The return of the auction guarantee suggests we're in a boom market (for now)

NEW YORK/LONDON. The return of the auction guarantee has prompted The Art Newspaper to report on the history of this feature of the auction sale (first introduced by Sotheby's in 1971), its complexities, the possible legal ramifications and the mixed feelings of the market towards it (is it insurance for the seller or a form of market manipulation?). An empirical look at guarantees over the past forty years revealed that their resurgence coincided each time with an upturn in the market (e.g., in the 80s and then again after 9/11 with Sotheby’s issuing $902m-worth of guarantees in 2007, double the 2006 amount and up from $131m in 2005, according to Noah Horowitz’s book "Art of the Deal"). And so their return (together with irrevocable bids) at the London impressionist, modern and contemporary art evening sales last month to the level of £34.2m must mean that we are, once again, in a boom market.

But as with so many comebacks, what was once familiar re-emerges in a modified form. In this case, "rather than playing with their own money," auction houses are increasingly selling off the risk to third parties, who, according to Emmanuel Di Donna (of gallery Blain Di Donna and formerly of Sotheby's), are either collectors who want to own the work or "to play a little bit on the market." A shift away from the auction-backed guarantee towards the third-party guarantee would be a good thing for it would reduce the risk of auction houses breaching the fiduciary duties (in particular, the duty of loyalty) they owe their clients (i.e., those consigning art for sale at auction). The risk of breach lies in an auction house favoring (e.g., in terms of promoting) the guaranteed work over the non-guaranteed work as a result of its financial stake in the first but not the second sale. Were this to happen, it would likely adversely affect the sale of the unguaranteed work and constitute a breach of the duty of loyalty owed to that consignor.

Essential are disclosure of the fact that a work is guaranteed (already market practise) and auction houses not favoring guaranteed works at the expense of those that are not (clearly, third-party guarantees are preferable to auction house ones); otherwise, guarantees provide flexibility, increased liquidity and insurance for the seller. But what about disclosure of the actual value of a guarantee? Failure to disclose the exact value does, to some extent, make the reserve price and high estimate somewhat artificial. Plus, the highest bidder at auction could be left empty-handed if his bid is less than the amount guaranteed. At the very least, such bidders should be given an opportunity following the auction to increase their winning bids to a price exceeding the value of the guarantee so that the work does ultimately go to the highest "bidder" (question- does this occur?). The counterargument of course is that the person bidding at auction could have made a guarantee himself if he had really wanted the work. One final remark: the article makes a reference to the fact that much of the disclosure materials are "buried" at the back of auction catalogues but this is not something I am sympathetic to. Just like an investor should read not only the "description of notes" but also the indenture, so too a prospective buyer of an artwork should read the entire catalogue for the relevant lot. The art market is, contrary to popular opinion, a sophisticated, complex and highly competitive market and it is up to the buyer to do his homework before he decides to place a bid (in case this helps, here are the lot symbols for Sotheby's). The burden cannot be placed entirely on the intermediary.

UPDATE: An article by Art Market Monitor says Sotheby's has a "self-imposed" ban on giving guarantees themselves.

"The lines between gallery and museum, corporate and curated, keep getting blurrier and blurrier"

The author Sarah Thornton once described the art world as "a loose network of overlapping subcultures held together by a belief in art." While an astute observation, those overlaps are becoming more frequent and more profound with the divide between the public (institutional) and the private (commercial) becoming ever-more blurred. A corollary of this mish-mash of roles in the art world are the glaring conflicts of interest that arise, a running theme too of this blog (e.g., see here). The latest conflict to catch my eye is the Whitney Museum's announcement that one of the two curators for its 2012 Biennial comes from the ranks of the commercial rather than the institutional or academic sphere: Jay Sanders, "a veteran art dealer who was previously director of New York's Greene Naftali Gallery." On the one hand, the co-curator of the show is clearly conflicted because he has a vested interest in promoting those artists represented by the gallery where he formerly worked, especially given the financial and reputational gains that flow from an artist being included in such a prestigious (albeit controversial) show. On the other, Jay Sanders is, according to ARTINFO, "a highly-regarded art dealer whose sophisticated approach to showing art has been evidenced in such gallery shows as one last year spotlighting the late experimental filmmaker and "flicker" pioneer Paul Sharit." I think in cases like this one a conflict of interest should not trump talent -- careers and talent would otherwise be excessively constrained and wasted -- but Sanders should have left the gallery before last month. Carol Vogel had reported that he left the Naftali Gallery in 2005 but Tyler Green reports that Sanders actually left the art market only last month...

In the art world, everyone is in bed with each other anyway

This week the Guggenheim Museum Bilbao defended an upcoming exhibition of artworks belonging to a museum trustee, Greek businessman Dimitris Daskalopoulos. The director of the Guggenheim Foundation, Richard Armstrong, said the show will be presented "with huge integrity" but there's no way around the fact that the museum has a "huge" conflict of interest in deciding whether to showcase a trustee's work. The art world is a breeding ground for conflicts of interest: art dealers are invariably art collectors, at times competing with their own clients over an artwork (case in point, Larry Gagosian); a former gallery owner goes on to become the new head of a major institution on the West coast (Jeffrey Deitch named new director of MOCA); an art critic is simultaneously the managing director of two commercial art fairs (art critic for the Village Voice Christian Viveros-Fauné, also managing director of "Volta" and "Next" fairs)... The truth is that the art world is small, very knowledge-intensive and poorly paid - can you blame an art critic for supplementing his earnings as a journalist with earnings derived from other art-related activities? And what of the art dealer or museum trustee who is also an art lover and major collector? As the saying goes, in the art world "everyone is in bed with each other."

The question is how to deal with the conflicts of interest rather than trying to avoid each and every one of them all together (sorry but you just can't, granted some conflicts do have to be prevented e.g. art fund managers valuing the art securitized for investment purposes). At the very least, there should be full disclosure of the conflict but depending on the conflict, affirmative checks are likely to be warranted. For example, when Deitch became the new director of MOCA it was on the condition that he divest his collection and though many were appalled by the appointment, I found it brave and possibly genius especially since the institution was in dire need of successful management having been mismanaged for years and nearly going under. In the case of the Guggenheim show, there has been complete transparency and the choice of curator makes it stand in stark contrast to the "Skin Fruit" show at the New Museum (it's hard to think of a more conflicted person to curate "Skin Fruit" than Jeff Koons, whose every period was represented in the collection and who was also a personal friend of Joannou). Another safeguard is the agreement between Daskalopoulos, the Guggenheim and the Whitechapel Gallery restricting the collector from selling any of the works from the exhibitions for a period of three years following their display. The agreement is better than nothing but I don't think it prevents Daskalopouls from realizing the financial gains to be made as a result of the works being exhibited at two major institutions. In three years time the gains may not be as great as if the benefactor had sold a piece during the running of the show but the market price will almost certainly be inflated and Daskalopoulos free to reap the benefits should he want to. Three years seems like an arbitrary number and not nearly long enough but if someone were to propose five it would seem equally arbitrary. No number of years can change the fact that the works will have an institutional "imprimatur" almost certain to increase their market price and you can't (legally) alienate the property indefinitely. There's just simply no complete way around these issues but personally, I'm satisfied the Guggenheim has adequately dealt with the conflict and I don't think it's a strong enough reason to oppose the exhibition.