Don Thompson has written, by far, the best book on the economics of the contemporary art market yet written. It might seem like a narrow area, not enough to get a book out of – yet after wolfing down these 250 or so pages, I was left with a feeling that he’d barely scratched the surface.
There’s a lot in this book to fascinate someone new to the field, and as its title (The $12 Million Stuffed Shark) hints, there’s a lot of novice-friendly gawping at the artists who are best at generating tabloid headlines. Thompson disarmingly says at the beginning that he’s not going to discuss video installations, photography, and the like "because I don’t understand them", and he’s perfectly happy taking populist anyone-could-do-that pot-shots at major names like Jean-Michel Basquiat and Felix Gonzales-Torres.
Even so, this book is not only for the general public; I, for one, learned a lot from it, and a lot of art-world people would do likewise.
For instance, I had no idea that when a big-name artist has a gallery show at a big-name gallery like White Cube or Gagosian, his best paintings aren’t even on public view:
The new buyer has little chance of even seeing the hot paintings, which will be kept in a small private room. What is hung in public areas is available for purchase but of lesser significance.
Thompson also quotes Diana (Dede) Brooks, the former president of Sotheby’s, explaining that when an auction house has put a guarantee on an entire collection, rather than just one individual work, the reserve prices on those works can change during the course of the auction. This apparently happened with the $135 million sale of the collection of Campbell’s Soup heir John Dorrance Jr, on which Sotheby’s had placed a $100 million guarantee:
When some of the early Dorrance lots sold above estimate, Sotheby’s was able to decrease the reserves on those remaining. Had each item in the Dorrance collection been given an individual reserve, some lots would have been bought-in, and there would have been a loss of credibility about the other estimates.
Sadly Thompson leaves it at that: he doesn’t mention who is responsible for calculating these rapdily-fluctuating reserve prices, or how they are communicated to the auctioneer, who presumably has quite enough on his plate already.
But maybe such things really are left to the auctioneer’s discretion: in the heat of an auction, lines in the sand which one might suppose were hard to cross turn out to be surprisingly fluid. For instance, consider the case where a gallerist bids for a painting on behalf of a client:
Prominent New York art dealer Richard Feigen says that he often exceeds clients’ limits when bidding for them — whether it is a museum or an individual. "My job is not to be a robot but to use my knowledge and instincts for my client." Feigen says that in forty-seven years only one client has objected to his exceeding their limit.
Thompson puts this down to the dealer getting "caught up in the bidding". He’s excellent on the socioeconomics of the auction room, and the way they conspire to drive up prices: it’s not uncommon to see an editioned or otherwise fungible work sell for substantially more money than the asking price at a gallery down the street from the auction house. Part of that is the simple feverishness of the occasion, with billions of dollars being bid in an extremely compressed time schedule. And part of it is simple ego: an "auction house specialist" is quoted as saying that "Heaven is two Russian oligarchs bidding against each other". (I suspect that it was exactly that dynamic which resulted in the $11 million Goncharova.) On top of that, there’s the endowment effect, whereby people will pay more to keep hold of something they have than they will pay to buy something they don’t have:
Each bidder starts with a top price in mind. When he momentarily becomes the high bidder, there is an "endowment effect." He will pay more not to give up the painting, not to lose. Amid the tension of the auction, his reference point has changed to "I should win, this painting should be mine." He is aware of the regret he would feel at losing what has become "his".
Yet even so, some of the seemingly crazy bidding at auction can have a rational basis; at the very least, it can be rationalized. Art valuation is an extremely inexact science, and auction results are its most important datapoints: when you want to value a painting, you start by looking at the auction results for similar works, and one nearly always works on the assumption that they are realistic rather than the result of frenzied overbidding. If an insecure art lover wants a certain work and buys from a gallery, he’ll always have the worry that he was ripped off. On the other hand, if he buys at auction, he’s setting the value of the work: by definition, he can’t pay more than the work is worth. (In the art market, it seems, no one is particularly worried about the winner’s curse.)
And consider the position of the client who has given Richard Feigen or Larry Gagosian permission to bid on their behalf up to a certain limit, which is then breached. The client still wants the painting, and can buy it straight from the dealer "at cost", plus a modest commission. If he doesn’t, the painting will immediately enter the dealer’s inventory and will carry a much higher price tag. Besides, not only can dealers be very persuasive, but even the mere invocation of their name can cause hard-nosed businessmen to buy art they’ve never even seen:
Other shows at Gagosian sell out because a gallery employee phones clients and says "Larry says you need this for your collection." One former Gagosian employee claims that in about a quarter of the cases, clients say "I’ll take it" without ever asking "What does it look like?," or "How much?"
PaceWildenstein director Marc Glimcher has a wonderful name for this phenomenon:
"Larry has a special talent; clients don’t expect to see him, they are happy just getting the aura of Larry."
Just imagine the "aura of Larry" attached to a painting won at a major evening auction by Larry’s own paddle!
Thompson is excellent on the enormous influence that things like provenance or marketing or "aura of Larry" can have on the value of a work of art; he has a whole chapter titled "Branding and Insecurity" which makes a reasonably compelling case that dollar values in the contemporary art world are largely a function of marketing and branding rather than aesthetic judgment.
Yet at the same time Thompson does over-simplify. For instance, here he is writing about a Gonzales-Torres sculpture of 10,000 fortune cookies, offered for sale at Christie’s in 2003:
There was concern about how easily a collector might fake a 355 pound Gonzales-Torres sculpture with a visit to the local store. To deal with this problem, a note in the auction sales catalogue read: "It is the artist’s intention that a new certificate of authenticity and ownership is issued stating the new owner’s name, in addition to the current certificate of authenticity which accompanies this work."
In reality, the certificate of authenticity has very little to do with the ease of faking the work. The buyer isn’t buying the fortune cookies themselves but rather ownership of the work: the moral right to recreate the sculpture made from them and exhibit it as a genuine Gonzales-Torres, and the ability to resell the sculpture at a future date. When you buy a Gonzales-Torres, you buy the (largely conceptual) art, not the stuff it’s made from.
Disappointingly, Thompson seems a little too happy skitting along the surface of this central paradox of art economics: that while (most of the time) it is an object which is bought and sold, the dollar value lies in the art, not the object. If a painting formerly attributed to Rembrandt turns out to be executed by a minor follower, the object doesn’t change but its value plunges. It’s no different with a pile of candy: whether or not it’s a genuine Gonzales-Torres makes an enormous difference to its value. Thompson is happy conjuring up an art collector’s friends "staring open-mouthed and gasping: ‘You paid what for the candy?’", but he never points out that they might as well ask the same question about an object made of oil paint on canvas which would be equally worthless without the requisite author-ity.
And while Thompson is strong on the economics of art megastars Damien Hirst and Jeff Koons, he spends much less time and space on the economics of the other 99.9% of the art world. "The value of the canvas and oil that goes into a painting would not exceed £50," he writes, going wrong by an order of magnitude and inadvertently revealing that he’s probably never set foot in an art-supply store in his life. And while he thanks a long list of "dealers, auction house specialists, other art world people, and former executives from each group" who talked to him for the book, not one name on his list is an actual artist.
Partly as a result, there are a lot of omissions in the book. We get few concrete numbers when it comes to income: what’s the typical annual turnover of a mainstream gallery? Do such galleries make real money by selling new paintings, or are those shows loss-leaders for more profitable secondary-market dealing? What kind of money does a gallerist make overall? How much might a successful mid-career artist make from art alone? What different sources of income do such artists have? How do those numbers compare to the equivalent datapoints for superstar young guns? How long can those young guns expect their luck to last? Should they cash in today, maybe by consigning their work directly to auction houses, if they think that there’s a good chance their careers will be nowhere tomorrow? How does ancillary work like directing music videos compare, in terms of income, to the primary work of artistic production? And how do the more institutional and academic artists fit in to all this, people like Pierre Huyghe or Lothar Baumgarten, who seem to be much better at selling installations to institutions than selling objects to individuals?
One of the things which fascinates me about the recent run-up in contemporary art prices is that it’s meant a huge change in the way that many artists work: it’s commonplace nowadays for artists to have dozens of assistants, something which was a decidedly unusual and controversial practice back in the days of Warhol. With prices for new works regularly breaking into seven figures, art has become bigger and more polished; it often uses much more expensive materials and can draw on resources which would have been unthinkable 15 years ago.
And the base case for an artwork’s value has also changed so dramatically that options now exist for artists which would not have been possible in the past. Consider this: when Charles Saatchi bought the infamous Hirst shark for £50,000 in 1991, writes Thompson,
Hirst intended the figure to be an "outrageous" price, set as much for the publicity it would attract as for the monetary return.
Yet in Thompson’s final chapter, on "contemporary art as an investment", he has this advice for those who would invest in contemporary art:
Look for work costing from $50,000 to $100,000. Avoid the blockbuster, highest-priced works by an artist, not just because of the "underperformance of masterpieces," but to diversify risk, the same way you purchase a portfolio of shares rather than investing everything in one company. An investor is almost always better off with ten works at $50,000 by developing artists rather than a single work costing half a million.
How did we get from a world where £50,000 was an outrageously high price for a major work by a high-profile young star to a world where $100,000 is a relatively modest sum to be spent on an average work by a "developing artist"? I’m sure that improvements in art-branding technology had something to do with it, as did the scarcity of significant works from before 1945. But equally it does seem to be the case that we’re in the middle of a massive art bubble, and that there’s a real risk that in a decade’s time you won’t be able to sell your $500,000 ten-painting portfolio for even $50,000.
For that matter, it’s non-trivial even to dispose of such a portfolio today, at the height of the market. Thompson talks a lot about consigning work to auction houses, but they’re not generally particularly interested in $50,000 works from developing artists, and won’t put much marketing muscle behind such works even if they are accepted. Yet Thompson blithely gives this advice:
Plot prices as best you can, and when the steep rise ends and the flat phase seems to be starting, sell.
How do you sell? Do you try to unload your paintings back onto the dealer you bought them from? What are the chances of that working? If you had to sell that $50,000 painting the day after you bought it, what’s a reasonable sum that you might expect to be able to receive? (To put it in automobile terms, how much of a painting’s value is lost when it’s driven off the lot?) If you had to mark your $500,000 portfolio to market, in terms of its liquidation value, what’s the base value that you’re working from?
And what of the alternatives? In a world where $100,000 buys you a not-amazing painting by a developing artist, there are many. That same $100,000 can be used directly, as patronage: as price inflation for paintings continues to rise, the economics of disintermediating the dealer makes a lot of sense for both artists and collectors. Here’s Thompson:
For a mainstream gallery, and for an oil painting on canvas by an artist with no gallery history, £3,000 to £6,000 ($5,400 to $10,800) is about right. This is high enough to convey the status of the gallery and not cast doubt on the work or the artist, but low enough that, if the work is promising, it will sell.
If the first show sells out quickly, the dealer will say the pricing was correct. The artist may be underwhelmed, because even selling out one show a year at new-artist prices means she is still living below the poverty line.
Below the poverty line? If you sell a dozen paintings at $8,000 apiece, and the gallery takes half, that leaves you with an annual income of $48,000. The poverty line, by contrast, is $10,400.
But to give you an idea of the inflation going on here, check out the great Dave Hickey, writing in 1997:
When I was an art dealer, any biggish work of art was worth five hundred dollars. Any littlish work of art was worth two hundred. Today, a biggish work is worth a thousand dollars and a littlish work is worth three hundred.
Now, it seems, a biggish work is worth $10,000 and a littlish work is worth $5,000. This changes things for both artists and collectors enormously. For one thing, that new artist really can live on the proceeds of her work, where there’s no way she would have been able to do so ten years ago.
More to the point, an investor with $50,000 to spend on one artist has a choice: she can either buy a middling work from a middling artist at a middling dealer, or she can directly support an artist outside the gallery system entirely, buying pieces as necessary, maybe giving her a couple of thousand dollars to live on now and then, possibly helping out with studio space, that sort of thing. That kind of relationship is generally far more rewarding for the benefactor, and might well enable the artist to stay outside the gallery system for long enough that she has the time to develop a real artistic voice before being thrust blinking into the art-world spotlight. For the collector, the non-financial returns are much higher, while the financial returns can be equally large: what’s not to like?
Back in the days when the cost of a middling work from a middling artist at a middling dealer was an order of magnitude lower than it is today, this kind of math didn’t make much sense: it was much more expensive to support an artist directly than it was to simply buy their work at retail. But now things have changed, and serious artists who want to concentrate on their work more than they want to become the next branded megastar can support themselves by selling directly to a handful of devoted collectors, who might well consider themselves to be getting work on the cheap.
On the other hand, maybe the potential rewards of the gallery system are so huge, for artists, that a patronage model doesn’t make sense after all. Art-world gossip has a huge number of artists you’ve never heard of bringing home seven-figure incomes; a New York magazine profile of Terence Koh had him making $153,782 from his art when he was just starting out in 2004, and well over a million in 2006. Today, it’s surely greater still.
And if you can easily edition your art, the potential rewards are even bigger. Take Brazilian artist Assume Vivid Astro Focus: design a bunch of wallpaper once, and then sell it off by the sheet or the wall or the room as many times as you can. No collector seems to mind that their artwork isn’t unique: another central paradox of the art market is that prices rise as supply increases. The most prolific artists, like Picasso or Warhol or Hirst, sell for the highest prices, even when they have very little personal involvement with the art in question, while painters painstakingly creating unique objects sell for much less.
I think this is partly a function of the insecurity which Thompson talks about: collectors are happy paying millions of dollars for an artwork if they know that there are lots of other collectors who have also paid millions of dollars for something more or less identical. But it’s still a bit weird that someone like Jeff Koons can probably fetch more money per sculpture if he makes his works in editions of three rather than editions of one.
This paradox is also, however, a function of the art market being broken.
Thompson quotes Hickey too:
Dave Hickey recounts the story of his friend Bob Shapazian, who was director of the Gagosian Gallery in Los Angeles, and quit, according to Hickey, because: "I’m not an art dealer any more. I sit around, a crate comes in, I see who the crate’s from, I go to the waiting list, I make up this outrageous fucking number and send it out. That’s not being an art dealer."
This kind of thing is simply not sustainable. Yes, as Tyler Cowen says, "we do in fact need some means of determining which of the rich people are the cool ones, and the art market surely serves that end". But the art maket happily served that end at much lower prices than we’re seeing now, and it will continue to serve that end if and when prices again collapse.
In the meantime, if you’re a fan of today’s neoconceptual art, but there’s no way you can afford it, take heart: it’s pretty easy to make your own "Damien Hirst" spot painting, or "Noble and Webster" dollar sign, or "Lawrence Weiner" wall stencil. It won’t be worth anything financially, but aesthetically it’ll be functionally identical. It’s yet another paradox of contemporary art: owning it is ridiculously expensive. But simply having it on display? That can be incredibly cheap.