If Wall Street Worked Like the Art Market, It Would Be a Crime

Photograph by Lux & Jourik/happyfamousartists via Flickr

Jacob Kassay’s “Untitled” from 2011 at Art Basel 42

If ever there was a moment to grasp how the art market works, this is it.

With art sales regularly setting new price records, Bloomberg Rankings has released lists of the top-selling young artists–one covering those born since 1970 and a second limited to those born since 1980. Banksy tops the first list; with the British artist’s New York invasion in the news, it’s interesting to see the nearly $40 million his works have gotten at auction. But it’s the numbers on the younger-artists list that really caught TMN‘s attention.

In a word, they are low. If you’ve been following any of the reporting on the recent mania in the art market, they’ll seem startlingly, head-scratchingly low.

Check out the chart below (scroll down if you don’t see it). To break into the top 10 born-since-1980 list, an artist needs only a million dollars in sales, or just over $300,000 for the top 20. That’s not just last year. That’s over the course of a whole career. In a list of artists born since 1980, the careers are still young, but there are plenty of artists that age who’ve sold a lot more than that. Walk through New York’s Chelsea gallery district on any fall weekend and you’ll find at least a couple of young artists whose dealers charge more than that for a single work.

Here’s where it starts to get weird. The numbers you’re looking at, based on data from Artnet, reflect not work sold by the artist, but works that collectors bought from galleries and resold at auction.  As you might expect, the numbers rise dramatically as artists get older and their work hits the auction houses in increasing numbers. To break into the “post-1970″ list would take $6 million in sales. If you were to look at artists born since, say, 1940 or 1950, the numbers would be vastly higher.

That’s what makes the list of young artists so interesting. You may conclude from the low numbers that collectors aren’t interested in their work. Utterly untrue. The list actually says less about the value of the work than about the success of the galleries at keeping it off the open market until artists are well into the later stages of their working lives.

To anyone who isn’t familiar with how the art market works, that last part has to sound bizarre. But it’s key to how art is sold, at least in the U.S. and Europe. Listen to Marion Maneker, publisher of Art Market Monitor and founder of the Art Compliance Company:

“The basic tenet of the gallery system is that the auction market is antithetical to the management of an artist’s career,” says Maneker. “A good dealer is a market maker and prefers to manage the market privately.”

So the question is: Who’s not on that list? Hot artists are sold by galleries that will move heaven and earth to avoid having works go to auction and risk (a) their selling for less than they would in the gallery or (b) their selling for a lot more, and setting a price for future works that an artist won’t match later. The right to purchase work is itself carefully controlled. Works by artists in high demand are parceled out to regular clients, on the understanding that they won’t be sold quickly. That’s why most of the younger artists making a stir in the gallery world now (one example: Lucien Smith) don’t make it into these rankings. As Maneker explains, the gallery’s job “is to get works that will be donated to museums that will ratify the artists’ reputations, not to have collectors resell works at auction for a quick profit.”

And then he says the single most important thing you need to understand about this world: “The whole point of the art market, especially with young artists, is to militate against the existence of an open market.”

Now, full disclosure, TMN is married to an artist, whose work has sold in New York both at galleries and at auction. One of the few things that artists and dealers agree on is that they don’t want to have works go willy-nilly on the auction block (ie. the “open market” that Maneker has in mind).

Artists generally hate it when a collector who has bought their work turns around and puts it on the auction block. Long-established artists whose work sells for millions are probably different, but the vast majority of working artists know that the market is fickle. There’s a big upside to having a dealer who keeps a tight rein on sales, buys back work and keeps prices and reputation steadily rising. And remember–this just can’t be underlined enough–an artist gets nothing when the work is resold at auction.

Eventually, galleries do want a public market in an artist’s work. “At some point, public sales help the dealer,” says Maneker, by giving a real, public imprimatur to the (ever rising) prices that galleries charge. Occasionally, galleries lose control of the work early when an artist is especially hot; Maneker says that’s what happened with Jacob Kassay’s silver paintings.

Kassay is an exception here: his reputation climbed when his works started commanding outsize auction prices.  In the main, though, auction sales represent a serious failure for a gallery. The way the game is supposed to work, art essentially comes with a money-back guarantee. If a client wants to sell work, he or she sells it back to the gallery — which then turns around and sells it to another client. Some powerful galleries even write the option to buy back a work into sales contracts with collectors (art dealer and blogger Edward Winkleman discusses that here).

Photographer: Barry Winiker/Getty Images

Chelsea gallery on West 26th Street at dusk in New York City.

On Wall Street, some of the stratagems dealers use to keep work from going to auction would probably amount to  illegal market manipulation. In the art world, it’s the normal course of business. Undoubtedly this keeps out many potential buyers. Without a transparent market for the work of hot artists, there’s no way to know if you’re being ripped off. At the same time, it preserves the art market’s exclusivity as a club–in itself one of the main reasons (and perhaps the main reason) for collecting art. “If you want to get your money to talk,” says Maneker, “the easiest way is to go to an auction. If you want to be part of the art tribe, you have to go to a lot of dinners.”

Being “part of the art tribe” is exactly what a big subset of contemporary art collectors are in it for. Take the complaints about long dinners with a few grains of high-end sea salt. TMN would wager that there are fewer folks who suffer through dinners so they can collect art than there are people who throw their money at art so they can get invited to exclusive dinners at the Art Basel Miami Beach art fair.

It is at those dinners and art fairs, not at the auctions, where works by young artists in high demand are sold. They’re parceled out by dealers to their important client base, a little bit like investment banks dole out shares in hot new offerings. This system works well for dealers (I’m wary wary of the term ‘gallerist,’ cherished in the art world, because it tends to obscure the commercial element).

That’s not exactly a surprise: if you’re a market maker, it’s good for your business if you’re the only one who knows the going price. It’s good for collectors who maintain close relationship with galleries, bad for the noobs who want work by a new artist and find that it’s not for sale (shows at major galleries are sold out before they open), or by an established artist whose work has been kept carefully controlled and available at auction only at career-high prices.

The downside for the artists? The system keeps many of them more or less indentured to their galleries and dependent on their base of collectors. TMN suspects that if art were sold in a more transparent way, it would work to the advantage of the creators. But while transparency for the market as a whole might be good, I would not advise any artist to be the guinea pig whose work goes directly from the studio to the auctioneer’s gavel.

PS:  You may have noticed there’s one thing this post doesn’t touch on at all: the relationship between the price of art and its value. I’ve tried to sidestep this because the quick answer is that there is no such relationship. Smart people have considered whether art of dubious quality now sells for insane prices. Other smart people have have written rebuttals of the view that prices can or should have any relationship to aesthetic value; you can see Marion Maneker’s here.

To TMN‘s mind, talking about whether a painting is good enough to be worth X million dollars makes no more sense than saying Ian Fleming must have been a better writer than Herman Melville because he sold more books. These are just what philosophers call a “category mistake.” The reason such discussions continue is that the siren song of the market is powerful, and the temptation to see market prices as aesthetic judgements is huge. That extends even to artists themselves. The power of the market is that it insidiously urges us to conflate price and worth. Which is why the market is a subject of so many serious artists’ work.

Update:Art blogger and dealer Ed Winkleman responds:
difference being when art dealers commit actual crimes they go to jail...Wall Streeters get bonuses.
Noted! And I don’t disagree. Though it can take a lot of years and many millions in sales before art fraud gets busted. Which, come to think of it, is not all that unlike banking.

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