The Lemming Market

On 15 November​ , Leonardo da Vinci’s Salvator Mundi was put up for sale at Christie’s in New York. There is something both exhilarating and embarrassing about watching the world’s wealthiest people spend 19 minutes bidding up, up, up, until a victor emerges half a billion dollars less rich. The crowd gasped as the zeros multiplied, and erupted into cheers when one of five prospective buyers phoned in the winning bid. The painting sold for $450 million including fees – the highest sum ever commanded by a painting.

When prices swell, the digits become abstractions. So, too, do the objects: the still-anonymous buyer purchased a painting, but it could as easily have been a mansion, a yacht, an island, or a horse. And although Leonardos are exceedingly rare, this one was considered a dud: ‘a thumping epic triumph of branding and desire over connoisseurship and reality’ an art adviser said in the New York Times, while other critics spoke of the piece’s ‘meekness and monotony’, its ‘marginally engaging details’, its ‘curiously unimpressive composition’. Jerry Saltz, the art critic for New York magazine, made Christ sound like an extra from the set of the Real Housewives: ‘Inert, varnished, lurid, scrubbed over, and repainted so many times that it looks simultaneously new and old.’ The anonymous buyer may have sought out a trophy, but in critical terms, he’d bought a lemon.

What was notable was the painting’s trajectory through the museums, storage facilities and offshore trusts that facilitate the machinations at the upper end of the art market before it reached Christie’s. Acquired by a dealer for less than $10,000 at a 2005 Louisiana estate sale on the assumption (on the seller’s part, at least) that it was a copy, Salvator Mundi was verified, authenticated, and laboriously restored before being exhibited in 2011 at the National Gallery. In 2013, it was acquired by the Swiss art dealer Yves Bouvier, who until recently presided over an empire of tax-free art depots. He paid around $80 million.

Bouvier promptly sold it for $127 million to the fertiliser magnate Dimitri Rybolovlev. Bouvier’s steep mark-up became the focus of an ongoing lawsuit in which Rybolovlev accuses Bouvier of overcharging him $1 billion for 37 paintings and misrepresenting his role in the transaction by claiming to be a mere agent, and not also the seller. The biggest art sale in history, then, may be a product of what Rybolovlev’s lawyer calls the largest art fraud in history – or, at the very least, a massive conflict of interest.

By the time Rybolovlev brought Salvator Mundi to Christie’s last year, the painting had achieved a measure of prominence by virtue of its ‘sleeper’ status and noble provenance (it was once owned by Charles I). That was not enough for Christie’s, which hired outside marketers to mount a campaign around ‘the last da Vinci’ that included a slick promotional video with the slogan ‘The World Is Watching.’ The painting even went on a world tour in October, making stops in San Francisco, Hong Kong and London before it got to New York.

Still, the auction house didn’t take any chances, enlisting a third party to ‘guarantee’ the painting for around $100 million. The guarantee system apparently works for everyone: the seller knows a minimum price will be met and the auction house gets the sale while sharing their risk with a third party. The guarantor gets the artwork if their bid isn’t exceeded, and some of the profit if it is. In the end, there was no need for caution. The winning bid turned out to have been cast by a little-known Saudi prince, who was revealed to have been acting as an agent for Crown Prince Mohammed bin Salman. Finally the government of Abu Dhabi stepped in to claim the Saudis were doing their bidding, and that the Leonardo would find a happy, healthy, heavily air-conditioned home in the Abu Dhabi Louvre. Fittingly, the announcement was made on Instagram, where much of today’s art-world drama is revealed. Rybolovlev, meanwhile, made a profit of $270 million on the painting. His rival, Bouvier, had something to celebrate too. He could now claim that his mark-ups were justified – prescient, even.

A painting​ sold for half a billion dollars, everybody got rich, and a good time was had by all. The lawyers and accountants and shippers and storage managers got their crumbs. The media covered the event like the spectacle it was. Even the riff-raff could indulge in a little schadenfreude thanks to pervasive but largely debunked rumours that the painting was a fake. Someday, the 65.7 x 45.7 cm canvas will hang in a museum flanked by two enormous shopping malls on an island in the Persian Gulf. Harmless, right? Not entirely, Georgina Adam writes. In Dark Side of the Boom: The Excesses of the Art Market in the 21st Century she makes a convincing case that dizzying valuations have deleterious effects on our understanding and appreciation of art.

Focusing mostly on contemporary sales, Adam speaks to dealers, auctioneers, critics and economists. She draws on lawsuits and market data to assess the way pockets of the art world can become all but complicit in money-laundering and other financial crimes. She also takes a close look at the art produced by, and for, the market. ‘Will [art’s] non-commercial qualities – social, symbolic, intellectual and challenging – endure, or will art gradually become homogenised to the tastes of a global elite?’ she asks. ‘Should we recognise that the market has changed, that it has become corporatised, and that this has led to an evolution of the very notion of “art” itself?’

Dark Side of the Boom doubles as an introduction to the paradoxes of art-world economics, which have perplexed economists for decades. In 1890, Alfred Marshall noted that the prices of artworks could not be fully understood according to supply and demand because ‘the price at which each is sold will depend much on whether any rich persons with a fancy for it happen to be present at its sale.’ Also because art is traded in (murky) primary and (more open) secondary markets, both in private and in public, it’s hard to know exactly what happens – let alone how big the market is – from the numbers available. What we do know is that it’s booming. By one oft-cited measure, annual art sales almost doubled in the ten years to 2015 to reach $63.3 billion, and after a brief slump to $56.6 billion in 2016, rebounded to $63.7 billion in 2017.

Adam doesn’t spend much time rationalising these high prices but concentrates instead on the conditions under which they are likely to grow. And she finds the game is rigged. Since the sales in question aren’t regulated like a market, collusion between dealers, gallerists, auctions and sellers happens as a matter of course as each puts tremendous effort into preventing prices from falling. The use of art as an asset class and the inevitable speculation that follows inflate prices further. So does the use of guarantors, who, Adam notes, underwrote 56 per cent of the value of the main New York auction sales last spring.

The particularities of supply and demand in this world also encourage living artists both to overproduce and to create multiples – mechanisms that help sales, until they don’t. Damien Hirst is the poster boy in both cases now that he has taken to selling everything ‘from teacups to chairs, from tote bags printed with butterflies at under a fiver to a full set of Cathedral prints … retailing at £204,000’. ‘Brand stretching’ is another concept that leads to overproduction. As Murakami handbags and Hirst teacups proliferate I can’t help wondering when we’ll be graced with Koons kitchen appliances, or an Eau de Schnabel (it’s not impossible: a descendant of Jean Renoir used his family name to brand toothpaste holders, candlesticks and even a type of cheese).

Adam objects to these practices not because they desecrate what’s priceless but because the work they encourage turns out to be incredibly dull. Tastes at the top tend to converge: an analysis by Artnet found that almost half of all contemporary and postwar auction sales in the first half of last year involved the same 25 names. Adam sees the evidence everywhere she goes. ‘Any visitor to a major art fair will be struck by the similarity of offerings by the bigger galleries. Most will feature a mirrored sculpture by Anish Kapoor, a stack of bicycles by Ai Weiwei, a leaping hare by Barry Flanagan, some photographs by Gilbert and George with a few rude words, and the ubiquitous pumpkin by Yayoi Kusama.’ No wonder they call it a ‘lemming market’.

At the centre of Adam’s account sit the global super rich. When asked, they will invariably claim to collect art out of a lifelong passion; the question is whether their passion is for the art itself, or what it stands for. In her first book, Big Bucks, Adam wrote that art is relatively high on the pyramid of billionaire needs: ‘After the prestige cars, diamond-encrusted watches, vast house and luxury yacht, comes the desire to own something that others do not have and cannot have: a trophy work of art.’ To that end, the point-one-per-center can hire a coterie of advisers to cobble together a collection (or, as one London dealer calls it, an ‘assemblage’) that will lend her the appearance of discernment. She can find an accountant to help ‘control’ sales and take advantage of any number of tax loopholes: offshore trusts, accounting acrobatics or sending a collection off for a stint in a museum (which, conveniently, also boosts its value). Collectors don’t always want the trouble of keeping their art in their homes, so a large network of luxury storage facilities and free ports has sprung up to accommodate them. Art warehousing, a storage executive tells Adam, is a $1 billion a year business with the potential for – at least in theory – unlimited growth as the artworks proliferate and expand in size (another factor contributing to high costs). Some collectors use storage to swap out paintings seasonally, or as a pit stop between beach house and town house; it’s not unheard of for works to be bought and sold and bought again, tax-free, without leaving storage at all.

Speculation is kept in check by social mores. It’s seen as vulgar by traditional collectors, and some galleries blacklist suspected ‘flippers’ to prevent them from cornering the market and distorting the price of an artist’s works. The ‘spec-u-llectors’ persist nevertheless, and the one thing they like more than their Jeff Koons balloon dogs is a party where they can be seen with them. Closed storage facilities often have viewing rooms and space for social gatherings. Adam attends her share while covering fairs, auctions and openings, and some patterns emerge. They infallibly take place not far from a major international airport in a cavernous space, like an aeroplane hangar: essentially a tricked-out warehouse in a gentrified industrial zone. The champagne flows, the hors d’oeuvres sizzle, a small man with a big ego makes a speech, and celebrities show up for the camera.

These scenes support her bigger point: the commoditisation of art has turned it into a lifestyle. ‘Art is used to sell real estate, to brand a hotel, to give a new building project or a restaurant the most hip and “now” credentials,’ she writes. ‘At the Art Basel Miami Beach fair, alongside the twenty or more satellite events, even companies such as Uber, Airbnb, Volvo and Mazda, as well as gourmet food company Dean and DeLuca, have put on art-inspired projects, while luxury goods firms also tout their products with art.’

This nexus of extreme wealth and status anxiety has further consequences. High art prices have always meant counterfeiting. The contemporary art boom is making it even easier to produce knock-offs because replicating an abstract, minimal, machine-made piece is far simpler than reproducing an oil painting hundreds of years old. And with fakes and big money comes significant litigation over authenticity – again, the stakes are financial as well as personal. ‘If the authentication is challenged, the costs of fighting such suits are prohibitively expensive, even if the specialist ultimately wins the case,’ Adam writes – this inevitably has the intended effect of discouraging scholars from weighing in.

Despite well-documented instances of high-profile forgery, Adam writes, the great majority of knock-offs appear at the lower end of the market. An FBI agent who specialises in art crime explains that thanks to the growing perception that art is a ‘good investment’, more and more people are looking, and as a result ‘far more victims are caught by fakes selling for $10,000, $12,000 or $20,000.’ In the long run faking hurts us all because it ‘loosens our hold on reality’.

Titia Hulst’s​ new anthology of the history of the art market argues that the current state of the market is simply an extreme version of the trends and anxieties that have preoccupied the art world for centuries. Hulst sees the demand for art as part of the history of market capitalism itself, arguing that art has always followed the money. The Medicis became patrons in order to diversify their assets and bolster their position in Florentine society. Buying and displaying paintings in the Renaissance ‘was itself a product of a new consumer mentality: it represented not just the objectification of cultural values, but the rationalisation of possessiveness in an expanding world of goods.’ As commercial centres changed, so did the market, from Italian city-states to Antwerp over the course of the 15th century, to Amsterdam in the 16th, London in the 18th, and New York in the 20th. Art markets appeared and reappeared wherever there was an accumulation of wealth, and migrated according to economic competition and political manoeuvring. The future, Hulst and Adam agree, is in China.

The motivation of Chinese buyers isn’t that different from their counterparts in other countries – they seek amusement, status, investment value and, presumably, some degree of visual pleasure – but expensive paintings have an added draw for the Chinese: mobility. Since artworks are portable, they provide a means for wealth to leave the country without being subject to capital controls imposed by the state. The mantra is: buy in China, sell abroad. It’s not entirely surprising that paintings have been convenient vehicles for tax evasion and money-laundering in a number of cases leaked in the Panama Papers.

Adam’s book is filled with critics, dealers and gallerists who complain that buyers care less and less about the art itself and more and more about making a quick buck. Andy Warhol’s line about paintings being like stocks and a dealer like a broker has some truth to it, but the reality is much less neat. ‘Flipping’ paintings isn’t as simple as it sounds. The art market is highly illiquid: there’s no efficient stock exchange, so sales are conducted either at auction, or through an unregulated network of agents and dealers. Art yields no income when it sits in storage. And, as with property, upkeep, insurance and transaction costs can eat into profits significantly: maintaining a single medium-sized painting can cost $3400 annually.

This encourages more sophisticated financial manipulations. To ‘extract value’, the wealthy can borrow money against their art: art-secured lending hit $18 billion in 2016 (up from $9.6 billion two years earlier); it grew popular after the recession thanks to low returns on conventional financial instruments. Now, auction houses have got into this business, with the added advantage – or is it a disadvantage? – that they aren’t regulated the way banks are. One FBI agent tells Adam that money-laundering using art is ‘a growing problem’.

There does though appear to be a limit to the successful ‘marketisation’ of art. Art funds, which pool money from investors who want to buy into the action without the hassle of shipping, storing and caring for a piece, appeared on the financial scene in 2004, but they didn’t take off quite as expected, with registered assets under management halving to $1.2 billion between 2012 and 2015. A start-up seeking to sell shares in works of art went bust in 2013; a new one, claiming to make valuations algorithmically, seems fated to go the same way. Stefan Simchowitz, a dealer, insists that art is a ‘terrible’ investment: ‘No liquidity, difficult to sell, and the chances of you buying the right stuff are slim to none.’ Adam cites an academic paper that found that US equities were three times less risky than art investments.

The question now is how much further the commodification of art can go, whether the high prices will withstand (or even benefit from) a volatile market, and whether art will remain such a favoured vehicle for rich people’s money – as well as their dreams and aspirations. The next twelve months will give us some idea. A Modigliani goes on sale at Sotheby’s in New York on 14 May, with the highest estimate ever given to a painting at auction – $150 million – and a third party guarantor waiting in the wings. For the moment, at least, it’s up, up, up.