Big Bucks

The Explosion of the Art Market in the 21st Century

Georgina Adam

• Publisher: Lund Humphries
• Year: 2016
• ISBN:
  9781848221581
• Edition: 1
• Topic: Kunst
• Subtopic: Kunstgeschichte der Moderne

This highly readable and timely book explores the transformation of the modern and contemporary art market in the 21st century from a niche trade to a globalised operation worth an estimated $50 billion a year. Drawing on her personal experience, the author describes in fascinating detail the contributions made by a range of actors and institutions to these recent developments. The book focuses on the development of auction houses into globalised, often cutthroat 'art business' firms; the emergence and modi operandi of 'mega-dealers' and middlemen; the 'new frontier' of selling art on the internet; the radical changes in the profile of art collectors; the phenomenon of the 'branded' artist and the explosion of art fairs. It addresses the negative side to the art market's expansion, particularly its lack of transparency and light regulation. The author's engaging style makes this informative text ideal for collectors, students, and anyone interested in learning more about the evolution of the unprecedented market for art which exists today.

PART I

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THE PLAYERS

Chapter 1
AUCTION HOUSES

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From Dusty Booksellers to The Art People

‘I am convinced I will see a work of art sell for $1 billion in my lifetime.’

Francis Outred, head of contemporary art, Christie’s ¹⁰

12 November 2013: It was a freezing evening in New York as sleek black limousines with tinted windows disgorged their passengers in front of Christie’s Rockefeller Center saleroom in New York. As the visitors hurried into the building, passers-by were photographing the reflecting orange flanks of the ten-foot high, polished steel Balloon Dog, 1994–2000, by Jeff Koons, positioned outside. The slick, shiny sculpture was one of a handful of big-ticket items going on sale in that evening’s post-war and contemporary art evening sale, all expected to shatter existing records: a Bacon triptych was, indeed, widely tipped to set a new world record for any work of art sold at auction. So the excitement was intense as potential bidders, top dealers, collectors and moneyed prospects pressed through the glass doors to pick up their bidding paddles and place tickets. Those deemed not quite as important were directed to a side room, linked by video to the main saleroom up a double staircase on the first floor.

Christie’s had heavily hyped the sale with an extravagant marketing campaign focused particularly on the Koons, rebranding its catalogues in orange and placing inserts even in its Dubai sales material. The piece, claimed the firm in its press release, was the ‘Holy Grail for collectors and foundations . . . and has always communicated the prominence and stature of its owner,’ hammering the message home with: ‘To own this work immediately positions the buyer alongside the very top collectors in the world and transforms a collection to an unparalleled level of greatness.’ The promotion was taken, indeed, to a new level of hyperbole; even Christie’s head of contemporary art, Brett Gorvy, weighed into the heavy sell, writing to clients that seeing the offerings in the coming event had rendered him ‘almost speechless’.

So intense was the interest in the run-up to the sale that Christie’s made a last-minute change to the schedule, adding an extra 15 minutes to the start time to accommodate the 1,400 visitors – and, more intriguingly, moving the Bacon (Three Studies of Lucian Freud, 1969) from a comparatively lowly position as lot 32 to lot 8A. Why? Christie’s said that it meant those who were likely to bid on other items would do so knowing the outcome of the Bacon – and outside observers pointed out that Chinese buyers love the auspicious figure eight . . .

The most cherished clients of the auction houses do not attend these evening sales openly: they are whisked into the buildings via separate entrances and hidden in ‘sky boxes’ overlooking the room, from where they can watch the auction and talk by telephone to the staff. That November evening, Christie’s had so many of these special clients that it built another skybox at the back of the saleroom, with one-way glass so the guests could see but not be seen – making it look a bit like a duck blind, as one observer noted.

There was a palpable sense of excitement as the smartly dressed crowd jostled to find its seats – some clutching miniature balloon dogs. Auctioneer Jussi Pylkkänen started by reading out the lot numbers of works that came under financial arrangements of one sort of another, mainly ‘guaranteed’, either by Christie’s itself or by third parties, meaning that someone had already promised to buy them at an undisclosed price. As the list of these works lengthened – 23 lots out of the 69 on offer – the audience murmured and then burst out laughing. In total, Christie’s or outside guarantors had underwritten about $500 million worth of the art on offer that evening.

Auction houses always start such sales with a sure-fire winner to get the room pumped up: in this case, it was the fashionable artist Wade Guyton, whose ink-jet print set a new record at $2.4 million, well over its $500,000–$700,000 estimate. Other successes followed – a Jean-Michel Basquiat at $12 million, a Christopher Wool at $26.5 million, another record, and then Pylkkänen paused, drew in his breath as the Bacon came up: ‘Let’s start this at $80 million,’ he said: seven bidders jumped in, some in the room, others bidding through Christie’s staffers on telephones. The increments – the amounts by which the bids were increased – were going in multiples of $5 million; at $100 million, a 23-year-old Korean, Hong Gyu Shin, raised his paddle. Super-dealer Gagosian pulled out after $105 million, but at $122 million, there were still two bidders in the fray, who were represented by Christie’s Xin Li, deputy chairman Asia, and Lock Kresler, head of private sales. Pylkkänen’s hammer finally fell at $127 million for Kresler as the room applauded; he was later revealed to have been bidding for the New York dealer William Acquavella.

Christie’s staff – all wearing the obligatory black – scurried to a small knot of journalists standing on one side of the room to give them the final price including fees: $142.2 million. Within minutes a newsflash had gone out: the price set a new record for any work of art at auction, smashing the previous record holder, Munch’s The Scream, 1895, which had made almost $120 million at Sotheby’s just 18 months before (Sotheby’s New York, 2 May 2010), although if adjusted for inflation, Van Gogh’s Portrait of Dr Gachet, 1890, sold at Christie’s in 1990 for $82.5 million, achieved the higher price in relative terms ($147.42 million in 2013).¹¹

Meanwhile, the auctioneer was sweeping on: three lots later the Koons came up. Like the Bacon, it was guaranteed by a third party; it had been sent for sale by print mogul, art collector and dealer Peter Brant; in the room, the gossip was that its sale had been underwritten by the state of Qatar.

Balloon Dog was one of five created in the 1990s, and the four others – each in a different colour – already belong to well-known collectors: the beleaguered hedge-fund mogul, Steven A. Cohen, whose SAC fund had paid a $1.8 billion fine for insider trading the week before; Los Angeles collector Eli Broad; Christie’s owner François Pinault; and the Greek industrialist Dakis Joannou.

The estimate was $35 million–$55 million, but this time there were only two bidders, one of them the New York mega-dealer David Zwirner. Telephone pressed to his ear, he bid up to $49 million, dropped out, entered again, but finally lost the lot to the other bidder at $52 million, making a final price with fees of $58,405,000 – a new record for any living artist at auction. After the sale, Christie’s triumphantly announced that its total of $691,583,000 was the highest amount ever made in any art auction. A stunning 11 lots had sold for over $20 million each. And despite that evening’s buying orgy, the same crowd pressed into Sotheby’s glass-and-steel York Avenue premises the following night. More money was splurged on art, with Warhol’s Silver Car Crash (Double Disaster), 1963, racing past its $60 million-plus pre-sale estimate to make $105.4 million, again a new artist record at auction.

The two evening sales alone raised over $1 billion: the Bacon, it emerged later, was bought by William Acquavella on behalf of Elaine Wynn, ex-wife of the Las Vegas gambling tycoon Stephen Wynn, himself also an avid art collector.

SOTHEBY’S AND CHRISTIE’S – THE LUXURY BRANDS OF THE ART WORLD

There are thousands of auction houses in the world – the French site Artprice says it collates results from 4,500 of them, although the industry leader Artnet goes for a more modest 1,500. In 2013, the line-up of the biggest was:

1. Christie’s, $7.12 billion

2. Sotheby’s, $6.3 billion

3. Beijing Poly International Auction Co., 7.88 billion yuan (CNY) (around $1.3 billion)

4. China Guardian Auctions Co., 55 billion yuan (CNY) (around $1.08 billion)

5. Bonhams, $895 million.¹²

Another significant player in the market for contemporary art is the New York-and London-based Phillips, which does not communicate figures.¹³

Christie’s belongs to the luxury-goods mogul François Pinault, who bought it for just over $1 billion in 1998 through his holding company, Artémis. Sotheby’s is a publicly quoted company without a controlling shareholder. Poly is part of a sprawling conglomerate that includes the Chinese army. China Guardian is a privately owned company established in 1993. Bonhams is also privately owned, and has been through a number of changes since its founding in 1793. Today it belongs to Robert Brooks and a business partner, the Dutch entrepreneur Evert Louwman. Phillips belongs to a Russian luxury-goods group, Mercury, and has carved out a niche market in the contemporary art field, selling recently produced works by younger artists as well as design and photography. Its accounts are not public, but it expanded into expensive new quarters at 450 Park Avenue in New York in 2010 and has bought a £100 million building in London’s Berkeley Square for its saleroom.

The ‘big two’, Sotheby’s and Christie’s, remain far and away the dominant firms. Their combined figures, depending on the year, account for about 80 per cent of the market at the top end;¹⁴ in the contemporary art sector, they alone generated over half of total art sales at auction – about $800 million in 2013.¹⁵ This is not because they hold more sales, but because the value of their sales is so much higher than elsewhere. Except for the occasional blip, and until the Chinese houses emerged as players after 2004, virtually all high-value works of art sold at auction went through Sotheby’s and Christie’s; Phillips de Pury accounts for just one on the list of the 48 top prices paid for art.¹⁶ All attempts to muscle into this duopoly have failed, most spectacularly at the beginning of the twenty-first century, as we shall see later.

Sotheby’s and Christie’s have been a key element in the transformation of the art market in the twenty-first century. While the ‘big box’ dealers and a tsunami of art fairs have also played a significant role, the auction houses, with their powerful marketing departments and global reach, have been the motor of the market’s growth. They have created and stimulated demand, particularly in the emerging economies, and been the public ‘face’ of the market with its constant flow of news about high prices, press profiles of personable auctioneers and fashion-oriented features in magazines about the specialists.

Back in 1999, however, both firms were on the ropes after revelations that they had colluded to fix commission fees in the early 1990s: Sotheby’s then majority shareholder, the ‘shopping mall king’ A. Alfred Taubman, went to prison for a year, while Christie’s, which had handed over evidence of collusion, was not prosecuted, although both firms had to pay a total settlement to clients of $512 million. But with new ‘clean pair of hands’ chief executives and a rising art market, particularly after 2004, the firms were able to put the scandal behind them rapidly.

Sotheby’s and Christie’s are the luxury brands of the market, and they have grown in lockstep with consumer luxury brands. They embody some of the essential qualities of consumer luxury brands: a long history; personal service; elitism; exclusivity.¹⁷ While their names have long been recognised as ‘top of the market’ in the established markets of the US and Europe, this is particularly important in emerging economies. Here the names ‘Sotheby’s’ and ‘Christie’s’ are aspirational, prestigious ‘foreign’ brands. Culturally, bidders from new markets tend to favour the auction process, which they see as more transparent; some Asians, many of whom love gambling, are seduced by the competitive element of auction. And in addition the Asian respect for longevity means that the auction houses’ extended history is an enormous plus, and it is significant that when Christie’s held its first auction in Shanghai in September 2013, it missed no occasion to hammer home its foundation date of 1766.

Since 2010, Christie’s has been run by Steven Murphy, who arrived from a music and publishing background, and he brought with him a change of culture in the firm. The firm’s newest recruits now come from a business background, rather than an arts one, and Christie’s is aggressively seeking ways to move beyond the traditional ‘auction house’ profile and into a more consumer-oriented one. It now calls itself ‘The Art People’, with colour advertisements that show specialists posed very much in the Vanity Fair style of photo-shoots about celebrities. Murphy has been responsible for bolstering the marketing, ‘content’ and digital side of the business, recruiting from consumer-brand specialists and the publishing industry.

While Christie’s, Sotheby’s and to a lesser extent Phillips are renowned today for their high-octane, ‘branded’ auctions that attract banks of television cameras, headline-hitting prices and a glamorous, cosmopolitan audience, the auction world was a totally different business until the mid-twentieth century. Sotheby’s was founded as a book auctioneer, although this was not the dusty pursuit one might imagine today: books and libraries were prestigious accoutrements of a gentleman’s world.¹⁸ Christie’s, founded soon after Sotheby’s, specialised in pictures and furniture, and from all accounts James Christie was a remarkable salesman and silver-tongued auctioneer who was famed for his eloquence in the auction box.¹⁹

Even in the eighteenth and nineteenth centuries, the auction houses behaved in many ways that would be recognised today – enticing clients with smart catalogues, selling art by private treaty and even extending credit to prospective buyers, but these were not the core of their businesses. Auction houses, large and small, were principally suppliers on the ‘wholesale’ market selling to dealers on the secondary, or resale, market. Major collections were more likely to be sold through art galleries than through an auctioneer well into the twentieth century, as auctions were still considered not prestigious enough.

The art market then, and for decades to come, was still a secretive, closed place where business was transacted on a handshake between people who generally knew each other. Auctioneering was just as personal: dealer James Roundell, who was at Christie’s between 1973 and 1993, remembers:

There were no paddles until 1988; the bidders held up their hands, and the auctioneer called out the name of the person – ‘£1,000 to Smith’ for instance. If it was an unknown person then a staffer would get their name. It was generally the convention that auctioneers did not disclose, as the sale was going along, whether a lot was unsold. Instead they would call out a fictitious name from a prepared list, for example players for Chelsea football club! If buyers at an auction could not tell what was being sold and what was not then it made the sale seem to be going better than it in fact was.²⁰

The anecdote reveals what a small world it was. This was partly due to the distribution of wealth, which was concentrated in far fewer hands. Until the late twentieth century, there were under 100 buyers in the world for major works of art, those that fetched over $5 million: ‘Twenty years ago, 20 per cent of the Forbes 500 were our clients,’ says Thomas Seydoux,²¹ formerly with Christie’s, now working in the dealing partnership Connery Pissarro Seydoux. It was a largely personal world, and one which did not require much long-distance flying except to the US and Japan, let alone knowledge of very different cultures and languages.

NEW MONEY, NEW BUYERS

All this changed at the end of the twentieth century. With the disappearance of communism in Russia, and the shift in China towards commercial liberalisation (even if the political system remained communist), coupled with the 1991 economic liberalisation in India, suddenly there were vast new markets to exploit – and a growing number of wealthy consumers hungry for the consumer goods that they had never had, and the desire to flaunt their money with prestige products.

Today, say auctioneers, the number of buyers at a high level – over $5 million – has exploded to about 1,000 or more. ‘We don’t even know them, and they come in at the top from the start,’ says Seydoux: ‘For a major contemporary painting we might make a special catalogue to send to prospective clients,’ says one auction house specialist: ‘We might print 500, and of those there could be 100 possible, and 50 strong candidates at that level.’ Globalisation means, he says, that buyers can come from all over: ‘Every season we see a different part of the world stepping up – Hong Kong, Indonesia, Brazil, Singapore, Colombia, Malaysia, now even Azerbaijan’ (see Chapter 7).²²

GLOBALISATION

Globalisation is certainly the key reason th...