Subject: Art Market

Project: Report
Date: July 2018

When Financial Products Shape

Cultural Content
(Title)

Report: The Ethics of the Art Market

(Document Type)

Sébastien Montabonel & Diana Vives

(Author / Co-written by)

Published by
Art Institutions of the 21st Century for Alaska Editions
JULY 2018

02
 THE ETHICS OF THE ART MARKET:
WHEN FINANCIAL PRODUCTS SHAPE
CULTURAL CONTENT

03
CONTENTS

04
 Foreword 06
Introduction 10
I. Primary and Secondary Markets 14
II. Value, Price and Brand 22
III. The Squeezed Middle 30
IV. From Cultural Artefacts to Financial
Products 38
Conclusion 50
The Foundation 56
Trustees and Advisory Board 58

05
FOREWORD

06
 There seem to be a lot of myths around the modern art market,
which is understandable, as we are historically inclined to seek,
and at times to invent, explanations of powerful phenomena.
Interestingly, though the reports and articles are well-crafted and
researched, many are penned by writers who haven’t set foot at
senior management level, or as participants with skin in the game.
The narrative is often spun from someone relating what they heard
that someone else thought about what someone else knew from
a sure source. It makes for good fiction and the sheer volume of
it drowns out the real questions and astute backstage glimpses.
So, we keep reading the most incredible stories about the
global reach, financial muscle and many intrigues of a world that
evolved over a few decades from an insular, relationship-based
and largely unregulated cultural domain, to a fast-moving global
industry. This content has been widely distributed and shapes
our understanding and beliefs about the art market. We rarely
read ‘insider’ reports about top players by executives in today’s
triumvirate of auction houses, major galleries or big international
museums. Not that they don’t share their experiences, yet these
are mostly about the magic - anecdotes about inspiring artists,
discerning collectors and how incredible their own life has been
as a result - and rarely about the real business of art. The glow
of these tales, fanned by the winds of media and the digital age,
attracts new players to spend money at the glamorous high table
of art where there’s allegedly nothing to lose and the gains are so
big that even billionaires want in.
But the real winners are rarely the ones described in those
stories. I have often been struck by the confidence of individuals
who, as highly successful players in their own field, enter the
art market believing they can ‘win big’ in a multi-billion pounds
industry, competing against those who do it for a living. Without
doing the research, or going solely on the advice of consultants
who may have vested interests, what could be an entertaining
07 way of diversifying one’s assets becomes something of a gamble.
Pushing works that are both mediocre and overpriced is a classic
‘street sale’ technique. The price tag, the allure of the environment
that the art world colludes to project outwards and the residual
goodwill towards art all validate this elegant folly.
If art was once a reflection through which to view broad
sweeps of history, today’s art market has agency and influence,
both at the apex of financial power and as a media-driven
disseminator of visuals and ideas that define our time. Much like
other industries, its regulations spawn loopholes and its growth
potential attracts investment and speculation. Its mass appeal
in the new millennium has revealed its proven potential as a
tourism magnet, invigorator of urban settings, invaluable mine
of structured data and as an asset class which operates within
singular parameters.
 The changes outlined in this report are real, and evident.
They may not be new, but they have certainly become more
obvious. Marketing and branding ‘driving’ cultural value, with
monetary value conflating (and confusing) cultural value are a
fact; art as financial asset is another. Is financial interest shaping
content? We can ask the same question of the media environment,
television and cinema to begin with. And yes, they all do, but in a
society driven by a consumerism that is denounced by its artists
and intellectuals, we should have higher expectations for the way
we engage with art.
This report does not intend to tarnish the lustre of art, as
we ourselves believe in its magic and know that extraordinary
things happen inside this ecosystem. But we also believe that it
is our responsibility to address the popular myths and contribute
to developing a more realistic perspective, based on experiences
acquired over the years of dealing across those different
institutions, that will serve to protect the independence that art
and artists should be granted in order to thrive sustainably.
As a departure from the previous publications of AI21C,
this report complements its referenced research with my personal
perspective formed over decades of working in the art world.

Sébastien Montabonel
Chair of Trustees

08
09
INTRODUCTION

10
[1] Evan Beard, National Art Services Exec-
utive. U.S. Trust, Bank of America Private
Wealth Management. Merrill Lynch, Pierce,
Fenner & Smith, Inc. Phone interview, June
2018
[2] https://www2.deloitte.com/content/dam/
Deloitte/at/Documents/finance/art-and-fi-
nance-report-2017.pdf. p.16
[2a] https://www.artbasel.com/news/econo-
mist-dr-clare-mcandrew-explains-why-the-art-
market-is-rebounding
11
The principal purpose of this report
is to investigate the impact of art
markets on museum collecting and
contemporary curatorial practices.
Increasingly, sponsorship
deals and commercial interests are
determining the global footprint of
big museum ‘brands’ by shaping
their exhibition budgets and con-
tent.
This raises a host of ethi-
cal questions around the independ-
ence of public art institutions and
their social responsibilities. At what
cost have state funding cutbacks
made public museums overly reli-
ant on external financial support?
To what extent do museum exhi-
bitions mirror the market activities
of auction houses and private gal-
leries and how does this impact
on institutional diversity and the
career prospects of individual art-
ists? Are privately-owned spaces
and commercial venues supplant-
ing state-funded museums? Has
mounting public interest in the
spectacle of the art market shifted
expectations about the kind of ex-
periences that a museum should
promote? And what happens to the
value perception of art when, after
real estate holdings, it becomes the
4th popular asset against which to
leverage large loans, as confirmed
by a senior private wealth manager
at Merrill Lynch.1
Though the effects may not
always be immediately apparent, all
commerce is invariably altered by
the advent of new key players. For
instance, few would argue that at
its inception, Amazon was mere-
ly viewed as an attempt to change
the way we purchase goods, while
Facebook, Twitter and Instagram
were considered the game-chang-
ers that had broadened and accel-
erated individual communication at
a global level. And yet, as a mech-
anism for user data collection, in its
slow but inexorable rise, it is Ama-
zon that has proven to be the stra-
tegic giant.
Apart from the rising tide of
digital innovation that has yet to re-
veal how technology will transform
the way institutions of the 21st Cen-
tury operate and interact, one of
the more significant changes in the
art world in recent years has been
the market’s personality shift from
considered purchases of cultural
symbols, to the fast-moving trade
of high value works now deemed
not just an investment but an as-
set class, employed as collateral
against loans and even as instru-
ments of securitization. While art
has operated between culture and
business for decades, the introduc-
tion of this financial dimension will
likely have a lasting impact on the
trade and perception of art, espe-
cially once driven by the digital di-
mension.
Indeed, Deloitte’s 2017
Art & Finance Report highlighted a
steady growth in private bankers,
wealth managers and family offic-
es entering the arena of art invest-
ment.2 As we shall see, this change
in mindset from collecting to invest-
ing has trained art’s aura on works
with the highest visibility and price
tags, with significant consequenc-
es for the market in general and the
middle-market in particular.
The cluster of interest for
the top end of the market, over
emerging artists or mid-career
practitioners, threatens to homog-
enise current collecting practice, a
view supported, among others, by
economist Clare McAndrew, author
of Art Basel and UBS Global Art
Market Report 2018:
There is a narrow focus on a
small number of artists and the
people who are selling their
work, and this has had a big ef-
fect on sales.2a
 Seeking to minimize risk,
buyers look at ‘what everybody
else is doing and consume what
everybody else is consuming’3. As
a result, big names and perceived
quality are becoming progressively
aligned, with prices following suit.
Confidence in this sector of the art
of interest in the current art world
practice: In the first chapter, we look
at the mechanisms, often misunder-
stood, within the primary market of
galleries and dealers, contrasted
with those of the secondary mar-
ket mostly represented by auction
houses. The second chapter dis-
[3] https://www.artbasel.com/news/economist-
dr-clare-mcandrew-explains-why-the-art-mar-
ket-is-rebounding
[4] https://www.ubs.com/global/en/about_ubs/
art/2018/contemporary.html
[5] https://news.artnet.com/market/25-art-
ists-account-nearly-50-percent-postwar-con-
temporary-auction-sales-1077026

market remains high, with global cusses how branding has replaced
sales up by some 12% in 2017, to- knowledge in shaping the value
taling $63.7 billion.4 The majority of perception of artworks, artists and
gains are concentrated at the top galleries, which influences price tol-
end of the market, with notorious erance and leads to a concentration
sales such as Leonardo da Vinci’s of power in collecting, curating and
Salvator Mundi and contemporary media coverage. The third chapter
superstar Jean-Michel Basquiat’s examines the causes of the mid-
Untitled fetching in excess of $450 tier galleries’ gradual demise. The
million and $110 million at auction, prominence of blue-chip artists in
respectively, in the same year. In- leading galleries that is symptomat-
deed, the top 25 artists account for ic of the market’s top-end polariza-
almost 45% of all Modern and Con- tion is often attributed to external
temporary sales at auction.5 developments, detracting from the
Yet though the accuracy emerging winner-takes-all hierarchy
of such data is not in doubt, this of the art market. The final chapter
representation is technically incom- addresses the title of this report,
plete, as auction house evening considering finance as the third
sales tend to preference big ‘blue player that has joined culture and
chip’ names, as well as the tradi- business, and examining its contri-
tional medium of painting. Absent bution to shaping cultural content.
from the data are also the transac-
tions by commercial galleries, espe-
cially in the primary market, as well
as private sales. These figures are
not easily accessible, which sug-
gests that there are blind spots to
our viewing of the allegedly visible
12
art market.
Even the museum sector,
often seen as an impartial arbiter
of taste, is under scrutiny. As cu-
rators cultivate ties to major com-
mercial galleries that sponsor large
exhibitions, the ‘inside information’
that best serves those in privileged
positions perpetuates the status
quo. Indeed, the cultural and fis-
cal preeminence of these coteries
results in a quasi-hegemonic hold
over today’s international visual cul-
ture.
This report has therefore
chosen to focus on four key areas
13
I.
PRIMARY AND SECONDARY MARKETS

14
[6]https://www.picassomio.com/art-apprecia-
tion/what-is-the-difference-between-the-pri-
mary-and-secondary-art-market.html
[7] https://news.artnet.com/art-world/loic-gou-
zer-interview-part-one-1296857
[8] http://www.un.org/esa/ffd/doha/documents/
WESP_2009_prerelease.pdf
[9] http://www.artscouncil.org.uk/sites/default/
files/download-file/Arts%20Council%20Eng-
land%20annual%20review%202007.pdf
[10] https://www.theguardian.com/educa-
tion/2015/feb/17/arts-and-culture-systemati-
cally-removed-from-uk-education-system
15
It is important to understand the
differences between the primary
and secondary markets in art, and
to explain why the latter has gained
ground in prominence over the last
years.
Work enters what is known
as the primary market when shown
at a gallery or any other art exhi-
bition as a new or hitherto unseen
piece by an artist at a price which
is established for the first time. In
technical terms, much like the mak-
er of a design product, a sailboat,
or an item of jewelry, the gallerist/
dealer establishes the selling price
of the work in conjunction with the
artist, on the basis of both research
& development and cost of produc-
tion. As a status symbol, the pric-
ing structure of artworks at the high
end follows the opposite of the law
of demand: when interest in a par-
ticular artist’s work grows, be they
paintings, sculptures, photographs,
or graphic prints, their market value
increases, and this price in turn en-
courages conspicuous consump-
tion. And while the work may vary
in quality, the market value associ-
ated with the artist as confirmed by
prior sales sets a benchmark which
becomes a reference point for fu-
ture pricing in various applications,
from auction estimates to collateral
loans.
Once the owner of this
work – be it a collector, a business,
a foundation or a dealer - decides
to sell the piece initially acquired in
the primary market, it is said to en-
ter the secondary market. Most art-
works at auction therefore consti-
tute part of the secondary market,
given that the artwork has already
been purchased once.6 Note that
private sales brokered by auction
houses or private dealers also qual-
ify as transactions in the secondary
market. In simple terms, one would
refer to the ‘secondary market’ as
the ‘used’ or ‘second-hand’ market
– though artworks are among the
few objects that do not depreciate
over time. The market of relative-
ly established artists is therefore
a combination of the primary and
secondary market.
Much of the literature that
reaches the general public about
the art market relates either to the
objects themselves or their authors,
with the occasional suspense story
of a high-profile scam or scandal.
Rarely does it touch on the back-
stage workings and structures that
shape their value. In actual fact, the
works are ‘framed’ and contextual-
ized by a constellation of promoters,
commentators, vendors and clients
who shape the cultural reception of
the work. Increasingly, economic
factors weigh in too, since the ad-
vent of new financial players which
revolutionized the manner and mo-
tive of collecting. And art has also
become a means of sending a mes-
sage that can reach a worldwide
audience.
When Leonardo da Vinci’s
Salvator Mundi set the world record
at $450 million for a work of art sold
at auction last November, it caused
an international media sensation.
Loic Gouzer, co-chair of the Post-
War and Contemporary Art depart-
ment for the Americas at Christie’s,
the auction house that set the stage
for this spectacle, recalls:
We knew, and we knew that the
second it came out it would be-
come big news. But while we
knew ahead of the sale who
would be competing against
this painting, everybody was still
stunned by its price. Normally
everything we do stays within
the realm of localized art-world
news or gossip—this was on the
front page of every newspaper.7
This was undeniably an arresting
event, yet we might have missed the
real headlines! Against the back-
drop of Saudi Arabia’s role as lead-
ing funder of Salafist jihadism8, one
could expect this acquisition of the
works by an artist in the knowledge
that a major international retrospec-
tive is planned would be considered
insider trading, yet in the art world it
[8] https://en.wikipedia.org/wiki/State-spon-
sored_terrorism
[9] https://news.artnet.com/art-world/loic-gou-
zer-interview-part-one-1296857

icon of Christian faith, as a grand is not illegal. Information has always

political gesture by the reformist
Saudi Crown Prince Mohammed
bin Salman, to have sparked more
investigative journalism. This en-
igmatic dimension did not escape
Gouzer:
been a key component in commerce
and the days of leveraging astutely
garnered insights to one’s advan-
tage are not that far gone. The im-
balance of wealth and power that
insider trading regulations seeks to
[10] https://www.economist.com/the-econ-
omist-explains/2016/09/04/what-is-informa-
tion-asymmetry
[11] Canice Prendergast, “The Market for
Contemporary Art,” Booth School of Business,
University of Chicago, November 2014, p.4,
http://tinyurl.com/gsyu66c.

prevent should give an indication as

It made much more noise than
we had expected. It also be-
came something that had polit-
ical implications that we don’t
necessarily understand.9
Artworks have always
been complex cultural objects. Be-
yond their intended meaning, their
quality and authenticity are notori-
ously difficult to ascertain, requir-
ing a depth of insight and knowl-
edge beyond the ambit of many of
its consumers or collectors. And if
quality is difficult to assess, value or
price are equally onerous to appor-
tion. In today’s high-stakes market,
it is important to be reminded that
the pricing method of an artwork
cannot be compared to the valua-
tion of a company’s share price. The
former has variables in play that are
neither stable nor, more importantly,
quantifiable, which is precisely why
it can’t be regulated by the Finan-
cial Services Authority, and why
even the admirable attempt at cre-
ating an index based on past sales
is futile. The price of an artwork, by
virtue of the intrinsically variable
creative nature of its genesis and
its non-fungible identity as a unique
object, as well as the subjective
perceptions that shape its value,
and the as yet largely unregulated
commercial activities that surround
it, is invariably built on part fact and
part folly.
For some, opacity has its
advantages. In banking, buying
to some of the unchecked forces in
today’s art world.
The ethical issues that
arise from what is termed ‘informa-
tion asymmetry’10 in contract the-
ory and economics could be said
to apply to the art market in which
the gallery system progressively
monopolises not just the informa-
tion about the values of artworks,
but equally controls the key means
of its production via the public mu-
seum sector. Although information
asymmetry of the perceptions of
value of goods and services can be
considered the basis of trade, the
concern that monopolies of knowl-
edge may become concentrated in
the hands of a few is pertinent. As
an interesting aside and glimpse
into the future, a recent study found
that information asymmetry is re-
duced in transactions between two
AI agents, which has for effect not
16
just to increase the efficiency of the
markets, but also ultimately reduc-
es the volume of trades11. While
we cannot yet know the impact of
AI and such technologies as block
chain on the transparency and fu-
ture rhythms of the art market, it is
fascinating to speculate.
This being said, that the
art world is exempt of any regula-
tions whatsoever is a fallacy which
some conveniently used to feign ig-
norance of the laws that do apply.
Though the press correctly picks
up on the opacity of the art mar-
ket, transactions are in fact subject
[12] Thomas Rieger, Director at Konrad Fischer
Galerie (AI21C Advisory board), email com-
ments, July 2018
[13] FT How transparent is the art market? -
Georgina Adam, April 28, 2017
[14] https://www.artory.com/about-the-registry/
17
to Commercial Law as well as the
Bribery Act (2010) and commission
fees are regulated. In order to se-
cure a commission on a sale, au-
thority from either the seller or the
buyer is required and stated in the
sales invoice. Double commissions,
whereby a person takes a fee from
both the seller and the buyer, are le-
gal providing both parties are aware
of it, and common practice for auc-
tion houses. On the other hand, it
is illegal for museum directors or
senior curators to engage in art
brokerage in their spare time, espe-
cially with patrons of the museums,
and to omit declaring their earnings
routed to foreign bank accounts. It
is equally illegal to take a commis-
sion on the pretext of brokering a
deal without a mandate, i.e. direct
access to and authority from either
the seller or the buyer, on the basis
of ‘knowing someone who knows
someone’. At the risk of stating the
obvious, it is important to closely
scrutinize the commissions that are
built into a deal, as markups can
double the original seller price.
The regulatory landscape
also varies depending on the terri-
tory, even within Europe. Thomas
Rieger from Konrad Fischer Gallery
explains:
I can’t think of any other busi-
ness branch in Germany being
as over-regulated as the local art
market. We have to report our
annual performance to the KSK
(Künstlersozialkasse), defining
our annual fees of 4-5 % of all
payments to artists. We have to
report re-sales leading to resale
right fees, which are up to 4% of
the sales price. The use of imag-
es in publications or the Internet
has to be cleared with VG Bild-
Kunst. The Kulturgutschutzge-
setz (cultural heritage protec-
tion) asks us to report shipping
of artworks older than fifty years
even within Germany.12
Meanwhile, Special Agent
Meredith Savona who has been
investigating art crimes out of the
FBI’s New York office since 2010,
has seen her fair share of action
in what she considers a secretive
breeding ground for crime13. In her
opinion, a fundamental problem
is the lack of ownership records
is, which can conceal problems of
provenance and condition, as well
as a trail of offshore companies or
tax and investment issues.
The art market would great-
ly benefit from reliable information
sources that do not have a financial
stake in collectors’ purchases. As it
is, collectors are readily advised by
the very galleries from whom they
acquire works, and whose recom-
mendations are invariably partial
to their own stable of living artists,
estates or pieces bought in for the
secondary market. In this respect,
it can prove judicious to appoint an
independent advisor/ consultant to
set out a purchasing strategy and
handle sales negotiations with ven-
dors professionally.
It is ostensibly to address
this dearth of reliable data that
Nanne Dekking, the current chair-
man of the Tefaf, set up Artory, in
its own words ‘a secure, digital reg-
istry of verified information about
artworks and collectibles, and their
history’ that includes as much infor-
mation as possible, from the data-
base and blockchain integrations to
the user interfaces.14 According to
the company’s website, ‘by creating
an immutable registry with stand-
ardized certificates, Artory builds
an additional layer of trust into the
art market that is already the norm
when purchasing other valuable
items—houses, cars, jewelry, or
even computer software.’
Arguably, while clarity is
being sought in some areas, the dis-
tinctions between worth and value,
or between museum and commer-
cial gallery, are becoming increas-
ingly blurred for reasons explored in
this report.
An artist’s importance and
worth finds substantial validation
through such benchmarks as in-
dividual museum exhibitions and
inclusion in key institutional group
shows; similarly, presence in the
stable of one of the major com-
mercial galleries provides a seal
of quality and financial value. It is
through regular exhibitions in those
spaces and at art fairs that media
and market visibility are traditionally
attained.
Representation by one or
more commercial galleries is there-
fore a critical step in the career of
an artist. This relationship is largely
fluid and contractual agreements
between galleries and artists are
based today on mutual benefits that
may change over time. There is an
inherent measure of mobility in rep-
resentation, as galleries constantly
scout to bring the deepest pool of
available talent to market, and art-
ists migrate from one space to an-
other to maximize their positions.
Certainly, as evidenced by
their mobility, today’s artists wield
greater power than before and
broad representation by compet-
ing entities has become a mark of
achievement for successful artists
who are highly sought after by pub-
lic institutions and commercial gal-
leries alike. Sharing representation
is worthwhile for galleries in these
cases, as the coterie of collectors,
curators and other interested par-
ties attached to the work of a top
artists can support wide sales and
provide esteem and visibility. More-
over, globalization has created the
opportunity for a famous artist to
become truly international through
shared representation in differ-
ent countries and cities. Obvious-
ly, there are exceptions: Gerhard [15] Keir McGuinness, Contemporary Art and
Transactional Behaviour, in The New Economy
Richter’s primary market remains
of Art, Gilane Tawadros and Russell Martin,
exclusively with Marian Goodman eds, DACS and Artquest, London, 2014,p.46.
Gallery. But we all remember the
controversy around Anselm Kiefer’s
simultaneous Paris shows with Ga-
gosian at Le Bourget and Thaddae-
us Ropac at Pantin.
Marketing consultant Keir
McGuinness posits that ‘the reason
secondary marketing is becoming
appropriate is because many artists
now have several galleries, each of
which has an insufficient amount
of material to take to several of the
103 art fairs…at which up to 70% of
their sales are derived. One might…
say that galleries presently maintain
substantial exhibition spaces in or-
der to placate the demands of the
artists rather than as a place from
which to sell art.’15 While the count
is correct, one should consider that
individual galleries attend 7-8 fairs
at most. Moreover, they aren’t buy-
ing secondary market works due to
insufficient primary production, but
in response to growing demand for
earlier work by the same artist. To
give an example, the historical value
of a work by Carl Andre from 1968 is
far greater than that of a work pro-
duced in 2008, and this question of
an artist’s life stages has become a
critical determinant of value.
Although further distinc-
18
tions can be made in the primary
market, gallery ‘stables’ comprise
three main categories of artists
which are described in this report
as ‘emerging’, ‘mid-career’ and
‘blue-chip’.
Recent fine art graduates
and younger artists breaking into
the market constitute the emerg-
ing sector, a reasonably rewarding
sphere, notwithstanding recent
changes in purchasing patterns.
Work is typically low-priced and
there is a good chance that an art-
ist might accrue in value. But other
than collecting for pleasure, spec-
[16] https://news.artnet.com/market/25-art-
ists-account-nearly-50-percent-postwar-con-
temporary-auction-sales-1077026
[17] Georgina Adam, The Dark Side of the
Boom: The Excesses of the Art Market in the
21st Century, Lund Humphries, London, 2017,
op.cit.
[18] https://www.ubs.com/global/en/about_
ubs/art/2018/contemporary.html
[19] Harriet Fitch Little, How an artist’s legacy
became big business, Financial Times, Au-
gust 26, 2016, https://www.ft.com/content/
d77d5e74-69e5-11e6-ae5b-a7cc5dd5a28c).
19
ulating on future talent requires a
wide spread - the oft-cited whole-
sale acquisition of works from the
YBA group (Young British Artists) by
Charles Saatchi in the mid-90s be-
ing a prime example of this strategy.
So-called mid-career art-
ists occupy the next price bracket.
Their relative seniority over the pre-
vious group, as well as their exten-
sive track record of group and solo
exhibitions in public institutions,
confer greater value to their work.
They are typically represented by
mid-tier galleries whose current
predicament is discussed in our
third chapter.
Finally, blue-chip artists
are those whose work is exhibited
internationally in the most prestig-
ious public and private museums
and attracts the most powerful
commercial representation. Many
of them are no longer alive but their
posthumous legacy is assured. The
financial and reputational heft of
this group cannot be overstated.
According to recent market reports,
45% of transactions at auction are
generated by 25 artists from this
select group.16 Their visibility is
such, that they become ubiquitous
in the public’s consciousness when
blockbuster shows such as the Pi-
casso retrospective go ‘on tour’ to
major museums around the world
and international press coverage is
monopolized over several months.
The desire for greater sta-
bility of value and avoidance of vol-
atility in the uncertain aftermath of
the financial crash were big drivers
for blue-chip art. After 2008, auction
houses spread their risk by seek-
ing to guarantee sales, or, more
precisely, by obtaining guarantors
for the reserve price. Some have
argued that this practice does not
necessarily result in bargain prices,
because the work may have been
hawked to several potential guaran-
tors. In practice however, individu-
als and funds are very keen to act
as guarantors17 for specific pieces
of work as they will either obtain a
good deal – should it not go above
the reserve price - or benefit from
a percentage split of the difference
between the reserve and the even-
tual hammer price. The latter sce-
nario is particularly attractive for
the guarantor, as the potential profit
warrants no upfront financial outlay.
Moreover, emerging mar-
kets contributed new buyers for
western works, attracting collectors
from Asia and Middle-East among
others,18 some of whom had until
then patronized art from their native
market that failed to fulfill the prom-
ise of international visibility. As with
consumption in the luxury goods
sector, the ‘blue-chip’ art equivalent
of big brands was paramount. The
example set by Francois Pinault
proved aspirational for many collec-
tors who saw in art a means to gain
an international reputation, world-
wide access to the highest spheres
of influence, and recognition in the
media.
Arguably, consignments of
blue-chip artists who are represent-
ed by other galleries and backroom
dealings of secondary market stock
have always been a staple of the
gallery business, but its practice is
more prevalent now that they are
seeing dwindling sales in mid-ca-
reer artists.
Galleries have further ex-
panded the secondary market by
taking on artists’ estates. Lead-
ing the trend, Hauser & Wirth ap-
proached this niche with particular
vigour and almost a third of their
artists are now attached to estates
or foundations. Of twenty-one at
latest count, seventeen were signed
in the past decade.19 Estates don’t
generally contain new works from
an artist’s oeuvre and the artists
are not necessarily blue-chip or
mid-career, but they can straddle
the primary market by providing
an opportunity to resurrect the ‘un-
recognized genius’ of relatively un-
known artists whose work thereby
enjoy a posthumous debut. Galler-
ies are essentially trying to broad-
en their catchment area, and their
range of artists across generations
and related movements is conse-
quently diversifying.
Art fairs took note of this
migration, strengthening the provi-
sion for secondary market outlets,
but it goes without saying that auc-
tion houses were in pole position to
harness the ensuing trading activity
which led to their sales results be-
coming the new oracle.
Economist Canice Pren-
dergast suggests that art prices
are determined by ‘the next person
in line’.20 At auction, this ‘next per-
son’ is doubly present: in the first
instance, because an object is be-
ing sold to a second individual, and
moreover, because the auctioneer
requires at least two potential buy-
ers to initiate a bidding process. It
is not uncommon for inexperienced
players in the art world to think that
auction houses are more of a prob-
lem than a solution. We often hear
from as yet unsuccessful artists or
galleries that auction houses slash
gallery prices. However, for estab-
lished names, auctions can, quite
to the contrary, be an important and
powerful mechanism through which
the reflection, or indeed the illusion,
of a healthy market for their works
can be preserved.
Indeed, auction houses
are a useful forum to manipulate
market perceptions. Without going
into detail or specifics, the idea is
to inverse the process, manipulat-
ing the result at auction to demon-
strate high demand and justify a
‘market-value’ price increase for a
particular artist. It would be difficult
to disprove that some dealers have
placed and bought their own works
at auction to either maintain or in- [20] http://faculty.chicagobooth.edu/canice.
prendergast/research/MarketContemporaryArt.
crease the market value of a portfo-
pdf
lio. With this in mind, the impressive
result of the PW&C category, shown
to outperform the S&P500 and US
Treasury bonds in recent years,
should come as less of a surprise
when the buyer is the seller.
The challenge in making
informed decisions about prices
by combing auction results of the
secondary market should therefore
be evident, especially given that the
primary market does not publish its
sales figures. And yet the belief en-
dures that auction results published
by online platforms are a trans-
parent, tangible and user-friendly
price reference which many buyers,
economists and journalists confi-
dently quote as proof of a healthy
and liquid market. Even honest at-
tempts at tracking sales, such as
the Mei-Moses Index, which meas-
ures art prices based on auctions
over the past fifty years and initial
purchases going back over two
hundred years worldwide, fail to
take into account the wild cards of
the business.
And yet ultimately we
seem to suspend disbelief in a sure
source when these flawed results
are validated by credible external
commentators with no conflicts of
interests who draw serious conclu-
20
sions in interesting articles or re-
ports. You could call it unintention-
al information laundering of sorts.
Most big collectors like to comment
that the market lacks transparency
and regulatory structure and that
some players are manipulating it.
And we even create algorithms to
predict the future of your art invest-
ment, because we want to believe
that we can lift the curtain on the
magic trick.
Let’s give credit to the art
world: when enough people believe
a fairytale, it becomes a reality of
sorts - and who wants to be a Cas-
 sandra reminding us that ‘when it’s
too good to be true, it usually is’.
The art world got lucky and it’s un-
likely that even insiders predicted
this boon and the added financial
dimension of the business which we
address in chapter IV.
One should also bear in
mind that auction sales were tradi-
tionally and predominantly for deal-
ers and not the general public. Key
data is required in order to use one
of these platforms to one’s advan-
tage. The information provided by
online platforms is very basic. There
is no access to condition reports,
no data on whether the work was
paid after the sale, if the buyers had
vested interests in supporting those
particular artworks, or even funda-
mental details around the work’s
authenticity. It is common knowl-
edge that blue-chip forgeries are
circulating in the market. Until re-
cently, using the auction platform to
flip a fake was a viable strategy, as
the client erroneously assumed the
auction houses took responsibility,
given their in-house experts circu-
lating the preview room. In the last
couple of years, there has however
been pressure for auction houses to
assume a minimum of responsibility
and the amended conditions of sale
now offer to reimburse a purchase
proven to be fake – albeit leaving
21
the onus on the buyer to perform
due diligence within a timeframe
of five years since the date of pur-
chase.
In defense of the auction
houses, these disclaimers are a
function of their inability to pro-
cess works at the eleventh hour,
as a large portion of the sale is
consigned just days, or sometimes
hours, before the catalogue goes to
print, making it physically impossi-
ble to verify every single work. The
forces at play leading up to an auc-
tion are as follows: the head of sales
has the responsibility to minimize
the risk of non-sales and therefore
to anticipate what is desirable, at
the most attractive estimate that
serves as bait to buyers - to the dis-
tress of the seller who bears the risk
of a work selling too low and who
therefore often waits for the pres-
sure of the cut-off point to negotiate
with the auction house, using the
only available leverage of a need to
fill and close a sale.
As artworks outlive their
authors and continue to exist
through different ownerships over
centuries, the need for a second-
ary market is essential. It is equally
a misconception to believe that the
wealthy have money to burn. Not
that every collector wants to invest
in or make money off the artworks
that they acquire, but they don’t
want a bad deal. Wealthy collectors
are willing to buy an artwork in the
hundreds of millions from a reputa-
ble art dealer on the basis that they
would be able to recover their ask-
ing price if they needed to sell the
work. In view of this crucial point,
it’s easy to understand why it is in
the interest of galleries and artists
that auction results align with those
of their primary market. In a healthy
market, auction results would there-
fore mirror the gallery price.
Since art has advanced to
a collateral for bank loans as we dis-
cuss in chapter IV, today’s interest-
ing paradox is that there is no longer
the need to sell work in order to gen-
erate liquidity, thus bypassing the
fundamental problem that it could
previously be a slow asset to move.
The artwork therefore undergoes an
abstraction from object to symbol,
altering the entire business model as
it leaves the material and cultural or-
der to serve as a guarantee of value.
II.
VALUE, PRICE AND BRAND

22
[21] Prendergast, ibid, op.cit.
[22] Alessia Zorloni, The Economics of Con-
temporary Art: Markets, Strategies and Star-
dom, Springer Science and Business Media,
2013, op.cit.
[23] The ‘Veblen effect’ is named after the
American economist Thorstein Veblen in his
publication The Theory of the Leisure Class.
[24] The Industries That Drive the Art Market -
Anna Louie Sussman, Aug 22, 2017. (https://
www.artsy.net/article/artsy-editorial-indus-
tries-drive-art-market.)
23
The price of an artwork is generally
deemed a ‘surplus value’ – deter-
mined by factors other than ma-
terials, labour, manufacture and
distribution – and is pitched in the
primary market where the gallerist
believes it ought to be, coupled with
what the market will bear and which
is closely linked to the secondary
market. A multitude of factors weigh
in to align value and price.
Economist Canice Pren-
dergast writes that the trajectory of
an artist has a strong bearing on the
value and standing of an artwork,
contrary to other brand-related
businesses.21 In other words, what
artists did previously and what they
do next matters greatly. One of the
defining features of today’s infor-
mation culture is the constant clos-
ing of feedback loops. An artist’s CV
typically lists art schools, frequency
and scale of group and solo shows
in public and commercial galleries,
inclusion in private collections and
museums, bibliography and pub-
lications. These qualifiers endorse
artists in terms of stability and qual-
ity within the art ecosystem and are
key to enhancing their brand status
as mid-career artists.
Yet the kudos that pro-
motes a mid-career artist to blue-
chip brand status is a far more el-
ementary indicator of value that
has gained influence over the last
twenty years: price. If institutions
are said to support the qualitative
worth of an artwork, its price under-
pins the quantitative value. This has
led to a concentration of blue chip
artists at the apex of the art ecosys-
tem, fought over by a coterie of col-
lectors with the deepest pockets.
In her analysis of the art
market, Alessia Zorloni confirms
that price is now deemed more im-
portant than quality.22 Indeed, it has
become an indicator of both quality
and demand, sidestepping the gen-
eral laws of the market, and becom-
ing gradually conflated with cultur-
al value. However much one may
decry such blatant monetization of
cultural goods, key changes in the
market support the transition as a
fait accompli.
Nor is it a new phenome-
non. The Veblen Effect23, first iden-
tified in 1899 by American econo-
mist Thorstein Veblen in his Theory
of the Leisure Class, hinges on the
principle that a higher price stimu-
lates the conspicuous consumption
of a prestige item. Traditionally as-
sociated with luxury goods, it is the
inverse of the law of demand and
can be applied to the current art
market in which the highest prices
are perceived as synonymous with
the greatest artistic quality. A corol-
lary of the Veblen Effect is that a de-
crease in price reduces demand. It
is therefore in the interest of the art
market to make high prices known
via the media and staged events
such as auction sales, as well as to
maintain them.
Consequently, the top of
the art market thrives on exclusivity.
Scarcity is perhaps more real and
relevant than in the case of other
luxury goods whose supply is held
back but can be modulated by fur-
ther production. In addition, it’s not
enough to have the cash. You have
to be considered worthy of the op-
portunity to buy the most desirable
artworks. A hierarchy of clients is
established by the top commercial
galleries.24 Foremost among cli-
ents with the best access to key
pieces are large public institutions
and major collectors with private
institutions to their name. Where-
as ‘unique’ pieces were once the
norm, it has become common for
works to be editioned, allowing the
same work to be placed simultane-
ously with a number of choice cli-
ents and, ideally, a major museum
that augments the auratic effect.
Other buyers will be offered works
in a descending order of desirability.
Key clients, top artists
and their best works are therefore
the scarce resource. These factors
confer a substantial degree of sta-
bility to this highly exclusive and
competitive sector. In other sectors,
competition tends to drive the price
cluded from the discussion of cul-
tural value. Yet in today’s art market,
prices communicate not just eco-
nomic meanings but symbolic val-
ues. This means that they not only
reflect value, but signal it. By that
same token, a high price confers
an aura of prestige and quality and
[25] Georg Simmel, The Philosophy of Money,
Tom Bottomore and David Frisby, Routledge,
London, 1999 (1900) p.374
[26] Olav Velthuis, Talking Prices: Symbolic
Meaning of Prices on the Market for Contem-
porary Art, Princeton University Press, Prince-
ton and Oxford, 2007 (2005), p.3.
[27] Olav Velthuis, ibid, p.3.

down, yet this is not the case in the
art economy. It is also in the interest
of artists to be favoured by leading
galleries.
This validation through
price is not as random as it may ap-
pear. According to theorist Georg
Simmel, value comes into being
when something needs to be sac-
rificed to obtain it, rather than by
comparing it with other goods.
For money value in very great
sums contains an element of
rarity, which makes it more indi-
vidual and less interchangeable
and thus more appropriate as
an equivalent of personal values
[…] that transcend[s] the defi-
niteness of numbers.25
This applies especially to
highly-priced artworks for which
the level of monetary abstraction
is greatest. The pursuit of such
artworks can be seen as a quest
of sorts, requiring patience, cun-
ning and abstinence. It is arguable
that cultural value is eclipsed by
investment and the function of the
artwork is essentially transformed.
However, as sociologist Olav Vel-
thuis suggests, markets are not
hermetic entities or closed systems,
but ‘cultural constellations’.26
Market exchange is highly ritual-
ized; it involves a wide variety of
symbols that transfer rich mean-
ings between people who ex-
change goods with each other.27
Price, as the means of ar-
ticulating worth, has often been ex-
some private and corporate col- [28] The Middle Market Squeeze, Part II –
lectors effectively tend not to buy ARTNET NEWS, Christian Viveros-Fauné, Oct
below a certain price, on the under- 17, 2016. (https://news.artnet.com/market/the-
middle-market-squeeze-part-2-an-art-gallery-
standing that it ‘validates’ the work.
reality-check-703043.)
As a corollary in this mar-
ket, success is not primarily meas-
ured in sales, but through the prices
commanded by works and support-
ed by the major galleries who go
to great lengths to shore up their
investments. Such high and rising
prices bolster the confidence of
collectors, investors, and lenders,
allowing the work to remain unsold
all while appreciating and being lev-
eraged against other investments. It
has in common with a Ponzi scheme
the confidence with which inves-
tors hold onto work that seems to
be appreciating, based on auction
results, and are emboldened not to
cash in but instead to invest further.
The price range of its sta-
ble of artists is equally a useful
means of establishing a commercial
gallery’s ranking in today’s art econ-
omy. Whereas the scale of an enter-
prise is most often measured by its
24
annual turnover or profits, highly
priced art sets the leading galleries,
their blue-chip artists and the at-
tending collectors with the highest
purchasing power apart from their
mid-tier peers.
It is not difficult to see that
the current escalation of demand
for blue-chip art leaves mid-career
artists in a precarious position.28 Al-
though their work has stood the test
of time and their prices have ap-
preciated, those that haven’t posi-
tioned themselves strategically with
one of the leading galleries have
found that they fall short of the mar-
[29] Pierre Bourdieu, The Field of Cultural ket’s attention concentrated on the
Production: Essays on Art and Literature, Polity
high end of the spectrum. It is paltry
Press, Cambridge, 1993, pp.101-2.
reward for having remained loyal to
their mid-tier gallery when courted by
larger galleries while the going was
good. Understandably, many artists
are frustrated with this market bias
that accords sales and major exhi-
bitions to a few of their contempo-
raries and a great many dead peers.
Yet how to keep art alive and how to
make artists live well have always
been two different questions. Indeed,
the blue-chip artists that have made
the fortune of top gallerists and a
few collectors did not always stand
to profit in the same way or in their
lifetime.
There are of course a num-
ber of examples of mid-tier artists
that have migrated to the top end of
the market: Dan Flavin, Donald Judd,
Sol LeWitt, Carl Andre to name a few.
In the case of ageing artists who have
entered the latter stage of their ca-
reer, the anticipation of finite supply
makes them attractive propositions
for galleries who are developing art-
ists’ estates. Or, they may have been
undervalued and a good prospect for
the thriving secondary market, espe-
cially if they boast a strong inventory.
Indeed, the move from the primary to
the secondary market is today seen
as a positive that underlines an art-
work’s investment potential as a sta-
25
ble asset. After all, if price is deter-
mined by the presence of a second
bid, the secondary market becomes
a better arbiter of value than its more
subjective primary incarnation which
serves to innovate on content and
speculate on price.
A quarter of a century ago,
sociologist Pierre Bourdieu made
the distinction in the world of art be-
tween two groups of the dominant
sector: those with cultural power and
less economic wealth, associated
with the avant-garde, and those with
economic power and less cultural
capital, affiliated with more tradition-
al aesthetics.29 This distinction no
longer applies in the present day. In
fact, top collectors today are close-
ly linked to cutting-edge practices,
albeit of the high-value variety, rath-
er than to traditional work.
Paradoxically, it is as if a
high price makes a work ‘acces-
sible’ to the general public by ren-
dering it more visible within general
discourse. Visibility and popular-
ity have become interchangeable
terms. In many ways, the stigma
once attached to the commerciali-
zation of art’s products is no longer
in force and we have witnessed a
gradual erosion of the boundaries
between culture and commerce. As
a consequence of dwindling public
funding for art, commercially prom-
inent work is becoming the norm
in public and private museums as
well as galleries, bringing quality
and financial value ever closer. An
interesting consequence is that
this has further intensified the cost
of exhibitions, pushing affordabil-
ity even further out of the ballpark
for institutions. In the main, these
costs include insurance, transport,
communication, cultural mediation
and security measures, and while
there has been a general increase
in these costs, it stands to reason
that they are even steeper for more
important work.
Given the relatively small
number of major works and world-
wide collectors, art’s economy
continues to look to diversification.
Some collectors continue to take
pride in discovering and developing
new talent – largely with the help of
professional and commercial advi-
sors. In a business which equates
value with reputation, emerging art-
ists have had no career highlights
yet and are reliant on the hype and
excitement that gallerists, curators
and critics can generate around
their projected rise. As their work
has yet to prove itself critically and
financially, it is affordable. Their
youth, potential and affordability
lead to a certain type of speculation
that can pay off handsomely in a
few cases.
While physical ownership
is increasingly the preserve of an
expanding class of wealthy collec-
the best products. In the last fifteen
years, the art world has had to rein-
force branding at every level. From
artists, galleries, art fairs, museums
and art schools, to individual pro-
fessionals such as curators, muse-
um directors and gallery owners,
all have had to consider the impor-
[30] Steffen Mau, Das Metrische Wir: Uber
die Quantifizierung des Sozialen, Edition
Suhrkamp, 2017
[31] Audience Engagement: Why Ideology
Became Business – February 2018, Art Institu-
tions of the 21st Century for Alaska Editions.
(http://www.artinstitutions.org/reports/)
[32] McGuinness, ibid, p.42.

tors, art’s visual consumption con- tance of branding. [33] https://news.artnet.com/market/marc-

tinues to increase steadily, fueled
by growing audience engagement
and art tourism. This viewership,
coupled with the universal visibility
of contemporary art, has proven its
potential as a vital brand-enhanc-
er. The appeal of gaining access to
art’s consumers caught the eye of
corporate sponsors, whose gener-
ous support of fairs and exhibitions
loosely linked to footfall is inclined
to edge curating and content to-
wards commercial rather than cul-
tural considerations. In his book
The Metric We: On the quantifica-
tion of the Social, macro-sociologist
Steffen Mau makes a compellingly
cautionary case against the dysto-
pia of sociometry in the digital age
in which we as ‘users’ are willingly
or unwittingly completing our data
profiles and becoming the actu-
al product of our ‘service provid-
ers’, as well as the consequences
of business models with feedback
loops that use quantification to re-
shape content.30 Our report, Audi-
ence Engagement: Why Ideology
Became Business, addresses the
dangers of extrapolating this trend
towards blockbuster exhibitions
and an international art monocul-
ture.31
The rise in branding and
marketing across every industry
since the beginning of the millenni-
um has swept through the art world
too, transforming the way we con-
sume and engage with products. In
the 20th Century the model revolved
around quality, which was enough
to ensure success. Today, a strong
brand isn’t necessarily the one with
Indeed, it is those galler- spiegler-art-basel-facebook-interview-1235456
ies and fairs that embraced the
notion of brand creation a while
ago, building on the character of
their space, philosophy or their
charismatic owner, that are at the
helm today. As marketing consult-
ant Keir McGuinness ventures, ‘it
was apparent that certain galleries
were going to be major players in
the…contemporary art scene, both
from the way they worked the me-
dia and through their grasp of the
importance of brand creation. This
influence on the manner in which
contemporary art is now sold, has
produced what might be called the
“retailisation” of art, where fairs
are just one huge superstore.’32
And not that this contradicts Marc
Spiegler’s commitment to the qual-
ity of cultural offering, both at the
fair and through the Art Basel Cities
programme, but branding is invari-
ably an integral part of Art Basel’s
international magnetism, bolstered
by about 1.5 million followers on
26
Instagram, 660’000 on Twitter and
about 415’000 on Facebook, which
is further strengthened by the feed-
back loop of its database.33
While some galleries
continue to struggle along with a
sales-driven model and focus on
individual buyers as visitors, oth-
ers that have understood that foot
traffic reinforces brand value and
are highlighting cultural worth over
commercial value by playing to the
ambience of white cube architec-
ture that already encourages a con-
templative approach akin to that of
museums and conveys a sense that
[34] Thomas Rieger, Director at Konrad Fischer access is a form of privilege. The
Galerie (AI21C Advisory board), email com-
commodity dimension of the work
ments, July 2018
is pointedly counterbalanced by au-
thorial and cultural modalities and
the professionalization of galleries
is further evidenced by their adop-
tion of museum coding for their dis-
plays, captions and press releases
that all convey the subliminal mes-
sage of curatorial quality.
The great appeal of brand-
ing in a world of surfeit cannot be
understated. It helps us to simplify
choices, replacing knowledge with
a faith in the core values of those
brands. To illustrate a typical for-
mula through which collectors seek
to minimize risk: they acquire work
by an artist who is considered a
‘name’ + they transact with a very
reputable gallery + ideally, they buy
the work at a very important art fair.
Thus, when they say ‘I’ve bought a
Damian Hirst Butterfly Painting from
White Cube Gallery at Art Basel’,
their conclusion is that it is triply
endorsed. However, the equation is
not as simple as adding up brands
as a guarantee for quality. There are
no shortcuts. The best way to buy
is still to do your due diligence, as
you would for any other sizeable in-
vestment, or to pay someone really
competent to do it for you - some-
one whom you can trust to act in
your interest and not theirs.
27
Thomas Rieger of Konrad
Fischer Gallery adds:
If critics lament the obscurity
and lack of market transparen-
cy, there’s only one answer from
my side: just do your home-
work! Research. When attend-
ing openings or previews in our
gallery and many, many others I
positively know of, you’ll find a
price list including all net prices
of all works offered. Media en-
quiries will be answered by our
staff, including prices. It’s the
same procedure at fairs. The
information is just an email or a
phone call away.34
Unfortunately for the mar-
ket, in terms of the ‘brand’ output,
artists are not machines and the
creative value-added is not con-
sistent across a range, even if some
of the work is machine made. The
quality of works may vary from one
series to another, as well as with-
in each series. There is most often
some variance in a solo show by an
established artist - perhaps 20% of
the works are exceptional, 60% are
good and the last 20% were rushed
to be included in the show. The mar-
ket would like to make us believe in
equivalence, and perhaps even give
us value per series and size, yet
there are variables within variables
and it’s thankfully as yet impossible
to index creativity. This being said,
collectors should not feel that there
is a supply emergency in art, as the
production of new art by new artists
will continue into the future. All that
is required is a readjustment in the
market’s current narrow value per-
ception.
Against the backdrop of
prices that prove elusive for most
art lovers, certain media narratives
extoll the growth of online sales and
multiples, arguing that the informa-
tion society is making art ever more
affordable, accessible and hence
less elitist. In the luxury sector,
this is known as brand-stretching,
whereby expensive labels are made
more accessible through the devel-
opment of cheaper diffusion lines.
While different, these two strate-
gies share a desire to engage audi-
ences for the purpose of relentless
consumption. It is disingenuous to
maintain that these very afforda-
ble works are directed at serious
collectors, when their aim is to
gain access to a broader consum-
er base for branded items ranging
from the high-end of limited edition
prints and collectibles to the lower begin by selling international works [35] Prendergast, ibid, op.cit.

spectrum of merchandising. Such to big collectors, but eventually

[36] Australian Financial Review, Mar 13 2014
transactions are useful income evolves into promoting local artists at 12:05 AM, Australia beware – global galleries
streams for cash-strapped public on the international scene. Thus, af- will eat your markets, Michael Reid

institutions but they are largely mar- ter a drought for the middle market
keting exercises couched as forms and local artists that further flattens
of access or democratisation. Con- the international art ecosystem, one
versely, merchandising can actual- can expect an adaptation of sorts –
ly enhance box-office success by conditions very reminiscent of Dar-
increasing popular recognition for win’s survival of the fittest!
an artist’s ‘brand’, which in turn im-
pacts on perceived value and price,
and is rewarded by public funding
and private investment.
Prendergast argues that
the key features of the contempo-
rary art market have been exacer-
bated by globalization35, resulting
in an international parity of apex art-
ists and flattening at the base. In the
past, artists could be highly consid-
ered in their immediate market and
yet relatively unknown internation-
ally, whereas today, international
recognition is the new standard,
and an international art language is
essential. There are many examples
of artists in insular yet moneyed
art markets that command steep
prices at home but would not rally
interest at an international auction.
A drawing by Brett Whiteley, one of
Australia’s most celebrated artist,
costs about the same as a drawing
by Damien Hirst or David Hockney,
but can be sold only in Austral-
28
ia, whereas a drawing by Hirst or
Hockney can be sold anywhere in
the world.36
This example serves to il-
lustrate a consequence of globali-
zation in the art world, whereby pe-
ripheral markets experience a shift
from a national to an international
language in art. The cycle is set in
motion when the emerging gener-
ation of globally-minded collectors
collect international artists, result-
ing in a gradual downward adjust-
ment of local artists’ prices and a
colonization of the local market by
international franchise galleries that
29
III.
THE SQUEEZED MIDDLE

30
[37] Clare McAndrew, The Art Market 2018,
Report, Art Basel and UBS, p.16
[38] Magnus Resch, ibid, p.18.
[39] https://news.artnet.com/market/london-
vilma-gold-closes-ibid-downgrades-903719
[40] Magnus Resch, The Global Art Gallery
Report, Phaidon, London, 2016, p.47.
[41] https://news.artnet.com/market/talk-
ing-galleries-2018-takeaways-1207862
31
This report qualifies the mid-tier as
galleries and dealers selling works
on the primary market between
$25,000 and $250,000, typically on
50% commission agreements with
predominantly mid-career artists
and some emerging artists - as dis-
tinct from the top dozen galleries
whose stables have jointly corralled
most of the so-called ‘blue-chip’
artists.
While those aforemen-
tioned ‘top galleries’, among which
Hauser & Wirth, Gagosian or Zwir-
ner, continue to expand in new loca-
tions, 2017 and 2018 saw a spate of
gallery closures. An estimated 75%
of galleries fold within five years of
their inception, a figure supported
by closures in the last year alone,
which for the first time in years
outnumbered openings. According
to the 2018 Art Basel/UBS report,
it was those with a turnover below
$500,000 that saw a decline of 4%,
whereas those with yearly sales of
over $50 million grew around 20%
in 2016, and 10% in 2017.37 Exam-
ples of recent mid-market closures
in the two cities with the highest
density of galleries include: An-
drea Rosen, Feuer/Mesler, Murray
Guy, Lisa Masler in New York; Vil-
ma Gold, MOT, Limoncello, Ibid,
Carroll/Fletcher, Laura Bartlett, and
Rokeby in London.38
As one of the stumbling
blocks to the subsistence of galler-
ies, numerous articles cite the price
of commercial real estate and rising
rents in major world capitals, led by
the seemingly unstoppable process
of gentrification in London and New
York.39 In his 2016 Global Art Gal-
lery Report, Magnus Resch quotes
rent as the highest outlay in running
costs, followed by salaries, art fairs
and transportation. Moreover, lease
renewals prove prohibitive.40
This pinch has inspired
sharing and co-working schemes
such as Cromwell Place, initiated
by Art Dubai founder John Martin
in London and GrandArmyCollec-
tive started by Janine Foeller and
Micky Schubert in Brooklyn. Both
offer temporary, flexible exhibition
spaces and offices for members
or visiting galleries under one roof.
Condo, founded by Vanessa Carlos
in London with partner cities New
York, Shanghai and Mexico City,
functions as platform for participat-
ing galleries in a host city to provide
temporary spaces visiting organiza-
tions. Yet while there is no denying
that rents have gone up massively,
blaming rent alone for putting the
‘squeezed middle’ at risk is not
credible. On paper, mid-tier gal-
leries have the healthiest business
model, with less overheads in terms
of space and staff than the bigger
players, as well as very decent prof-
it margins.
Other critics look outward,
to the aggressive practices and
winner-takes-all stratification of
the market. Art advisor Lisa Schiff
asserts that one of her duties is ‘to
protect her collectors’ from the vo-
racious sales teams deployed by
the big galleries bound by month-
ly quotas rather than the desire to
place works in the right context.41
This is a generalization, as the
modus operandi of leading galler-
ies spans the gamut from Marian
Goodman to Gagosian.
As Thomas Rieger of Kon-
rad Fischer Gallery explains:
Many mid-tier galleries repre-
sented not only emerging and
mid-career artists but sever-
al blue-chips as well. Auction
houses and super-galleries are
generally less interested in the
emerging and mid-career art-
ists, depending on their per-
formance and studio output.
They’re attacking the mid-tiers
directly on the blue-chip battle-
ground by taking over not only
 artists’ estates, complete
collections and knowledge
- buying in curators and/or
museum officials - but also mo-
nopolising media attention with
ad avalanches. And a most re-
cent trend includes sneaking
into catalogue raisonné editing
rectly instead of coming back year
after year. So why wait for that par-
ticular week of the year? Essential-
ly, galleries are increasingly having
trouble ‘closing a deal’. In a gallery
environment, collectors can delib-
erate about the work without com-
mitting to the acquisition because
[42] Thomas Rieger, Director at Konrad Fischer
Galerie (AI21C Advisory board), email com-
ments, July 2018
[43] Fairs And Medium Galleries - Julia Halp-
erin - JUNE 13 2017 (sotto articolo c’è anche
balance sheets for Art Basel Miami). (https://
news.artnet.com/market/art-fair-econom-
ics-small-galleries-gamble-989555)

and publishing.42
Yet neither a highly com-
petitive environment emerging from
the crisis, nor the increase in run-
ning costs adequately explain why
this extremely profitable market
ruler until 2007 is now beleaguered.
With a business model that proved
profitable for decades, the pressure
points are perhaps more spread out
and result from a confluence of re-
cent changes in the art ecosystem.
A major contributor has un-
doubtedly been the marked shift of
the sales platform. Among others,
Rachel Williams, founding director
of the recently closed Vilma Gold,
cites the expanding annual fair cy-
cle as a cause of the galleries’ de-
mise.43 There is mounting evidence
that sales have moved from gallery
spaces to the mobile ‘pitches’ of
the art fairs. While sales prices and
figures are not generally disclosed
in the primary market and data can
be notoriously fickle, the Art Basel
and UBS Global Art Market Report
2018, based on authoritative dealer
feedback, places the figure at 46%,
with a year-on-year upward trend
increase of some 5%, while Ibid’s
founder Magnus Edensvard esti-
mates it at a tall 95%.44
And yet despite the es-
calating cost of participation and
competitive displays, most galleries
are part of the circuit for good rea-
son. An obvious advantage is that
they allow galleries to expand their
network. One could argue that once
ties to local collectors have been
strengthened over two or three
years, galleries could transact di-
there is no urgency. Unlike at fairs [44] Fairs And Medium Galleries - ibid
that run over a few days. Or at auc-
tions which create intense time and
peer pressure, known to cause a
hype in the perception of the work’s
value through an ‘endowment ef-
fect’, which is further compounded
by vying for ownership against oth-
er bidders, termed the ‘opponent
effect’. Both are well documented
phenomena of auction psycholo-
gy. That ‘now or never’ moment is
critical, and gallerists have noted
that during those three or four days,
collectors come with a greater in-
tention to buy than when they drift
through openings, glass in hand.
Though the art fair circuit
may be perceived by some as a
heightened shopping experience,
it also demonstrates the widening
financial and cultural gulf between
the top and middle gallery tiers.
Major galleries increasingly see art
fairs as an international platform
to demonstrate their cultural ambi-
tions in the media spotlight, Inviting
art world figures such as famous
32
artists or renowned art historians
to curate their displays. Moreover,
they may underwrite displays by
their artists in the supposedly in-
dependently curated sections, with
special projects that have become
essential audience engagement
features of the main fairs. These
grand projects often dominate me-
dia coverage and online traffic and
are of a scale that is prohibitive for
all but the wealthiest galleries.
Notably, as a counterpoint
to stories about gallery struggles,
the press has also reported on
fairs experiencing a blowout effect.
[45] https://news.artnet.com/market/jose-
freire-art-fairs-interview-1235624
[46] https://news.artnet.com/market/london-
vilma-gold-closes-ibid-downgrades-903719
[47] see also chapter II in this report.
[48] Sylvio Perlstein Collection at Hauser &
Wirth — an extravaganza of weirdness.-Ariella
Budick, May 2, 2018. (https://www.ft.com/
content/762c512a-4deb-11e8-97e4-13af-
c22d86d4)
33
Though participation figures are
stable, many gallerists and some
habitués in the media and audience
complain of fair fatigue. Even the
work gets tired. Indeed, if you show
a work at your gallery and it doesn’t
sell, it still accrues in value through
its exhibition history. But if you
show a work at a fair and it doesn’t
sell, the value is diminished and
sometimes burnt.45 Some gallerists
are in fact actively extricating them-
selves from fair commitments. José
Freire, co-director of Team Gallery,
New York and Venice Beach, with-
drew from the circuit after seven-
ty-eight participations over seven-
teen years, arguing that the outlay
and losses had outstripped benefits
and that much of the curatorial and
cultural value had diminished.
When it comes to sales,
auction houses have also claimed
a big part of the action alongside
fairs, and their objectives again
diverge from those of the gallery,
even if they both trade in works by
the same artists and share an inter-
est in a healthy market. The gallery
is a forum for artists, collectors and
curators to engage directly and inti-
mately with the exhibition program,
build relationships, support artis-
tic production, stage month-long
exhibitions and place protégés in
strategic institutions and private
collections. The auction house on
the other hand concludes speedy
transactions to the highest bidder in
a matter of days, rather than weeks
and months, and does not concern
itself with the artist as an individual.
This doesn’t just augur a challenge
for galleries, but also for artists and
the spirit of the art world.
This shift has therefore
radically redefined not just the gal-
lery space in recent years,46 but
also the art world. Greater sales
and higher prices47 may always
have been the preserve of the top
dealers, but visibility and especially
artistic reputation were until recent-
ly a staple of the engaged mid-rank
galleries driven by highly committed
individuals. And today even artists
seem to be following the money,
migrating to galleries perceived to
offer the best opportunities for their
careers.
So here is a very important
shift: before 2007, mid-tier galler-
ies had the art world’s full attention
and everybody wanted to buy, cu-
rate and report on shows featuring
emerging and mid-career artists;
entire shows sold out before the
opening; today however, the gal-
lery serves a different purpose al-
together. Those galleries that have
read the tea leaves are profession-
alising their space to reinforce their
brand, showing that they can at-
tract crowds and develop a popular
following and critical approbation
hitherto experienced only by mu-
seums and public galleries. These
audience networks are further ex-
panded by social media. Why else
would Hauser and Wirth NY now be
showing the Sylvio Perlstein Collec-
tion, all while clearly communicat-
ing that there is nothing for sale?48
For some commercial
agents, what is banked here is not
money but a certain cultural status.
To paraphrase sociologist Pierre
Bourdieu, commercial dealers and
gallerists function as ‘cultural bank-
ers’, alongside museum personnel,
art critics and historians, since all
participate in accumulating ‘cultural
capital’ - and today, in devising ‘cul-
tural instruments’ at the intersec-
tion with finance.
Today’s top galleries diver-
sify, increasingly driven by business
models which combine commercial
and cultural activities, spreading
their management broadly across
large international teams. The phe-
nomenal success of Hauser & Wirth
is of course a prime example.
By contrast, some galler-
ies have been shaped and often
named after founders whose per-
sonality and persuasions guided in-
dividual artistic policy and created
dustry which also saw its middle,
represented by the many up-mar-
ket ‘pret-à-porter’ brands that de-
fined individuality in the nineties
[49] https://news.artnet.com/market/jose-
freire-art-fairs-interview-1235624
[50] https://news.artnet.com/exhibitions/con-
do-new-york-future-galleries-1010090

a gallery’s distinctive identity. This (e.g. Agnes B, Jil Sander, Helmut

uniqueness provided an assurance
of expertise and cultural worth, but
it has equally made these galleries
more vulnerable to the challenges
of expansion or succession.
Those mid-tier galleries
that have the means to build their
brands may therefore contribute to
the emergence of a different type
of exhibition and, in time, be privi-
leged by another shift. Dealer Jean-
Claude Freymond-Guth propos-
es that colleagues stop modeling
their businesses after the coterie of
all-powerful major spaces and ‘re-
define their own program and work
within it.’49 Yet it is a misconception
that mid-tier galleries replicated the
model of blue-chip galleries. The
reasonable response from galleries
to preserve a unique selling point
has been to reinstate peer networks
and underscore the curatorial con-
cept and narrative of exhibitions
as more than a mere sale ‘display’.
New York gallerist Simone Subal
argues that new initiatives such as
Condo are ‘really focusing on ex-
hibition-making again…a model of
inter-gallery collaboration…[receiv-
ing]…tremendous enthusiasm and
support from the art public.’50
The collaborative models
borrowed from the public sector fo-
cus on exchange and artistic con-
tent. In marketing speak, collabo-
rative models are the equivalent of
brand affiliations, such as two gal-
leries sharing an exhibition space
in Condo, or in the case of artists,
the reciprocal halo effect of joint
exhibitions such as the Pace show
of Rothko/Sugimoto. The benefits
become a multiple of the individual
factors.
An interesting comparison
may be offered by the fashion in-
Lang, etc.), edged out in media and
market appeal by the fast-moving
sector (e.g. H&M, Top Shop, Zara,
etc.) that mirrors the other end of
the spectrum with knock-offs of
big luxury brands (e.g. Gucci, Stella
McCartney, Dolce & Gabbana, etc.)
and haute couture (e.g. Chanel,
Dior, Valentino, etc.).
In any socioeconomic con-
text, an unhealthy middle market
has repercussions across the whole
ecosystem. In the case of art, it has
created massive struggles for re-
gional museums in particular, which
we unfortunately rarely read about.
And the problem is substantial, as
the mid-market technically engages
the largest part of the audience.
Much of the power around
cultural content in today’s muse-
ums does not sit, as presumed,
with the patrons, but with the purse
strings and vested interests. There
is patently no shortage of funding
for blue-chip artist shows in inter-
national museums, given that the
top end of the market is booming.
However, it’s quite the opposite for
the regional institutions who are
feeling the pinch in every way, be-
34
tween reduced state funding and
cash-strapped mid-tier galleries
that would otherwise support them.
And yes, the regional museums
have a mission to engage with the
remaining 80% of the population.
The cultural divide between the me-
tropolis and the regions has never
been so big, nor the standard of
their offering as unequal - a gap
which forward-thinking art councils
would be best placed to bridge.
Nevertheless, there are
great opportunities. Many artists
whose work is considered important
and enjoys a strong critical reputa-
[51] The slow death of regional museums in
Europe - Sebastien Montabonel Oct 08, 2015.
The ArtNewspaper.
[52] Audience Engagement: Why Ideology
Became Business – February 2018, Art Institu-
tions of the 21st Century for Alaska Editions.
(http://www.artinstitutions.org/reports/)
[53] Thomas Rieger, Director at Konrad Fischer
Galerie (AI21C Advisory board), email com-
ments, July 2018
35
tion are presently undervalued and
can be added to museum collec-
tions by judicious curators. Instead
of attempting to compete for the
highest value items, a public or pri-
vate museum can instead become
a specialist in a specific field where
works are of great cultural import.
We don’t need the best curators of
leading museums to suggest to us
in 2018 that a collection must have
a Picasso, de Kooning, Cy Twombly
or Rothko, as that advice is not fi-
nancially actionable and about half
a century too late in terms of presci-
ence.
The middle market’s price
correction has also made it easier
for collectors to meet and spend
time with the mid-career artists
and enjoy VIP treatment from those
mid-weight galleries – a personal
engagement which remains one of
the secret ingredients of successful
collections. And let’s not forget that
some of those artists are tomor-
row’s blue chips.
Importantly, the utopi-
an hope that private philanthropy
would cover the shortage of pub-
lic funds did not prove viable.51
The solution proposed by some art
councils to turn curators into fund-
raisers did not produce desirable
results, due to changes in the art
world at the turn of the 21st century.
In hindsight, it was a compromising
move for museums to invite galler-
ies to step into the breach with sub-
sidies - a debt which has allowed
galleries to weigh in on curatorial
agendas that promote their stable
and created what is known as an
‘exhibition economy’.
In the last decade, many
leading galleries have funded mu-
seum shows of their artists. This
loss of independence for museums
has raised a host of ethical ques-
tions about cultural content crea-
tion, and though the press has paid
some attention to the subject, the
impact of the gathering storm on
the entire ecosystem has been un-
derplayed. It has undermined the
power of museums and opened the
gates to a model perhaps compara-
ble to populism in politics, shifting
the emphasis from quality content
to quantity consumption of popular
content that is the cautionary note
of our report on Audience Engage-
ment: Why Ideology Became Busi-
ness.52
This being said, commer-
cial galleries are invited to support
the museums, often through the in-
termediary of the artist who liaises
with the curator. Konrad Fischer’s
Thomas Rieger adds that it is im-
portant to closely monitor the ‘how’
of what is known as ‘match-fund-
ing’ by the art councils:
Our gallery supported several
shows for our young artists and
some mid-careers by financing/
co-financing catalogues, paying
for translations, shipping, con-
servation etc. Here, our credo is:
don’t do the first step, but wait
until museums or public galler-
ies ask for help and establish
a solid triangular museum-art-
ist-gallery constellation for solu-
tions. Occasionally, this prac-
tice has led to an acquisition,
but these cases are very rare.
In over ten years’ experience at
Konrad Fischer, I remember just
one, which was of course also
due to the lack in public funding
for museums.53
One should therefore bear in mind,
when viewing the constellation of
the exhibition economy, that all
participants came together through
financial necessity and were mo-
tivated to find solutions that were
mutually beneficial. This, as a di-
rect result of the fact that institu-
tions were raised on the expecta-
tion of support from art councils,
which in turn, were formed on
the back of state funding, both of
which were not business models
for the post-crisis pressures of the
globalised, 21st century art world.
The advantage that this created for
those galleries that could fund, and
those museums that could solicit
funds, has placed the middle mar-
ket and regional museums under
threat, destabilising the entire eco-
system and with no clear solution in
sight.

36
37
IV.
FROM CULTURAL ARTEFACTS TO FINANCIAL
PRODUCTS

38
[54] http://genome.ch.bbc.co.uk/5d-
4b533a508e48698e8cbac76aff729b
[55] Richard Armstrong, Richard Marshall, Lisa
Philips, Whitney Biennial Exhibition Catalogue,
Whitney Museum of American Art, New York,
W.W. Norton, 1989, p.10.
39
Beauty’s glow is said to eviscerate
the shadows that surround it. From
the days of the Medici in Europe to
the robber-barons in America, ar-
gues Anthony Sampson in his clas-
sic documentary series The Midas
Touch, art has been employed to
glorify political and financial power
and cover up reputational stains by
establishing another sort of legacy
for its patrons.54
Throughout the last two
centuries associated with moderni-
ty, culture and business have been
the central pillars of the art ecosys-
tem, providing a forum for muse-
ums to collect and maintain artistic
heritage, for dealers and galleries
to trade in works, to represent the
interests of ever-more emancipat-
ed artists, and a market for collec-
tors. The mid-20th century saw the
appearance of public funders to
support the visual arts in Western
Europe, while in North America indi-
viduals and corporations endowed
their institutions with the means
to ensure the sustainability of art’s
avant-garde. Yet in recent decades,
the evolution of ‘the buyer’ in the
guise of investor and speculator
has marked the shift of some of cul-
ture’s weight onto the pillar of busi-
ness.
It is common knowledge
that in the current ‘exhibition econ-
omy’, top galleries contribute hand-
somely to fund the grand retrospec-
tives which museums could ill afford
since state funding was reduced in
the wake of the 2008 global finan-
cial crisis. Why have galleries sup-
ported this shift? From a sales point
of view, the stock of mid-career art-
ists is easier to come by than that
of artists who by definition are no
longer producing, post-mortem edi-
tions aside. As commercial entities,
galleries answered to the interest of
the market, which in this instance
is defined by the buyer of artworks
over the viewer of art.
During the press launch
of the Art Basel and UBS Global
Art Market Report 2018, Paul Do-
novan, Global Chief Economist at
UBS Wealth Management, suggest-
ed that the market had become top
heavy because rich buyers were
getting richer. Yet fifteen years ago,
those same individuals were spend-
ing their money in the mid-market,
and there is arguably no real differ-
ence in buying power beyond a cer-
tain wealth threshold.
It may therefore not be so
much about more money as about
what to do with it. By the early 21st
century, the popularity of art had
reached a high point and in the first
instance, even the financial crisis
of 2007/8 left the stability of the art
market largely unperturbed, at least
in appearance. However, in the af-
termath, the growing demand for
diversification by investors led to
investment in art as an asset class,
opening up new avenues for the fi-
nancial sector that have revolution-
ized the art ecosystem.
One could argue that art’s
instrumentalisation was the inevita-
ble 21st century outcome of a free
market economy. And although the
trend has been decried for some
time by those concerned with the
welfare of culture, cultural produc-
tion has always operated within a
larger market for commodities and
capital. Almost three decades ago,
the exhibition catalogue for the
Whitney Biennial, one of the world’s
most prestigious displays, stat-
ed that ‘capitalism has overtaken
contemporary art, quantifying and
reducing it to the status of a com-
modity.’55
What we have today is a
further abstraction of the work of
art, in which cultural narratives are
largely replaced by economic ones.
Key theoreticians such as Peter
Bürger, Theodor Adorno and Max
Horkheimer had already presaged
the audience’s loss of confidence
in artistic, critical and emancipatory
values and the rise of the artwork’s
‘sign value’ that would, by exten-
sion, align it with the logic of brand-
ing associated with retail markets.
‘The idea that art could
be bought and sold quickly for
signments referred to as ‘triple D’ -
debts, divorce, death. Loans on art-
works have of course been around
for some time, but they were for
the most part a version of the pawn
shop model, with works held as
collateral and little credit offered at
high interest to the borrower.
[56] Georgina Adam, The Dark Side of the
Boom: The Excesses of the Art Market in the
21st Century, Lund Humphries, London, 2017,
p.152.
[57] Georgina Adam, ibid, p.152.
[58] https://www2.deloitte.com/content/dam/
Deloitte/at/Documents/finance/art-and-fi-
nance-report-2017.pdf

huge gains has taken a firm hold’56,
wrote critic and art market analyst
Georgina Adam in her bestselling
The Dark Side of the Boom in 2017,
largely due to art’s ‘growing profile
as an alternative asset…on the ra-
dar of financiers and investors.’57
And in the same year, the Art & Fi-
nance Report by global account-
ants and financial services network
Only avid collectors could
justify tying up vast sums, often
over a lifetime, on the basis that
their existence was enhanced by
the custodianship of great works
of art. At that level, sales were rare
and laborious, as the most expen-
sive works were not on the dynam-
ic end of the art market. Of course,
these passionate, committed and
[59] Evan Beard, National Art Services Execu-
tive. U.S. Trust, Bank of America Private Wealth
Management. Merrill Lynch, Pierce, Fenner &
Smith, Inc. Phone interview, June 2018
[60] https://www.theguardian.com/busi-
ness/2011/aug/07/global-financial-cri-
sis-key-stages
[61] https://www2.deloitte.com/us/en/pages/
financial-services/articles/art-and-finance-re-
port.html

Deloitte’s noted: discreet collectors still exist, but

Increasing competition in the
wealth management industry
has put emphasis on a more
holistic wealth management
model, which has become a key
driver and motivation for incor-
porating art-related wealth into
the service offering.58
But the trend didn’t stop
at diversifying an investment port-
folio or buying and selling artworks
for profit. The next defining step
was the transformation of art into
a financial instrument. Not a minor
phenomenon either, considering
that in the US, art collections come
in a close fourth as the most com-
mon collateral loan after commer-
cial real estate and merging securi-
ties.59
Until the global financial
crisis peaked in 201060, the princi-
pal way for the owner of an artwork
to generate maximum liquidity was
mostly through a private sale, by
selling it back to the gallery of ori-
gin, or by putting it up for auction.
Auction houses had a very simple
business model, based on collec-
tors’ need to generate liquidity and
also reliant on the driver for con-
the display of wealth and success
through conspicuous consumption
of art is a big sales driver in a time in
which most transactions are highly
publicized. Ironically, the virtue and
intrinsic investment value of the old
way is evidenced when these two
collecting worlds collide at auction.
Few qualities ignite bidding pas-
sions and premiums as much as
the so-called ‘emotional charge’ of
a hitherto unseen masterpiece that
was coveted over a lifetime by a pri-
vate owner.
Wealth managers who held
enough sway over their clients were
generally reluctant to advise in di-
40
versifying into art, as they could
offer no expertise in a market per-
ceived as risky and which tied up
funds61 and reduced their invest-
ment portfolios. Though creative
ways of generating investment li-
quidity for asset-rich, cash-poor cli-
ents notably included such propos-
als as structuring loans on sizeable
collections of silverware, along with
art heirlooms, it often transpired
that previous generations had sold
the most valuable paintings and
sculptures, replacing them with dis-
creetly commissioned copies.
While art financing has ex-
[62] Randall Willette, Founder & Managing Di-
rector of Fine Art Wealth Management Ltd and
former Executive Director and Head of UBS
Art Banking in London from 2000-2003, (AI21C
Advisory Board), email comments, July 2018
[64] Randall Willette, ibid
[65] https://www2.deloitte.com/content/dam/
Deloitte/at/Documents/finance/art-and-fi-
nance-report-2017.pdf
[66] How Easy Is It To Get An Art-Backed
Loan? Kathryn Tully, Oct 2014. Forbes
(https://www.forbes.com/sites/kathryntul-
ly/2014/10/27/how-easy-is-it-to-get-an-art-
backed-loan/#521ff0397f94)
[67] https://www2.deloitte.com/content/dam/
Deloitte/at/Documents/finance/art-and-fi-
nance-report-2017.pdf
41
isted in some form since the 1970s,
it is really only in the last ten years
that new dedicated lending sourc-
es for collectors have become more
widely available through specialist
art lenders. This trend has coincid-
ed with the rapid growth of the glob-
al art market, and as the need for
financial services has grown. That
being said, traditional banks in the
US and Europe have, in fact, been
slow to offer art-related financing
due to art market risk. Historically,
private banks which lend against art
have done so primarily for relation-
ship reasons and have been reluc-
tant to use art lending as a primary
marketing tool. There are a number
of mainstream banks which accept
art as collateral for a loan, though
few do so on a non-recourse basis.
This has been left mostly to special-
ist art lenders.62
As stated by Randall Wil-
lette, Founder & Managing Director
of Fine Art Wealth Management Ltd
and a former Executive Director and
Head of UBS Art Banking in London
from 2000-2003:
Remarkably, the niche for art
lending has barely changed in
twenty years. However, a new
generation of collector is driving
the demand for financial inno-
vation. There are valid reasons
why sophisticated collectors
borrow against their art: a) to
generate liquidity and manage
their short term-cash needs;
b) to free up equity to redeploy
capital and perhaps even pur-
chase more art; c) to provide an
orderly liquidation of their art to
achieve long-term estate plan-
ning goals; d) to bridge loan to
auction or private treaty sales;
and e) to manage tax and capi-
tal gains. The art trade itself has
also provided a significant impe-
tus for the development of art fi-
nancing in an effort to bring sta-
bility and lower levels of risk to
the market. Many of the players
that rode the wave and entered
the ‘boom and bust’ of art funds
at its peak included art galler-
ies, dealers, and auction houses
themselves with very few es-
tablished mainstream financial
institutions entering the art fund
space. Those wealth managers
and family offices which now
offer art advisory services and
provide expertise in matters of
artistic quality are forming stra-
tegic partnerships with experts
and art professionals.64
Wealth managers are in a
unique position to offer sound and
impartial advice on other matters
such as art succession planning,
fiduciary services, governance and
art philanthropy, and the ranks of
wealth managers offering art advi-
sory services grew steadily accord-
ing to Art & Finance Report 2017
survey, from 67% in 2014 to 70%
in 2016, to 83% in 2017, with an
estimated US$ 1.62 trillion of UH-
NWI wealth allocated to this sec-
tor in 2016. In the same period, the
art-secured lending market in the
US grew by an estimated 13.3%,
reaching around US$17-20 billion
in 2016.65 Having resolved the chal-
lenge posed by their clients spend-
ing millions of dollars on art every
year without their oversight, wealth
managers are now able to structure
loans on artworks, offer a host of
related financial services and occa-
sionally even broker works between
their clients.
Ultra-high-net-worth cli-
ents can today structure a bank
loan on blue-chip artwork at attrac-
tively low interest rates of between
2.5-3.5%.66 As specified in 2017
Art & Finance Report, the work that
previously had to be held in a Free-
port as collateral, can now remain
on the wall or be loaned to interna-
THE ART WORLD ECO-SYSTEM BEFORE 2010

CULTURE BUSINESS

- Artists - Companies Selling Art

- Public Museums - Digital Art Companies
- Private Museums - Art Logistics Companies
- Universities - Art & Media Companies
- Corporate Collectors - Fabricators
- Private Collectors - Technological Art Companies
etc. etc.

42
THE ART WORLD ECO-SYSTEM AFTER 2010

CULTURE BUSINESS

- Artists - Companies Selling Art

- Public Museums - Digital Art Companies
- Private Museums - Art Logistics Companies
- Universities - Art & Media Companies
- Corporate Collectors - Fabricators
- Private Collectors - Technological Art Companies
etc. etc.

FINANCE

- Private Bankers
- Wealth Managers
- Familly Office
- Private Investors
- Art Fund Promoters
43 - Art Insurance Companies
- Art Trading Companies
etc.
tional museum shows, which further
enhances its market value.67 The
client may invest in more art or in
a portfolio with significantly high-
er yields suggested by his wealth
manager without withdrawing cash
from an account or selling the art
work. Thus, both the privilege of
living with the piece is retained, and
as the reputation of being a flipper
is avoided – which can entail a loss
of credibility in the art market and
give rise to concerns about gener-
al liquidity. With luck, the value of
the work goes go up, and everyone
wins.
According to Sotheby’s
fourth-quarter results released in
February 2016, their finance divi-
sion had an average of $733 million
of full-recourse loans on its books
in 2015, generating $65 million of
income. This may seem paltry com-
pared with the $6 billion in revenues
generated by auctions, yet the com-
mission on these of $719 million
were 5% less than in 2014, while in-
come from financing rose by 38%.68
The shadow side of these
opportunities is essentially that
‘business is business’. The Financial
Services division of auction houses
have finely tuned selling agendas,
as exemplified by the recent case of
an individual who borrowed about
$35 million, as cash flow for a busi-
ness venture, on a collection worth
around $300 million from an auction
house.69 The latter cherry-picked
prime pieces as collateral and, at
the first opportunity once the first
payment was due, refused to ne-
gotiate a minor extension in antic-
ipation of imminent returns on his
business investment, insisting in-
stead on the sale of a specific asset
to a buyer who had been primed in
the interim and was already waiting
on the sidelines. This, despite the
erstwhile owner’s strong resistance
to the particular buyer on ideologi-
cal grounds and his proposal of an-
other buyer willing to pay the same [68] Art as Collateral in a Fickle Market - Scott
Reyburn, 4 March, 2016. (https://www.nytimes.
price.
com/2016/03/07/arts/international/art-money-
Lending in today’s com- and-collateral-in-a-weak-market.html)
plex art market is not without risks,
[69] Undisclosed source from the wealth man-
as a number of factors must be
agement services
considered. Chief among these are
provenance, authenticity and fiscal [70] John Dizard, The business of lending
details that surround a work of art against art has never been better - John
Dizard, Feb 5, 2016. (https://www.ft.com/con-
or a collection, in addition to their tent/0d4a50f0-cbff-11e5-a8ef-ea66e967dd44)
non-fungible, subjective value and
relatively illiquidity. Banks that do
not have the specialists to engage
with the minutiae have become
more cautious in light of the mon-
ey-laundering and cross-border
complexities that have mired the
field in Europe.
Nonetheless, the opportu-
nity is very attractive for banks who
are focused on concentration risk
and typically interested in how far
their services can follow the money.
An example that extends the con-
cept of borrowing on art to invest in
stocks, the so-called Lombard loan,
facilitates exactly the converse, i.e.
a loan against a portfolio of stocks,
formerly known as a margin loan,
to generate the cash to diversify
into art. This allows for the lender
to charge, based on LIBOR, an ad-
ditional marginal spread. However,
the rhythms of the financial market
and the art market fall out of step
when a sharp drop in stock values
requires for the portfolio to be sold
44
out at an inopportune time for the
artwork – which is not an ideal way
to build a collection and of ques-
tionable benefit to the health of the
art ecosystem, but one sure way to
map art on stock charts.
In addition to the main auc-
tion houses and large institutions
that run art-lending books through
their private banking groups such
as Citi Private Bank (a subsidiary
of multinational banking conglom-
erate Citigroup), JPMorgan and
Bank of America70, a number of
boutique banks have specialised
in art lending. Emigrant, the oldest
[71] Art, Money and Collateral in a weak Market
- Scott Reyburn, March 2016. (https://www.
nytimes.com/2016/03/07/arts/international/art-
money-and-collateral-in-a-weak-market.html)
[72] https://www.athena-art.com (added)
[73] http://artbusinessnews.com/2016/05/bor-
rowing-with-art-as-collateral/ Create additional
income with your art - by Alan E. Katz, Esq
[74] https://en.wikipedia.org/wiki/Securitization
[75] http://www.artfundassociation.com/_ar-
ticles/2013/041013_Co_Investing_In_Art.
pdf: Co-Investing in Art: What Every Art Fund
Manager Needs to Know’ by Enrique Liberman
and Javier Lumbreras6
[76] The business of lending against art has
never been better - John Dizard, Feb 5, 2016.
(https://www.ft.com/content/0d4a50f0-cbff-
11e5-a8ef-ea66e967dd44;)
[77] The business of lending against art has
never been better, ibid
[78] The Great Contemporary Art Bubble - Ben
Lewis, Nov 29, 2009. (https://www.bbc.co.uk/
programmes/b00kmt51)
45
private savings bank in NY, has in-
house experts and owes its vested
interest to founder and serious art
collector Paul Milstein. Their lend-
ing rationale can be summed up as
an interest in building a potential
portfolio by backing anything they
don’t mind owning, with the ex-
ception of antiquities or Islamic art.
Others include Vontobel, Safra and
Berenberg. And in October 2015,
the Carlyle Group started Athena
Art Finance Corporation in collab-
oration with Banque Pictet. Fully
capitalized at $280 million and of-
fering non-recourse loans 71, Athe-
na specializes in ‘providing discreet
and flexible financing solutions for
the global blue-chip art market’, as
stated on their landing page.72
Loans are structured in a
variety of ways: from interest-only
term loans to ones that extend as
long as ten years; partially or fully
amortizing facilities; lines of credit
for short-term cash flow or revolv-
ing-credit facilities to fund recurring
cash needs; non-recourse loans
which rely only on the collateral; or
recourse loans which require a per-
sonal guarantee from the borrower
to cover any shortfall on the value
of the loan.73
Moreover, art is also being
engaged in securitisation, which
pools various types of contractu-
al debt and sells their related cash
flows to third party investors.74 This
allows originators to obtain off-bal-
ance sheet funding, since the trans-
action is not treated as a liability but
as a sale. Using a Special Purpose
Vehicle (SPV) which is a distinct le-
gal entity with limited liability, the
risks inherent in the originator do
not affect the receivables, and the
costs and expenses of acquiring,
managing and disposing of the art-
work are more easily deducted.75
On the other hand, substantial ex-
penses are incurred in the formation
and governance of the legal entity
that a purely contractual co-own-
ership agreement avoids. And no-
tably, the tax structure around an
SPV is important for the originator,
dependent on whether the trans-
fer of assets is treated as a loan or
sale, on the tax on the SPV itself,
as well as the tax imposed on the
investors.76 SPVs are however in-
creasingly scrutinised, according to
a private banker at UBS.
As the art financing sector
gathers momentum and grows in
complexity, with regulators putting
pressure to lift the veils, European
business has been affected and in-
ternational clients are increasingly
looking to the US for loans. John
Dizard, in his Financial Times ar-
ticle, quotes a specialised lender
as saying: ‘We have been hit with
an avalanche of loan applications
from Europe. The borrowers say the
banks that made lending facilities
available in the past are not doing
so any more.’77 Art lending in the
US is particularly attractive in that it
bypasses the taxes and transaction
costs of a sale and the concomi-
tant taxes. For example, adding the
28% federal long-term capital-gains
tax on sales profit to state and local
taxes can result in a total of 40% or
more on the gain, depending on the
seller’s legal residence.78
However, the real conse-
quence and catch to this marriage
of art and finance lies in risk assess-
ment and what this has meant for
the alignment of art’s value with its
price. When it comes to loan mon-
ey, banks are known for being risk-
averse, and art is no exception. One
could argue that mid-tier galleries,
whose plight is discussed in the
previous chapter, are reaping today
what they sowed yesterday, having
engrained in buyers for two decades
the phrase ‘it’s a good investment’
and ‘if you don’t buy today, you
won’t be able to afford it tomorrow’.
The mid-market pushed this propo-
sition, creating huge value increas-
es for many artists until such point
as some prices no longer seemed
explicable by anything other than
a bubble, which of course burst in
2008.77 The investment expecta-
tion then shifted with greater scru-
tiny to artists with tangible credits
such as cultural credentials, works
in public collections, publications
and important exhibitions - creating
demand for older artists with prov-
en track records, leading to a revival
of establishment art, resurrection of
some artists or artist estates and an
upward adjustment of prices.
Given the climate of strong
speculation in the mid-market and
especially around emerging artists
in the noughties, it was evident that
the process would preference the
kind of art perceived as ‘low-risk’
and high-value, with international
appeal and a very strong secondary
market track record. And here is a
defining moment: as bankers began
to track secondary market results,
typically consulting the Artnet da-
tabase, auction results for ‘blue-
chip’ art, a denomination derived
from financial world, seemed very
stable and benefited from track re-
cords going back years, as well as
extensive CVs. There was nothing
to indicate a priori that these mar-
kets were in fact not as liquid as
they seemed, being on occasion
manipulated at auction by collec-
tors who held the greatest number
of single artists such as Basqui-
at or Warhol and were often both
the seller and the buyer. The sheer
belief in their liquidity and low risk
prioritized them as works on which
to structure loans, creating a strong
market demand which effectively
turned non-liquid and slow-moving
high-value artworks into a highly
liquid ‘product’.
The brand value of blue-
chip artworks has become such,
that it eclipses the general nega-
tive perception of the debt that is
borrowed against them, in addition
to which well-managed debt is a
popular financial strategy to min-
imize tax obligations to the state.
Maintaining possession of a high-
ly prized work of art, in preference
to selling it to generate liquidity,
demonstrates trust and business
acumen. The aim for some is there-
fore not primarily to build a collec-
tion of art – as it might have been
in the recent past - but to develop a
portfolio of assets against which to
leverage.
In the process, the lan-
guage around art has been remod-
eled. Wealth managers, family of-
fice and lawyers push their clients
to have more financial track records
on the artworks they considered
buying. Works are singled out, as
raising loans against high-quali-
ty artworks individually avoids the
costly inventory and appraisals re-
quired for an entire collection - an
act which both fetishizes individual
works and weakens the narrative
around the concept of a collection,
particularly if the client defaults on
the loan and is obliged to sell the
work acting as guarantee. Lifted
from the body of a collection, the
work may even be sold below price,
devaluing it and negatively affecting
the commercial reputation of the
46
artist.
So, who derives the great-
est benefits of the advantages pre-
sented by art’s move towards in-
strumentalisation? Current media
narratives highlight the growth in
wealth concentrated in the hands
of individuals from the Far East, the
Middle East, Russia and China and
variously celebrate or decry their
activities. According to Deloitte’s
most recent report ‘the world’s ul-
tra-high-net-worth individual (UH-
NWI) population grew by 3.5% in
2016, recovering from a sharp drop
in 2015…and…the total number of
[79] https://www2.deloitte.com/content/dam/
Deloitte/at/Documents/finance/art-and-fi-
nance-report-2017.pdf
[80] Accelerationist aesthetics: Necessary
Inefficiency in Times of Real Subsumption -
Steven Shaviro, June 2013. (http://www.e-flux.
com/journal/46/60070/accelerationist-aes-
thetics-necessary-inefficiency-in-times-of-re-
al-subsumption/)
[81] Gilles Lipovetsky, Hypermodern Times,
Polity Press, Cambridge, 2005, op.cit.
47
ultra-wealthy individuals is predict-
ed to rise 43% by 2026.’ It further
documents the rising demand for
luxury investments…stating that
37% of wealth managers surveyed
said that their clients already had a
number of luxury investments, such
as art, wine, and classic cars. A to-
tal of 47% of these managers said
that these types of investments
had become more popular in recent
years.79
As these new models be-
gin to bed in, there are of course
repercussions throughout art’s eco-
system. The previous chapter dis-
cussed the pressure exacted on the
business model of mid-tier galleries
who are not dealing in blue-chip
art, as well as some of the limelight
stolen from mid-career artists. Con-
versely, it has enlivened the evening
sale of auction houses, given the
press a range of narratives to de-
velop, from sensational sale prices
to critical coverage, and created a
host of advisory art services. But
most significantly, it has had a bear-
ing on museums, the very institu-
tions that have for so long validated
art’s cultural value as impartial arbi-
ters.
The initial and apparent
benefits are evident, as a greater
number of visitors increase visibili-
ty, which translates into more cor-
porate sponsorship and a strong-
er brand. The same applies to the
press, as articles go big on brands
like Picasso that have the power to
spike readership. In the new Millen-
nium, visitor figures to art muse-
ums, galleries, art fairs and events
have grown exponentially. The en-
gagement with contemporary art in
particular has expanded from a nar-
row sector of cognoscenti and spe-
cialists to a broad public. Audience
engagement in the 21st Century is
thus marked by a populist approach
and a shift from traditional appreci-
ation and education to a leisure ac-
tivity. Culture, in other words, is now
truly an ‘industry’ that circulates
brands and relies on a universal up-
take:
For capitalism now seeks to ex-
propriate surplus value, not just
from labor narrowly considered,
but from leisure as well; not just
from private property […] and
not just from palpable things,
but also from feelings and
moods and subjective states.
Everything must be marketed
and made subject to competi-
tion. Everything must be identi-
fied as a ‘brand’.80
Art’s alignment with leisure
is no accident; leisure is no longer a
free time to be enjoyed by the pub-
lic. Rather, leisure is increasingly
filled with highly competitive oppor-
tunities to consume goods, services
and emotions. These developments
have led to what philosopher Gilles
Lipovetsky terms ‘Aesthetic Capi-
talism’ in which the category of ‘art’,
controlled by multinational compa-
nies, subjects every facet of life to
aesthetic scrutiny.81 As the space of
aesthetics turns into a marketplace,
the viewer becomes a consumer.
Public space, broadly speaking, is
then dominated by the competition
between ‘brands’ that parcel out
time and space into units that may
be consumed, and gradually eras-
ing any aspect of personal agency.
This transition in the present signals
a profound tempo-spatial altera-
tion.
As art evolves towards en-
tertainment and investment – and
the two outcomes are clearly linked
– a couple of handfuls of major
galleries stand not only to benefit
greatly, but also to set the cultural
agenda and programme throughout
the most powerful outlets in art’s
ecosystem. It is a state of affairs
that raises urgent questions as to
the social responsibilities of public Investment Officer at UBS Wealth [82] Keir McGuinness, ibid, p.49.

art institutions, their independence,
and the evolving narratives pro-
posed by their collections. Muse-
ums continue to play an important
part in the process of corroboration,
yet they are no longer the principal
arbiter of quality or cultural impor-
tance, a role increasingly shared
with major commercial players and
in particular the big galleries, to the
Management, yet ‘it will not deliver
some of the staples…crucial to a
long-term investment proposition:
dividends, coupons and risk premia,
and the opportunity to diversify, re-
balance, and liquidate.’84 So, while
art leaves ‘a legacy that goes be-
yond money’, Haefele opines that
there are more reliable ways of
building capital. It is also not clearly
[83] Randall Willette, former Executive Director
and Head of Art Banking for UBS Wealth
Management London, (AI21C Advisory Board),
email comments, July 2018
[84] Mark Haefele, Statement by UBS, The
Art Market 2017, Art Basel and UBS Report,
https://d33ipftjqrd91.cloudfront.net/asset/cms/
Art_Basel_and_UBS_The_Art_Market_2017.pdf
[85] https://news.artnet.com/opinion/kenny-
schachter-on-frieze-london-2017-1110518

detriment of autonomous curato- or absolutely ‘fungible’, in the way

rial agenda. Exhibition practices
track the market activities of auc-
tion houses and private galleries
to a either to unseen extent, which
is bound to have an impact on in-
stitutional diversity. To quote Keir
McGuiness:
The decision of whether a [pub-
lic] gallery will take a show or
not depends on whether you
will make a financial contribu-
tion and the person who makes
the largest contribution gets the
show, which in my opinion is
when the ‘flattening’ of quality
can creep in.82
Ethics aside, art invest-
ment is equally accompanied by
a cautionary note on the financial
practicalities and essence of gen-
uine investment. Both from a col-
lector’s point of view and investor’s
standpoint, the art market remains
characterised by numerous inef-
ficiencies. These include lack of
price standardisation and transpar-
ency, inefficient market information
and intelligence, inelastic supply,
and lack of high period transaction
volume. Until financial risks can be
assessed rigorously and communi-
cated in financial terms, significant
capital investment will avoid the
sector of new art-related business-
es.83
‘Art has the potential for
substantial value appreciation’, ar-
gues Mark Haefele, the Global Chief
that the individual units of other
commodities are interchangeable,
but based instead on the scarcity of
unique objects which often appreci-
ate the most if you never cash them
in.
Renowned dealer Ernst
Beyeler, founder of the eponymous
Swiss foundation, famously said ‘I
want to thank those that bought art
from me over the years, but more-
over I’d like to thank those that
didn’t, who made me rich.’85 His
point was that while you can make
some money selling art, you only
become wealthy by hanging on to
it, incidentally not unlike Warren
Buffet’s famous stock advice that
‘the best time to buy is whenever
you have money, and the best time
to sell is never.’
Significantly, both the
banker and art dealer essentially
agree that the best way to make
48
money from art is to hold on to it,
and there will always be collectors
whose primary aim is to bring to-
gether series of important works
of art. Yet the vast majority of col-
lectors, even if they don’t leverage,
despite protestation to the contrary,
tend to ‘deaccession’ – a term that
describes the disposal or sale of
work to prune a collection and raise
funds for new purchases – adding
to the currents that make of art a
market in constant flux.
In defence of the financial
community, Randall Willette con-
cludes:
[86] Randall Willette, Founder & Managing Di-
rector of Fine Art Wealth Management Ltd and
former Executive Director and Head of UBS
Art Banking in London from 2000-2003, (AI21C
Advisory Board), email comments, July 2018
I do not share the view that to
focus on the monetary value of
art is inconsistent with the val-
ues of the art community. The
two are not mutually exclusive.
In fact, many in the art market
have benefited from the lack of
systematic information about
the value of art and have thrived
on the lack of transparency. In
my opinion there is presently
no reliable source of sustained,
comprehensive information on
which market leaders, art collec-
tors and new investors can rely
for assistance. To date this has
been achieved mostly through
strong networks of personal
relationships. One might even
say the financial community has
brought greater transparency to
the art market where previously
there was very little.86

The financial sector can

therefore not be blamed for apply-
ing its methods and measures to
the opportunity presented by a new
asset class, nor can it be held re-
sponsible for failing to resolve the
valuation problems inherent to art,
or such side-effects as the exhibi-
tion economy.

49
CONCLUSION

50
[87] https://fee.org/articles/the-arts-in-a-free- Before the emergence of the mid-
market-economy/
dle class, art was not bought to be
sold, but one could argue that since
the Renaissance, it has been stead-
ily moving away from government
patronage to establish its inde-
pendence as a commodity with its
own market. And until recently - as
recognized by Adam Ferguson and
Adam Smith - wealthy economies
in a democracy and the increased
division of labour in a market econ-
omy had for effect to generally
encourage and support artistic di-
versity.87 The arts developed a va-
riety of subgenres over time and the
greater the size of the market, the
greater the number of artistic forms
that prospered.
But here’s the paradox:
these socioeconomic conditions
have had the opposite effect on to-
day’s art market which faces a pro-
jected risk of international monocul-
ture.
Globalisation has led to an
international ‘art language’ in which
branding is the leading tool to es-
tablish prominence for an artist, gal-
lery or museum. Technology had a
hand in globalising trends through
digital platforms and social media.
But overall, the impact of technolo-
gy on art over the last fifteen years
has been minor compared to other
industries and the big changes are
51
yet to come. The biggest transitions
were in fact caused by two major
shifts: firstly, the intensive branding,
of artists, galleries and institutions;
secondly, the addition of a financial
dimension to the business model of
art.
The context of the finan-
cial crisis and its aftermath radically
changed the art world’s landscape.
Due to reduced public funding, art
councils were forced to change
their model and rely more on phi-
lanthropy, encouraging curators
to become fundraisers in the pro-
cess. This created an opportunity
for some corporate sponsors and
leading commercial galleries fund-
ing museum exhibitions to influence
curatorial programme, pressuring
the mandate of institutions to create
impartial cultural content. More of-
ten than not, the close relationship
has proven productive and support-
ive, but raises questions particular-
ly if and when galleries strategically
place their artists in the context of
prestigious public displays, and, at
worst, employ museums as show-
rooms for their inventory in which
business is transacted.
The hardest hit were com-
mercial galleries and regional mu-
seums that had weak branding,
creating a greater divide in culture
between the region and the metrop-
olis which should be prioritised as a
concern in the art ecosystem.
Mid-tier galleries repre-
senting emerging and mid-career
artists that were formerly the main-
stay of the market lost traction
against a handful of super-galleries
and the auction houses in the drive
towards branding and finance which
created a revival for blue chip art.
The dozen galleries that emerged
as leaders have business models
defined by blue chip stables, mu-
seum-quality exhibitions, presence
in major cities, strong branding that
branched out into publishing, hos-
pitality and destination art tourism.
A marked sales shift from
the primary markets in favour of
mostly blue-chip secondary mar-
ket granted auction houses a sub-
stantial advantage in their core
business, transforming them from a
dealer platform into an internation-
al stage for collectors. The balance
of ‘closing sales’ has migrated from
galleries to an ever-increasing num-
ber of international art fairs that are
today’s superstores of sorts. Fairs
have become almost mandatory, as
in those few days, stock, dispos-
able income, intention to buy and
the public display of conspicuous
consumption that fires up the art
scene all come together to generate
a rush of revenue.
An impassioned curator
from Geneva described her recent
impressions of the art events:
A crisis in exhibition concep-
tion, mired by identity politics
and the pressure to be all things
to all people, which results in
work being carried by the mes-
sage rather than the other way
around. Art has become a form
of cryptocurrency with which
you buy into a club when you
buy big and visibly, and where
artists and collectors alike are
described as being ‘on fire’. In
all of this, the artist is effaced.
In this environment, new
financial tools revolutionised the
hitherto traditional way of generat-
ing liquidity on art: whereas before
you needed to sell a work to realise
the cash, you could now structure
a loan against it, all while keeping it
in the drawing room. In response to
a new generation of art collector/in-
vestor driving demand for financial
innovation around art assets, a pro-
liferation of advisory services began
to be offered in-house by private
banking, wealth managers and fam-
ily offices, creating new rules and
objectives. This led among other
things to a narrowing focus on blue-
chip works perceived as high-value
and low-risk.
The intensified demand
for these works rapidly raised their
price profiles to sensational heights.
Although the essential problem of
art’s illiquidity was bypassed by
moving from selling investments to
hedging assets, the consequences
for transactions and perceptions
around art have been substantial.
With a surfeit of money available, the
art market was already on the agen-
da at the Davos World Economic [88] Davos 2015: Nourile Roubini says art
market needs regulation – retrieved 22 June
Forum in 2015 when the American
2018 (https://www.ft.com/content/992d-
economist Nouriel Roubini argued cf86-a250-11e4-aba2-00144feab7de)
that the art sector was an opaque
[89] Arnold Gehlen Zeit-Bilder. Zur Soziologie
market with no clear financial val-
und Aesthetik der modernen Malerei, (Frank-
ue, prone to ‘fads, passions, mani- furt: Athenaeum, 1960).
as, booms and busts’ with serious
‘distortions’, vulnerable to money [90] Rob Scholte, quoted in Olav Velthuis, ibid,
p.160.
laundering, tax evasion, trading on
inside information and price manip-
ulation. ‘While art looks as if it is all
about beauty, as a business it is full
of shady stuff.’88
More than ever, art is now
in ‘need of explanation’ not just in
Arnold Gehlen’s term ‘Kommen-
tarbeduerftigkeit’89 which derives
from the fact of modern art’s ‘diffi-
culty’ that gave rise to a vast body
of theory to make itself understood
to the greater public, but to navi-
gate the current financial narrative.
In a world beset with un-
certainty and subjectivity, numbers
in the form of prices and visitor fig-
ures are signifying acts that allocate
certain meanings and may seem
to offer clarity and stability. As art-
ist Rob Scholte stated: ‘the only
real thing about an artwork is the
price.’90 There is, argues Velthuis,
a sociology of numbers, since they
are not only a mechanical way of
counting, but vested with a certain
power. Equally, financial institutions
have brought certain benefits of fi-
52
nancial engineering to the art mar-
ket that have the potential to set
standards for the future in conjunc-
tion with reliable data.
Thus, in a relatively short
space of time, the art world evolved
from a relatively basic way of doing
business to a powerful and sophis-
ticated arena with some dark cor-
ners. For many participants, busi-
ness has never seemed so good. As
quoted by Investec:
Sales of contemporary work
are holding steady and pric-
es are rising visitor figures - a
[91] https://www.investec.com/en_za/wel- key corollary of art’s popularity
come-to-investec/news-and-views/insights/
– are up year-on-year. Accord-
investing/art-as-an-investment.html
ing to Artprice.com, art auction
[92] Marian Goodman, Art’s Quiet Matriarch, turnover in 2017 increased by
Hopes the Market Cools - Randy Kennedy, Dec
5.3%, the US overtook China as
2016. (https://www.nytimes.com/2016/12/16/
arts/design/marian-goodman-arts-quiet-matri- the world’s largest market, and
arch-hopes-the-market-cools.html.) Deloitte’s Art & Finance Report
2017 noted that six of the seven
[93] Danto, Arthur Coleman (1998). After the
end of art: contemporary art and the pale of
major art indices reported posi-
history. Princeton University Press. p. 47. ISBN tive returns, with contemporary
0-691-00299-1. As quoted by Professor David art delivering a compound annu-
W. Cloweny on his website.
al growth rate of 4.09%.91
So, why is it essential for
the art world to be critical at this
particular juncture? The answer lies
in the perception of what consti-
tutes success and which can lead
to corrupting the very ethics that
underpin it sustainably. The conver-
gence of all these factors and forc-
es have resulted in a hyperactive
market with a short attention span
requiring constant entertainment,
revolving around a narrow range of
artists favoured as internationally
recognisable brands that command
seemingly limitless prices in the
secondary market, as well attend-
ance of blockbuster exhibitions by
vast audiences further expanded
by a rising tide of art tourism. One
is reminded of Walter Benjamin’s
insights on the transformation of
art in the age of mechanical repro-
duction, as he argued that the fun-
53
damentally social act of distraction
would become an alternative to the
asocial act of contemplation. In the
latter, the audience is absorbed by
the work, whereas the former in-
volves the audience absorbing the
work of art.
Shifting the priorities from
quality, variety and innovation of
cultural content through considered
curation, to the mass consumption
of international consensus products
has significantly compromised the
mechanisms that supported emerg-
ing and mid-career artists, region-
al institutions and local markets.
These lapses in distribution are
compounded by a lack of visibility
and transparency.
Marian Goodman, one of
the most respected and influential
gallerists in the art world for over
four decades, remarked at the close
of 2016 to the New York Times: ‘I
think money speaks more than it
ever has before. The auctions have
been good for business, but I’m
not sure it’s been so good for the
art world.’92 The same article notes
that ‘in the last month alone, eight-
een older works by Mr. Richter, one
of the most admired living paint-
ers, changed hands at auction in
New York for well over $100 million.
Mr. Richter has called such prices
“hopelessly excessive”’.
The American art critic and
philosopher Arthur Danto famous-
ly referred to ‘the end of art’ in our
modern era which, in his own ver-
sion of Hegel’s dialectical history of
art, had lived out its cycles. In his
view, art began with:
An era of imitation, followed
by an era of ideology, followed
by our post-historical era in
which, with qualification, any-
thing goes…In our narrative, at
first only mimesis was art, then
several things were art but each
tried to extinguish its competi-
tors, and then, finally, it became
apparent that there were no
stylistic or philosophical con-
straints. There is no special way
works of art have to be. And that
is the present and, I should say,
the final moment of the master
narrative. It is the end of the sto-
ry.93
As we transition from pub-
lic art institutions to more private
and corporate models of govern-
ance and funding, the art market
continues to evolve. In order to sal-
vage what is equitable and valuable
– both financially and culturally – we
must reestablish a healthy art eco-
system. In recent times, the market
in Modern and Contemporary Art
has been used as a bellwether to
indicate trends and even to assess
the wholesale health of art’s eco-
system. While commercial dealers
may continue to rely on important
cultural institutions to validate the
artworks they sell, and museums
might seek to maintain fruitful rela-
tionships with commercial agents,
institutions should be encouraged
to balance financial requirements
with their responsibilities to the
public realm, assisted by philan-
thropists, collectors, art profes-
sionals and artists who answer to
the challenges at hand in order to
establish new systems of art gov-
ernance. At this liminal juncture, if
financial institutions, corporations,
museums and art institutions were
to jointly articulate a vision for the
sustainable future of the art world,
and work toward open communica-
tion and creative collaboration, the
benefits would be worth develop-
ing, governing and perpetuating.

54
55
THE FOUNDATION

56
 Art Institutions of the 21st Century seeks to support
and promote the importance of institutions specialising
in the making, displaying, collecting and dissemination
of contemporary art and culture, both locally and
internationally. By the term ‘institutions’, we refer to
cultural agents which are both instigators of change
and recipients of transformation. In particular, we focus
on those organisations trusted with the preservation
and enhancement of culture at large, such as public
and private museums, public and private galleries,
archives, not-for-profit project spaces, artists’ studios
and estates, art education organisations, biennials, art
fairs and festivals.
Our mission is to promote dialogue and
knowledge exchange between the public and private
art sectors, by organising projects, publications, events
and educational activities, and supporting initiatives
that are beneficial to the progress of art institutions.
These undertakings aim to benefit art professionals
in the development of their skills, whilst improving the
access of the general public to important institutions.
The foundation develops extensive areas of research
to nurture the production of knowledge, leading to
enhanced understanding and collaboration between
the diverse areas of the art field.

57
TRUSTEES & ADVISORY BOARD

58
 TRUSTEES

SÉBASTIEN MONTABONEL, Chair of the Board of Trustees. TANYA

TIKHNENKO, Trustee. SHEZAD DAWOOD, Trustee.

DIANA VIVES, Director

ADVISORY BOARD

AVELINE DE BRUIN, Director of the Quetzal Foundation and responsible

for the organization of the collection de Bruin-Heijn. MARIANNE BURKI,
Head of Visual Arts at Pro Helvetia, Switzerland. ALFREDO CRAMEROTTI,
Director of MOSTYN Visual Arts Centre, Wales – and Head Curator of
APT Global, Artist Pension Trust. DORIS KRYSTOF, Curator at K20K21
Kunstsammlung Nordrhein-Westfalen, Germany. PIP LAURENSON,
Head of Collection Care Research at Tate. MICHAEL LININGTON, Head
of Major Giving at the Victoria and Albert Museum, UK. LI ZHENHUA,
Curator, China. GOSHKA MACUGA, Artist, UK. ELIZABETH NEILSON,
Director at Zabludowicz Collection, UK. TAMIKO O’BRIEN, Principal of
City & Guilds of London Art School, UK. NICOLAS DE OLIVEIRA, Curator,
Writer, and Academic. NICOLA OXLEY, Curator and Writer, UK. THOMAS
W. RIEGER, Director of Konrad Fischer, Germany. JILL STERRETT,
Director of Collections at the San Francisco Museum of Modern Art, USA.
RANDALL WILLETTE, Founder and Managing Director of Fine Art Wealth
Management, UK. DR NAYIA YIAKOUMAKI, Curator at the Whitechapel
Gallery and co-director at the Athens Biennale, UK.

59
© 2018 by Art Institutions of the 21st Century
for Alaska Editions

ISBN: 978-1-64255-562-2

First edition

Series Editor: Sébastien Montabonel

Written by: Diana Vives, Sébastien Montab-
onel
Author: Sébastien Montabonel
Editorial Team: Diana Vives, Tanya Tikhnen-
ko, Nicolas de Oliveira
Senior Researcher: Nicolas de Oliveira
Junior Researcher: Tommaso Marin
Publisher: Sébastien Montabonel
Design: Alaska Editions

Special Thanks: We are grateful to our advi-

sory board for their expert advice and guid-
ance in this report.

Special gratitude goes to Shana Mabari for

her support in this project.

Art Institutions of the 21st Century for Alaska

Editions, 22 Hoffman Square, Chart Street,
London N1 6DH. Registered Charity Number:
1173044

All rights reserved. This book may not be

reproduced, in whole or in part, including
illustrations in any forms or by any means,
electronic, mechanical, photocopying, re-
cording or otherwise, without prior written
permission from the publishers.