💭 My Thoughts

Good beginner introduction to the contemporary art world. Complete, easy to read and packed with fun insider stories. You’ll come out with a high-level understanding of the art market’s drivers and key players.

But beware, Don Thompson draws a cynical picture of the art world, that will get you disillusioned with the value of art.

👤 Who should read it?

⭐️ Top 3 quotes

📝 Summary Notes

1. Branding = Reassurance = Value

Art collectors buy art for social recognition. Art is a positional good on top of the social pyramid. (above designer bags and expensive cars)

Art collectors are insecure about their art decision because they are not educated in it. So art dealers brand their art to reduce the insecurity.

In the art market, trust = brand and art price = brand value. Good branding convince buyers that an artwork will be recognized by peers.

The most important sources of branding are:

2. About dealers

Dealers market

Galleries can be separated in 5 categories:

The barrier to entry is high. This requires (1) lots of money, (2) good network, (3) charisma, (5) luck. Nothing close to an art degree though….

Most art galleries expand internationally to reach more collectors, artists and curators. And this offset the need to share their artists with foreign galleries for representation abroad. But this strategy dilute dealers’ efforts.

Galleries always position themselves on new segments => looking for innovative artists in hope to achieve dominant position in this new segment.

Dealers Business Model

Dealers operate in the primary market (⇒ art sold for the first time) and the secondary market (⇒ art on resale). They are artists’ intermediates in the market and have a duty to promote them: (1) sell to buyers, (2) expand artists’ network, (3) advertise their art (e.g., exhibitions, museums, fairs), (4) provide “nanny support” to their often tormented personal life

How dealers make money:

Famous dealers:

Dealers Pricing strategy

Price in the art world signals reputation, it is a data point to assess an artwork’s potential for social recognition.

Pricing is decided based on the artist’s reputation and market price sensitivity. Criteria like costs and quality are secondary. The value of a given artist usually goes up overtime as his/her work gain history.

Classical pricing strategies include:

Prices are influenced by auctions. If bids are high for an artist, dealers will increase prices. Same goes for the opposite. Some dealers participate in auctions to artificially bid up their art and increase market prices. As an art collector, putting art at auctions without going through the dealer is considered treason: dealers will often sign resale contracts or blacklist buyers for that.

Dealers don’t sell art, they place art. Artworks are sold in function to buyers’ identity, because this affects artists’ branding. If a buyer is not branding-desirable, dealers don’t sell.

3. About auction houses

The auction market is dominated by Christie’s and Sotheby’s

Christie’s and Sotheby’s are a duopoly, comprising 80% of the market for high value art. Far behind, Philipps de Pury is ranked 3rd and Bonhams 4th.

Christie’s covers the high-end + middle-end market (a choice to reduce fixed costs per sales). Sotheby’s focus exclusively on the high-end market. Philipps de Pury ventures in ultra contemporary art (less than 50 years) and competes in the primary market by selling art directly consigned by artists. Bonhams operates in the low-end market not covered by the other houses.

Evening auctions at Christie’s and Sotheby’s are the highest form of branding for artists. They provide legitimacy, cachet and massive media attention. These are social events organized for VIPs to be seen showing off outrageous sums of money. VOPs (very ordinary people) are welcomed but usually left standing at the back of the auction rooms.

Auction houses business model

An auction house is by definition a marketplace for special items, for which regular markets’ rules don’t apply. Auction houses operate on the secondary market, and define the price and ownership of those items.

How auction houses make money:

Auction houses competition

Bear in mind that auction houses compete for consignments, not for bidders/buyers.

Getting a high-profile consignment is important because (1) attracts media coverage (2) tends to raise the prices on other items of the session (3) attracts additional consignors who want to piggy-back on the hype

Auction houses compete on differentiating services to attract consignors:

Auctions psychology makes prices skyrocket

There are 4 categories of bidders:

Evening auctions’ exist to arouse bidders’ lust. They are about entertainment.

Auctioneers are intermediates that help the auction room decides the price of an item. They are pivotal to the “auction drama” because they pace the rhythm in a way that encourages bidding. If there are not enough bids, they might pull out fake bids (chandelier bids). Branded auctioneers can raise prices up to 10% by simply being here (e.g., Jussi Pylkkänen, Christopher Burge, Tobias Meyer).

Bidding psychology lead to outrageous prices. According to the endowment effect, when a bidder is momentarily the highest bidder, he/she is ready to pay more to remain on the top. Prices records are usually set by private collectors because they are driven by ego.

The most dramatic prices are achieved when bidders bid to get, meaning that they bid until they win (usually Russian oligarchs)

Auction houses are very opaque, the only things transparent about them are the number of bidders, the auctioneer performance and hammer prices. The rest is never publicly disclosed.

4. About branded artists

In 1991, Damien Hirst creates the “The Physical Impossibility of Death in the Mind of Someone Living”. The work is sold for ~$12 million. What happened?

The phenomena of celebrity artists started in the 60s with artists like Jasper Johns and Roy Lichtenstein. What it takes to be a celebrity artist

When an artist is branded, the market tends to accept as legitimate whatever the artist produces. There is not concept of scarcity, a branded artist can produce series of the same work without affecting his/her value.

5. About branded collectors

Charles Saatchi is the archetype of a branded collector. He is able to create instant reputation for the artists he purchase and is a very important patron of the art world due to his numerous donations and lending.

His collecting strategy implies: (1) buying art in bulk at student shows, galleries openings and artists studios to benefit from lower prices, (2) lending them to galleries, museums, exhibitions, (3) each step raises the value of the art, (4) sell the art.

His former gallery on Boundary Road, St John’s Wood influenced a whole generation of yBas. He is also at the origin of some of the most morbidly memorable exhibitions in history (e.g. USA Today and Sensation) and has been attributed the creation of the shock art movement.
yBas ⇒ generation of Young British Artists that started exhibiting late 80s, incl. Damien Hirst, Tracey Emin.

6. Auction houses > dealers

Auction houses are venturing in art galleries’ territory and outperforming dealers:

7. Art fairs = Dealers’ last hope

Art fairs are trade shows in which dealers gather for several days to sell artworks. These are dealers’ last weapon against auction houses.

4 branded art fairs are important because they feature superstar galleries, good quality art, and are widely marketed ⇒ The European Fine Art Foundation Fair (TEFAF) or “Maastricht” , Art Basel in Swiss, Art Basel Miami Beach, Frieze in London. And +100 other art fairs organized every year.

Art fairs have many benefits for dealers: (1) promote their galleries and artists, (2) possibility for quick art resell, (3) most galleries make the majority of their profit here

However, art fairs compile a lot of negative sides:

Sponsorships are an important component of these fairs. Big corporates sponsor will participate in these events to reach high net worth individuals. Among the big patrons ⇒ Swiss bank UBS, Swarovski, BMW, etc.

8. Contemporary art = Money

Contemporary art history has been written through the lenses of money. If you take a look at all the prominent artists of the era, they all have been achieve record prices.

The explosion of art prices is in part explained by the shrinking supply of traditional art. ⇒ (1) each time a traditional work appears on the market it’s probably the last time so bids skyrocket, (2) less traditional art means mor space for contemporary art to grow, (3) all this has created the habit of buring art based on significance rather than artistic quality

The art market is money-centric because its client base is money-centric. Art buyers are either dealers, collectors (who are often business executives) or speculators. None of them is interested in the meaning of art, they are in it for the money.

Governments and institutions have tried to stimulate artistic creation through public subsidies, in order to fight money-oriented art. Without much results.

Contemporary artists themselves have developed a strong stance on money, ranging from the anti-capitalists (e.g. Santiago Serra and Alexandr Breven) to the money lovers (e.g. Andy Warhol and DamienHirst).

9. The cost of fakes

There can be a gap of millions of dollars between an authentic artwork and a forged one (no matter how good the forgery is). Authenticity check is important because it leads to buyers reassurance.

But authenticity in contemporary art is a blurry concept. Often, artworks are made by assistants while the artists come up with the concept. This make authenticity checks complicated and raise questions such as: Is authenticity about the concept or the object? Can it be authentic if the artist has never touch it? This leads to frequent lawsuits from collectors to authentication boards, with millions of dollars at stake.

Catalogue Raisonné ⇒ the official inventory of all the artworks attributed to an artist.

10. Art critics have no influence

Ironically, art critics don’t have any influence on the art market, at the exception of some respected publications such as the NY times. Since the 60s, art critics status as tastemakers has switched to branded dealers and collectors.

The main reason art critics can’t influence the market is because they don’t write about what matters to buyers, which is art investment, not artistic vision. In fact, their target audience is not buyers, it’s editors and sometimes art galleries or auction houses. They write essays on commissions and are more of an advertisement medium.

11. Museums in the new market

Museums are the ultimate form of branding because their opinion is not influenced by the market.

International branded museums to be aware of ⇒ Museum of Modern Art + the Metropolitan Museum of Art in New York, the National Gallery in Washington, the Getty in Los Angeles, the Louvres in Paris, the Prado in Madrid, the National Gallery + the two Tates in London, the Rijksmuseum in Amsterdam.

How museums become branded? ⇒ (1) Feature one a or a few blockbuster artworks (e.g. The “Mona Lisa” at the Louvres). That is why museums seek to purchase iconic art works. or (2) Through iconic architectures sometimes forgetting that buildings need to be functional (e.g. Gugghenheim)

The emergence of modern museums has changed the ecosystem. In the past, museums’ displayed artwork at least 40 years old because they had a mission to pass on art from older to new generations. In modern museums, artworks are displayed shortly after creation. As a result, artists are represented at museums, dealerships and auction houses simultaneously, which lead to conflict of interest and prices manipulations.

Museums face an art acquisition crisis because their budget fails to keep up with escalating prices. So they rely on donations with the negative consequence that the art displayed is sometimes not the result of curatorial choices, but the result of donors’ request. To get more funds, some museums have started to franchise their name and their brand. (Gugghenheim => McGugghenheimization in emerging countries)

Paradoxically, museums have a large amount of untaped value sleeping in their art storage. It is estimated that more than half of museums’ collections are stored, never to be exhibited or sold. Some museums have started (quietly) to exploit stored artworks by leasing them to other museums => high demand from new museums in emerging markets that rent art while they are building their collection.

A trend is the rising number of museums opened by billionaires to display their tastes and immortalize their family name. This is not new in history, but recent years have been very prolific: Bernard Arnault with Louis Vuitton Foundation, Ron Lauder with Neue Gallery, Eli Broad with Broad Contemporary Art Museum, Alice Walton with Crystal bridge Museum of American Art etc…

12. Investing in contemporary art is not worth it

The contemporary art market is a bubble waiting for market correction

The contemporary art market is a bubble because art pricing follows the ratchet effect (⇒ price can only move up, never down… if the prices of an artist ever go down, he/she is kicked out of the market). As prices go up, the market becomes a bubble.

There are good reasons to think that the contemporary art bubble will not crash as hard as 1990 crisis (=> blow caused by the massive downpour of art on the market from Japanese buyers following Tokyo property value crash):

However, it only takes one influential collector to trigger a market downturn. The biggest risk for the market is a trend shift caused by one branded collector dumping his/her collection in the market. This will trigger other collectors to do the same, and the market will collapse.

The first sign of a market downturn will be back to back sales at Christie’s and Sotheby’s, which will trigger collectors to liquidate their art as fast as possible.

➔ If you want to invest, contemporary art is not the right place

Most contemporary art will not appreciate and 80% will never resell. 4 out of 5 contemporary consignments are rejected by auction houses

Transaction fees are high ⇒ auction house commissions, insurance costs, storage, value added taxes, capital gain taxes and more

It is hard to predict which artist will still be relevant in 10 years and how much they’ll be priced.

Investing in stocks is a better option than investing in art ⇒ Collector John Hay Witney and former owner of price-record Picasso “Garçon à la Pipe” has an average net gain of 7% in his collection with long break even. Investing in small companies in the stock market would hold better yield.

The Mei/Moss index is flawd as an investment indicator. This index was developed to measure art prices trend. But it tends to overestimate art returns because its calculation don’t account for the full spectrum of the market.

Art investment funds exist with mixed results, some are disasters some are profitable. They operate like equity funds ⇒ bundle an art collection and investors purchase shares of the bundle. Each fund has its own specialty (e.g. identifying emerging artists to take control of their resale market, acquire art from collectors in financial distress, hedge the risks) and target a specific audience (usually high net worth individuals, pension funds or private banks).

Guidelines for investing in art (if you still want to):