dealers, realistically, how many times can an art dealer knock
on the door of a high net-worth individual claiming to have found the next big thing
in contemporary art? A dealer in contemporary art whose contacts never return
their calls is lost.
There is no exact pattern among dealerships in
terms of who they represent. For example, among the most renowned dealerships,
PaceWildenstein in New York hold a very large inventory of work while across
town, L&M hold a much smaller inventory. The famous dealer Larry Gagosian
(now the biggest contemporary art dealer in the world by most estimates)
represents most of the well-known contemporary artists (Larry Kroons and David
Hirst to name but two) while others, such as Mitchell-Innes & Nash
specialize in representing artists’ estates.
The economics of dealership also vary by artist,
the terms of the deal and timing. For example, Larry Gagosian is thought to
charge a commission of around 30% for Damien Hirst – far below what he might
charge for anyone else. That said, the market for Damien Hirst has been so
liquid for the past number of years that 30% even seems high. In general, it
works thus: The dealer takes 50% of the selling price as a commission. If the
dealer shows an artist who is under contract to another dealer, at least 10% of
each sale is returned to the primary dealer. The figure can be as high as 25%
if the artist is considered “hot.” It’s the responsibility of the art dealer to
negotiate reproduction and exhibition rights (if relevant).
The commission may seem high compared to other
industries (investment bankers often take less than 2.5%, for example), but it
betrays the amount of work that dealers put in to getting a sale (on assets
which are usually far less liquid than those marketed by investment bankers).
They are essentially responsible for managing the long-term career of their
artists. In practise, this means placing a work with collectors, taking it to
art fairs, placing it with dealers in other countries and working with museums.
In essence, playing the role of a manager for the artist and putting their own
financial neck on the line in doing so.
The more experienced dealers such as Gagosian or
Jay Jopling’s White Cube in London will often take a piece home to look at it
several times a day before making a purchase. This anecdotal evidence sets a
good example to anyone looking to invest in contemporary art; if an investor is
serious about paying for a piece, they should be very familiar with it –
lending it for a few days if at all possible.
Many dealers deal in the primary (sales direct
from the artist) and secondary markets (sales everywhere else), but which is
more profitable. Intuitively, we might say the secondary markets as there fewer
costs involved than that of the primary market. However, it’s never as
straightforward as this and there are terms and conditions with every artist
and collection that affect the margins and the deal received by the dealer. For
example, one of the incentives offered to consignors and secondary market
dealers is to purchase over-subscribed work from primary artists. These sales
in turn have the ability to produce more contacts and create a liquid stream of
business. As always in the art world, things need to be taken on a case by case
basis.
Dealers increasingly wield power in ways that
they previously didn’t. For example, many dealers call collector contacts to
inform them of a piece, which the collector might not even have seen before.
The piece might cost hundreds of thousands of dollars but the collector is
still willing to make the purchase on the advice of the dealer. This kind of
trust is hard to gain in any business and testifies to the growing influence of
dealers. Given the influence these men and women have in the industry now,
gaining access to them is essential to anyone looking to invest in contemporary
art. Talking to them – if they’re willing to – can provide insights and gems of
information that the investor is unlikely to encounter anywhere else in the
contemporary art world.
“People go into a gallery and they’re afraid to
express their opinions about art. No one’s afraid to say, ‘Keanu Reeves was bad
in that movie.’ We see so many films that we can tell who’s faking it. But with
art, we can’t always tell.”
William Quigley
The distinction between galleries and museums is
a piece of terminology that often confuses people. It probably confused the
author of the quote above, for example. A gallery is generally taken to be the
private exhibition of a dealer. In other words, it is the home of the
dealership. These range from the simple art gallery on the high street pitching
the wares of unknown artists who may never register with the greater art
community to so-called “superstar” galleries, owned by the likes of Larry
Gagosian.
Museums, on the other hand, are generally (but
not always) public and between them all, hold a wealth of art (contemporary and
otherwise), which is the envy of galleries, dealers and collectors everywhere.
The galleries of Larry Gagosian (who is currently the world’s largest gallery
owner in terms of floor space), look to sell everything on display; this can
sometimes be true of a museum (particularly during a temporary exhibit) but the
main goal is to drive visitors through its doors. There’s a distinction between
the two, but some overlapping as well. All in all, it’s quite a symbiotic
relationship at times.
Galleries are taking increasingly varied forms
with Charles Saatchi’s latest gallery comprising more than 40,000 square feet
and resembling more of a museum space, both for its size and the audacity of
the work within its walls. Similarly, Bernard Arnault, another one of the
A-list contemporary art collectors and major shareholder of luxury group LVMH,
has developed a gallery to exhibit some of the works he has collected in LVMH’s
flagship store on the Champs Elysées in Paris. Is this a gallery or a museum?
The lines are being blurred to the extent that it can sometimes be hard to
tell. What’s clear from the LVMH example is that art is being used to provide a
certain provenance to the fashion on display and the fashion in its own way,
probably keeps the art relevant.
The most renowned UK Galleries are those of
Saatchi on London’s South Bank and Jay Jopling’s White Cube gallery in Hoxton
Square in London. Appearance in either for an artist represents a major coup
and a huge step-up the career ladder. As with Saatchi’s gallery, Jopling’s has
come more to resemble a museum in its own right. To give some idea of the scale
being spoken about, the building once housed a piano factory and has since had
two extra floors added to the existing structure. It helps when exhibiting the
growth in size of some of the artists´ works – particularly those by Damien
Hirst.
The White Cube gallery differs from some of the
other galleries of major dealers (such as those owned by Larry Gagosian, for
example). It does not show its major pieces at regular intervals, instead
preferring to send them to exhibitions around the world in the hope of
increased exposure. The vast majority of the works on display are in fact
foreign artists whose work is currently under consideration for representation.
Many galleries give trial shows, but far less than Jopling who operates an
interesting business model that attracts a lot of publicity. Remember what we
said about staying power being relevant? Jopling insists that when he looks at
art, he asks will it be relevant in 40 years’ time. It’s a difficult one to
measure, surely even for an expert like Jopling.
Hopefully, this is where it becomes clear why we
have added museums in the same section as galleries. Exhibitions held at
galleries such as White Cube are not a case of first-come first-served. The
first in line for acquisitions at galleries are almost without exception, art
museums. Why? In the world of art (contemporary or traditional) nothing gives a
piece provenance like being placed in a major museum. It is the ultimate stamp
of authority where quality is concerned. And relevant to investors in the
contemporary art world, it generally leads to a signifcant rise in the price of
a work as well.
The touring exhibitions by museums provides their
pieces not just with new audiences but equally provides the museums themselves
with new revenues to acquire pieces. They are arguably competing with super
collectors now for the best pieces. Other sources of revenue are the artists
themselves (which could be seen as a conflict of interest, for sure). Again,
like galleries and auction houses, this shows what a sophisticated business the
world of art is becoming.
An example is provided by the case of the Los
Angeles Musuem of Modern Art seeking help from the representatives of an artist
it was exhibiting in 2007, Takashi Murakami. The dealers involved with Murakami
received loans from collectors to put on the exhibit and purchased hundreds of
tickets, which they distributed in turn to their own clients. Who gains here?
The Museum of Modern art certainly does. And the artist and its dealers hope
to. The public? That one is more debatable.
Museums would prefer that these details don’t
emerge even if the logic behind them attempting these deals is clear. The
relationship between museums, collectors and artists and their dealers becomes
increasingly political as the race to gain the best pieces becomes more
competitive. Charles Saatchi recommended that the Guggenheim purchase three
works by American painter Alison Fox while she was still in college. He had
already purchased three paintings of her own. Again, both parties gain
(probably, especially, you would think, Saatchi).
Perhaps the most sought-after golden handshake in
all of the art world is the mid-career retrospective for an artist. This
creates (at least) a short-term spike in prices for the artists’ work and is a
great source of power for any museum. Museum curators are supposedly harried by
dealers and collectors on an ongoing basis to provide these retrospectives for
the works of artists that they themselves hold. The potential for insider
trading here is obvious.
What are museums doing with all the revenue
generated from the various schemes listed? In short, they are upgrading. In
some ways, museums have begun to mimic the very art that they contain. The more
shocking, thought-provoking and in-your-face the architecture, the more they
can attract visitors, the more they can generate more revenue to purchase new
pieces. In some ways, what they hold has become secondary to how they look.
Think of the Guggenheim in Bilbao by American architect Frank Gehry. It adorns tens
of architecture books despite being less than 20 years old. How many pieces of
art from inside can you name? It’s another dynamic which has developed in the
art world and which won’t go away any time soon.
Serious investors in contemporary art should be
aware that the annual rise in quantity of galleries and museums in percentage
terms is more than that of the rise in artists. Exact figures aren’t available
for this but the logic stands to reason: the population of the United Kingdom
is more or less static, while that of the United States is around 2-3% per
year. Meanwhile, the number of museums and galleries continue to expand at a
higher pace. The example of Gagosian is a case in point. In terms of museums,
the Guggenheim is probably the most obvious example. What difference does this
make? It could distort the market, even with new investors coming online all
the time. Remember, that having a piece “placed” in a Guggenheim doesn’t give
the piece the same provenance when Guggenheim has 10 museums as it did when the
Guggenheim was one museum at the corner of Central Park.
Auctions
“The best works do not necessarily get to auction. I like to draw so maybe I give you a little drawing. And then eventually it ends up at auction. And then critics say, ‘oh, that’s a bad drawing!´ Well I didn’t say it was wonderful.”
Mariene Dumas
Art auctions are what most people consider when
the words “art sales” are mentioned and indeed, art auctions still dominate the
art world. It wouldn’t be correct to say that this is changing, exactly, but we
have shown that the art world is much broader and complex than it once was.
Nevertheless, in secondary art sales, art auctions still dominate and will
continue to do so for the foreseeable future. Why so?
The answer isn’t easy to give, but can be
summarized as “art auctions are the centre of the art world because they have
always been the centre of the art world.” That’s not as stupid as it sounds.
Basically, art auctioneers (a market dominated by Christie’s and Sotheby’s),
offer a focal point for the art world. They have offices in London, New York
and elsewhere, hundreds of years of combined experience, a raft of the world’s
best art experts on hand, a contact list that nobody else (probably not even
the elite dealers) can rival, liquidity that doesn’t exist anywhere else in a
market which is notoriously illiquid and knowledge of every trick in the book
of buying and selling art. Together, they share around 80% of the world auction
market in high-value art and a nearly-monopoly on works over $1 million. This
doesn’t include private sales they might be involved in. Long after the elite
dealers have gone, Christies and Sotheby’s will still be around.
Although probably not in their current guise…
One of the commonly held misconceptions about
these auction houses in particular is that they’re stuffy and traditional. They
would probably argue that they possess prestige and heritage, which shouldn’t
be confused with stuffy and traditional. We would argue that they’re far more
dynamic than this misconception portrays them to be. As Bretty Govery, the
deputy chairman of Christie’s Contemporary Art sales has been quoted as saying,
“this is business, it ain’t art history.”
In fact, the longer the auction houses exist, the
more they mirror financial institutions rather than businesses. Many of the
parties involved in the deal-making that goes on behind the scenes at auction
houses now have banking backgrounds and a quick schooling in art history, as
opposed to the other way around. The auction houses themselves are also
increasingly complex. They are as multi-structured as many modern corporations
might be. Calling one of the auction houses will send you to their PR
department. From there, you may be directed to a client services
representative, who will provide publications on an artist as well as sales
trends and history of the work you’re interested in.
Away from the sheer volume of sales recorded by
each of the two largest auction houses (and the fact that Sotheby’s is by now a
listed company on the London Stock exchange), both are now highly international
in their nature. The television screens at the front of the auction rooms
display prices in pounds, US dollars, euro, Swiss francs, Hong Kong dollars and
Japanese yen. The arrival of the Russian rouble to that list in 2007 tells you
everything you need to know about the profile of the audience, most of whom are
on mobile phones to buyers on the other side of the world.
Given the increasingly rich profile of the client
base of these firms, tickets are required for the most important auctions. Note
that an evening sale where the attendance isn’t full to capacity is the
exception to the rule. The auctions use an English (“ascending”) price system
where the bidding starts low and the auctioneer encourages participants to bid
higher and higher. After exhausting all
bids within the room (and without), the item is “knocked down” at the hammer
price, whereby a premium is added by the auction house to give the ultimate
invoice price.
The economics only begin there. As with most
parts of the contemporary art world, can be difficult to get a handle on. For
example, it generally makes a material difference to the price of a piece if it
is sold at auction during a day sale, rather than during a night sale. There’s
a logic for this that goes further than the perceived prestige of night sales.
A night-time sale in London translates as a morning or afternoon sale in most
of the world’s large art markets, bringing more investors online. It stands to
reason that this would then push up the price of all works on display
(presuming that everyone is bidding).
Normally an auction house offers a standard
contract to the artist or consignor with most terms favouring the institution. This
refers to the legal transfer of a work to the auction house for sale on the
owner’s behalf. The consignors pay a percentage of the selling price as
commission, and cover various costs such as insurance or advertising. Depending
on the piece being auctioned, the seller’s commission can sometimes to be
negotiated to zero (as would be the case for a van Gogh, for example). This
applies to artists across the board: the biggest artists can negotiate lower
commissions from consignors and the auctioneers, more than anyone, know the
price for each artist.
We previously mentioned liquidity. Even in a
world of super-collectors such as Saatchi and Cohen, the auction houses offer
unparalleled liquidity. It is not uncommon for records to be shattered in
Christie’s and Sotheby’s, sometimes several times in one day. For example, in May
2007, the previous record price for contemporary art was smashed four times within
24 hours. This record price for an IPO has never been beaten more than twice in
one year, let alone four times in 24 hours.
There’s a danger when talking about auction
houses that we only speak of Sotheby’s and Christie’s. Given the share of the
market they control between them, this is inevitable. However, there are other
auction houses that merit mention. These may have less cachet, but may present
buying and selling opportunities just as profitable as any of those in their
more prestigious rivals. The third and fourth-placed auction houses in terms of
sales are Phillips de Pury in Paris and Bonham’s in London, respectively.
Phillips de Pury focuses on four categories:
contemporary art, design, jewellery and photographs. It also specializes in
“wet-paint art,” so-called because the art is supposedly barely dry on the
canvass, it is so new. Bonham’s are further down the food-chain and are happy
enough to admit it. Like Phillips de Pury, they’re not aiming at Russian
oligarchs and Middle-Eastern princes. Rather, as Howard Rutkowski, their
director of contemporary and modern art points out, they “chip away at the
lower end of the market that Christie’s and Sotheby’s don’t care about that
much.” Both auction houses aim more at first-time buyers in their 20s and 30s,
and anyone else less-established in art-buying circles.
Auction houses compete with each other through a
traditional range of marketing techniques but primarily through sales
catalogues, sometimes available free. For investors looking to enter the
contemporary art world, these catalogues represent an excellent opportunity to
see what’s available, from whom and at what price range (at least, going by the
guide price). The catalogues are expensively produced marketing documents. By
contrast, with the exception of a few dealers like Richard Green, Larry
Gagosian and Haunch of Venison, none of the dealership catalogues come close to
the same production values with their catalogues.
We have established that the major auction houses
are impressive operations. But they’re as fallible as the major dealers and
galleries. All of them are likely to come under increasing pressure from online
auctions and retailers as internet art-dealing moves out of its infancy stage.
Likewise, their valuations are as prone to error, even if they generally get it
more accurately than most. Simon Pury, once director of Christie’s Europe was
reported to have said, “If you had the same lot sold four times over by four
different auctioneers, you would get four different prices.” The range may not
be huge, but the message is clear.
Ultimately, what’s important anyway is not the
opening price for a piece but the “hammer price.” Art prices are affected by
what economists call, “a ratchet effect.” That is, prices of pieces cannot go
down once they have begun climbing. This is music to the ears of an investor.
The place where this is most in evidence are the auction houses and the English
auction system. The price at these auctions never falls, which is another
reason why dealers and collectors love to have their pieces dealt with by the
houses.
Is the auction system unfair? That’s a question
that is repeated over and over. We believe it is fair but not transparent, so there’s
a subtle distinction. But the art world as a whole has a long way to go in
terms of transparency. Dealers are the first to criticize sealed-bid auctions
on the basis that the bidder doesn’t know what their competitors in the bid are
bidding and the “hammer price” may end up being far more than the next highest
bid. Surely the relevant point here is what the bidders themselves want to pay,
regardless of what everyone else wants to? We do believe there is a moral
question that needs to be addressed, when auction houses offer a commission to
dealers to refer consignments and buyers to them. The dealer is thereby less
inclined to inform his client that the commission is negotiable. This, in fact,
is where there needs to be more transparency.
For investors starting out in contemporary art,
our advice is to use the auction houses as a measuring gauge and somewhere to
educate yourself as well as make useful industry contacts. Without proper
knowledge of the contemporary art world and in particular who’s who at a
particular auction, these events have too many experienced traders passing off
lemons as worthy objects of art. With more experience however, there’s no
reason to believe that they can’t provide good excellent returns to
knowledgeable investors.
“Art fairs have surpassed auctions as the premier
events for buyers in the markets’ upper tiers.”
Souren Melikian, Art journalist.
Perhaps the best place for someone looking to get
involved in contemporary art investing is the growing band of art fairs
occurring all over the world. These have come to prominence since the start of
the 20th century as a riposte to the dominance of the auction
houses. Their continued success – combined with the growth of the internet –
may be the biggest threat to the auction houses in their two hundred year
existence.
Several fairs on all five continents can now be
viewed as industry trade shows, bringing together most of the major dealers,
galleries, collectors and general public in the aim of offering specialized
works. The biggest of all is Art Basel, which now occurs in Basel and Florida.
Some believe that the work on display here and at other events such as London’s
Frieze art fair is better than that offered by auction houses in an entire
selling season (although we believe it’s still a little premature to say that,
it’s certainly headed in that direction).
As always in the world of contemporary art, a lot
of window-dressing is on display at these fairs and investors are well-advised
to take much of it with a pinch of salt. Art Basel Miami is renowned as much
for its party scene as the art on display, which may be a deterrent for anyone
looking to get serious about investing in art. One reported interaction between
a journalist and an exhibition owner at that fair apparently went something
like:
“You’re not on the list!”
“But I’m here to cover your event!”
“Darling, we already have too much coverage!”
Don’t be discouraged, however. Hubris exists
everywhere and its existence doesn’t mean that there aren’t good investments to
be made if you steer well clear of it.
The four biggest contemporary art fairs, whose
reputation attracts the biggest and best of the art world are TEFAF, held each
March and known in the industry as “Maastricht.” Then there are the “Basels,”
being Art Basel held in June in Switzerland, and its spinoff Art Basel Miami
Beach, held every December. Finally, there’s London’s Frieze, which is held in
October every year. Several other fairs run concurrently (such as the Chicago
Art Fair) but for now, this group of four are the biggest in the industry.
Maastricht, for example, spends over a million dollars each year on advertising
and attracts close to 100,000 people. It has doubled its price to deter
day-trippers but they keep coming, reflecting the growing societal interest in
contemporary art.
This growth in the importance of art fairs has
been driven in part by tapping into cash in the general public, which wasn’t
always available when works were sold at the auction houses or through art
dealers’ own networks. This means that the prices achieved can sometimes reach
50% over what was paid for a piece just a few months before only minutes after
opening: These fairs have access to millionaires that aren’t interested in
going to auctions and art dealerships but can still afford to pay tens of
thousands for a piece if it suits them.
Does this democratization of the art world is
only being cautiously greeted by the current players in the market. As such,
they have begun using a form of crowd control in an attempt to raise the
“seriousness” of the general onlooker at the shows. The fairs operate a
tiered-ticketing system, whereby more is charged at the beginning to give
so-called serious investors to enter first. An example is provided by the Amory
Show in NYC, which charges $1,000 to enter at 5pm, $500 for 5.30pm and $250 for
7pm. And all this when dealers might have invited their own clients to enter at
noon. It’s not uncommon at Maastricht and Basel to see super collectors like
Eli Broad or Charles Saatchi walk among the stands before the shows have even
opened to the general public, which does make one wonder – if they’re not
buying, why should anyone from the general public take the plunge?
There is a growing element here of “fair
fatigue,” although we suspect at least some of the apparent fatigue relates to
the fact that the fairs represent a genuine threat to the status quo of the
auction houses and galleries. For example, Munichis Michaele Neumeister, one of
Phillips de Pury’s partners has said, “whenever I hear about a new art fair
starting, it is almost physically painful to me. The art world has become a
gypsy circus.” The reality is that the art world has become more transparent
and more democratic. To call it a “gypsy circus,” represents a sort of
old-world snobbishness, which is slowly dying away in the art world as its
members confront a new reality. One potential downside of fairs compared to
auctions and galleries is their transient nature and general lack of
presentation compared with galleries and auction houses. This can be a blessing
or a curse, depending on whether you are able to judge a work in a juxtaposed
and cluttered setting, where the light is nearly always excessively bright.
Regardless of the setting, these fairs are
becoming increasingly important, as proven by those that attend them. The
Wildenstein Gallery and its contemporary art branch joint venture,
PaceWildenstein have begun attending Maastricht and Art Basel for example. This
is the first time in around five generations that any Wildenstein has attended
a fair and it’s a trend that’s likely to be repeated across other contemporary
art dealers in time. What’s more – these galleries will be forced to display
their best work. Rumour has it that Maastricht kicks out between 5 and 10% of
exhibitors every year for not bringing their best work to sell. The tables are
slowly turning away from galleries towards art fairs.
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