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.

LINKS

 
• NEW YORK. Titian may have been the star at the Sotheby's Old Masters sale but he wasn't alone: 16 auction records were set at the sale, which "totaled $90.6 million, just shy of its $91.8 million high estimate." Three key reasons accounting for the Titian beating the previous record for the artist ($13.6m versus the new record of $16.9m) are the exceedingly few Titians remaining in private hands, the  clear provenance of the painting ("A Sacra Conversazione" has only exchanged hands 6 times) and the fact that it's a "multi-figured" painting (generally, price increases with the number of figures depicted). 
  

  

  A Sacra Conversazione, Tiziano Vecelli (circa 1560)

• Donn Zaretsky points us in the direction of a fascinating article in the FT.com about the "prolific and amazingly persistent" forger Mark Landis. Unbelievably, his motivations were not financial - Landis donated the forged works as a tribute to his parents. Equally surprising is that no criminal liability arises from his actions, however "annoying and disruptive," as no loss was suffered by any of the victims (loss is a required element under the criminal fraud statute).

LINKS

• WASHINGTON DC. More on how the changes to the US estate tax are likely to have an adverse effect on bequests. There's no denying that the fiscal advantages to donors are a significant factor motivating gifts to institutions so the combined effect of a lower rate (35%) and a higher exemption ($5m per person) will almost inevitably put off some donors. However, if the regime is amended in two years time, it could mean that those donors' bequests are merely delayed rather than forfeited.
• NEW YORK. Donald Judd former fabricator, Ballantine, is planning two conferences in New York and Berlin this year to discuss the "misconceptions connected to the artist's fabrication and conservation techniques" and his "extreme version of delegated fabrication." The discussions could raise some interesting questions on the relationship between fixing damaged art, authenticity and value ("there are unusually authentic ways outside the way of fixing most art that doesn’t diminish the value in Judd”). 

La Lecture, Pablo Picasso (1932)

• LONDON. Last time Marie-Thérèse Walter made an appearance at auction, she sold for $106.5 million, setting a world record auction price for a work of art. Now she's set to return to auction for the first time since last May but this time in London not New York and at Sotheby's rather than Christie's. The estimate for La Lecture is £12-18m which seems somewhat conservative in light of her past performance (the estimate then for Nude, Green Leaves and Bust had been $80m though one of the main reasons it sold so well was specific to that particular painting - the work had not been in the market since 1951 and during that time, it was only publicly exhibited once in 1961). Aside from depicting the same protagonist, the two works are both dated 1932 and are characterized by equally intense, vibrant colors (albeit in distinct palettes). However, the upcoming painting is much smaller than its predecessor, size clearly being an important factor affecting an artwork's value. We'll see in a couple of weeks just how fond the market is of Marie. 

Another auction record price expected, albeit tainted by claims of illicit provenance

2010 was the year of record auction prices: for painting and any artwork generally (the Picasso sold at Christie's for $106.5m); for sculpture (the Giacometti sold at Sotheby's for $104.3m); for rare books (the Audubon classic "Birds of America" sold at Sotheby's for $11.5m) and for Chinese art (the Qianlong vase sold at Bainbridges for $85.9m). The market has undoubtedly shown remarkable depth in buying power emanating largely from Russia, China and the Middle East (it is widely believed that the mysterious buyer of the record-breaking Picasso could only have been either Russian or Middle Eastern) and it is no wonder that this has been accompanied by the rise of art funds, art securitization and even the launch of an art "stock exchange" in Paris.

The Art Newspaper is now anticipating what could be the first record auction price for the new year: £3.5-4.5m for a Benin ivory mask, which would make it the highest price ever paid for an African artwork. The top-end of the market for Chinese art has been dominated by Chinese buyers making patriotic purchases so it will be interesting to see if a similar trend arises in the case of the iconic mask when it is auctioned at Sotheby's in London on February 17. That the mask is believed by many to have been looted by the British "in the infamous punitive expedition of 1897 when the British invaded Benin, looted thousands of artefacts, burnt Benin City and sent Oba Ovonramwen, the King, into exile" makes it much more likely that the buyer will indeed be African. But what of the allegation that Sotheby's is actively participating in trafficking illicit antiquities? When it comes to antiquities, the statistics are staggering -- it's been held that the provenance of approx. 80-90% of antiquities on the market would raise legal issues (S.M. Mackenzie), the resolution of those issues often being impossible given the origins and age of the antiquities. While it would not make sense to freeze virtually all sales of antiquities, sales of those that are suspected to have been illegally exported from their country of origin should not take place unless and until those suspicions are put to rest. Otherwise, the auction houses and dealers involved will be feeding the market demand fuelling looters all over the world (the causal link between market demand and supply for looted antiquities has been conclusively proven in my opinion).

First the former electrician, now the chauffeur. Just how generous was Picasso?

FRANCE. When I read about the French government's seizure of 271 Picassos worth an estimated $79 million from the artist's former electrician pending investigation of their provenance, I initially decided not to cover the story because the likelihood of 271 never-before-seen authentic Picassos making their way into the market seemed so small. Undoubtedly, the story would make a fascinating civil and/or criminal case -- Le Guennec was Picasso's electrician for just 3 years and there are allegedly no written records meaning the decision will ultimately rest on an assessment of the artist's practises. However, the fact that only one of the 271 works was signed and dated, combined with the peculiarity of it all, suggested to me that only a very mild interest by the art market was warranted at this stage.

Then a second related story came to light -- the unexpected withdrawal from auction of several Picassos given by the artist to his former chauffeur and bequeathed to his wife, Jacqueline Bresnu, cousin of Le Guennec -- and I knew then that I had to cover both! The heirs, which include Le Guennec and his wife, decided to postpone the sale unexpectedly without giving any explanation. ARTINFO reports: "Drouot auctioneer Pierre Blanchet told Libération that "there is no problem with provenance or authentication" and that "the sale will probably take place in another three months." However, it is not known whether Claude Picasso, the only heir recognized by the Picasso Administration to have the authority to sign certificates of authenticity [meaning he holds the droit morales for the artist] authenticated the Bresnu collection. Maya Widmaier-Picasso, the artist's daughter, participated in writing the catalogue for the Bresnu sale, copies of which are now."

The market loves a good story and it doesn't get much better than this so expect higher prices than would otherwise be the case if and when any of these works make it to auction.

UPDATE: Record-breaking sale of Quianlong fish vase was the "product of a perfect storm of new money, national pride, and unique historical cachet"

LONDON. This blog previously reported the staggering $85.9m sale of a Qianlong-era fish vase at Bainbridges auction house in London. Now Art Info has an interesting article on the "7 reasons why a gaudy fish vase broke a world record for Chinese Art." The last paragraph considers the alternative of "market juicing" as the reason behind the high price tag: "perhaps (goes the theory) there was collusion by interested parties in China -- auction houses or others -- who aimed to boost the market in advance of the auction season which is just about to begin in China... "If it was really a patriotic act, what's the point in boosting the price? Fifty times higher than the estimate smells more like they were cooking the price than fighting for a piece of artwork they like.""

LINKS: Monitoring tastes

• NEW YORK. Art sales go virtual as big names back launch of exclusive site Art.sy. The site will monitor collectors' needs and tastes with the help of its "art genome technology" based on the technology of "custom music-curating site Pandora."
• NEW YORK. Collectors continue to embrace lighthearted art as Lichtenstein, Warhol, Koons and Calder top Christie's post-war/ contemporary evening sale... while bidders at Sotheby's were "buzzed with Coca Cola and ice cream"... and Phillips de Pury's stellar $137 million debut was largely thanks to a 1962 Warhol.
• According to The Art Newspaper, this means we are experiencing times of "economic optimism."
• LONDON. Meanwhile, the other main trend, traditional Chinese art, is hotter than ever as a Qianlong fish vase fetched $85 million, "a world record for any work of Chinese art at auction." The trend is largely in response to a growing contingent of Chinese buyers (there are now 128 billionaires in China) who are making nationalistic purchases of art and antiquities. The buyer of the Qianlong fish vase was no exception.

LINKS: The autumn auctions are upon us

NEW YORK. The November auctions have started and buyers have expressed how they are finding the art market "particularly competitive, even for works that are not considered top flight." Keep up-to-date with this week's auctions results by clicking on the links below:

• Christie's and Sotheby's auction sales in the middle of their estimates.
• Christie's "84-lot Impressionist and Modern evening sale netted $231.4 million... constituting the forward march of an unmistakable art-market recovery..."
• "$68.9 million Modigliani Gets the Auction Season Off to a Healthy Start" (and set a record for the artist at auction). Together with a 1942 Matisse, the two works had been presold (irrevocable bids arranged by the auction house) prior to the Sotheby's Impressionist and Modern evening sale.

Eastward bound via Paris and Marrakech

To the East we go! As I've mentioned before, Paris and above all the East (Beijing, Hong Kong, Russia) are the new hotspots in the art world. Not only are the traditional art centers in the West feeling the pressure to compete with their younger Eastern counterparts, a taste for the East has also been palpable in recent auctions with a growing contingent of buyers demanding Chinese art. Below are a few recent links on the emergence and growth of thriving new markets.

• PARIS. France's "premiere" art fair: FIAC. The five best booths according to ARTINFO.
• MARRAKECH. "Morocco is developing economically and will be very important in the Middle East." It only makes sense then that it should get its first art fair in Marrakech.
• DUBAI. Mahmoud Said's 1929 painting sold for $2.5 million at Christie's Dubai, setting a world record for Middle Eastern Art. The modern and contemporary auction netted $14 million, far exceeding the estimate of $6.7 million.
• BEIJING. Poly auctions opens fall season with strong sales of diverse Chinese antiquities.
• SHANGHAI. "Dizzying array of art" at the Shanghai Biennale.

Bacon cricketer painting to go on sale Nov. 9 in New York

The 1985 painting "Figure in Movement" gifted by Bacon to his friend and doctor, Dr. Paul Brass, goes on sale November 9 at Sotheby's in New York. This is the first time the painting enters the market and it's estimated to sell for $7 to $10 million. The painting is quite special in a number of ways: it depicts a subject matter, cricket, which "fascinated" Bacon and the body and face of the cricketer are inspired by two of the painter's closest companions, also patients of Dr. Brass. The market always likes a good story so I wouldn't be surprised if the painting reaches or even surpasses the high estimate. Read all about the painting's unique story here.

Market News

Below are a few links regarding the art market. The second link covers the Lehman Brothers auction in NYC which I had previously decided not to cover in light of the extensive media coverage it received. However, I have included the link below solely because it may say something about which artists the market is currently craving (Chinese art still oh so hot) or, rather more poignantly, which ones it is not (the "atypical 1993 Damien Hirst cabinet" didn't attract a single bid... but nonetheless sold four days later).

• NEW YORK. "Traditional symbols of stability- New England Chippendale furniture, early weathervanes and primitive portraits- struggled to sell at Christie's and Sotheby's Americana sales."
• NEW YORK. Chinese paintings "sold strong," Hirst "drew no bids" and "value deal" on Richard Prince joke painting at Lehman Brothers auction. "It was the sale of unusual suspects," said Gabriela Palmieri, senior specialist in the contemporary art department.  
• LONDON. "Medici "loot" for sale?" The perennial problem of provenance and looting in the antiquities market. 
• HONG KONG. "$52m Sotheby's Sale of Traditional Chinese Paintings Hits Market's Sweet Pot." Traditional Chinese art has undoubtedly cemented its place as this season's darling. Contrast with the results of Sotheby's modern Chinese art sale.
• HONG KONG. The sale of an Imperial vase for $32.4m topped the auctions of Chinese art in HK this week proving that "Chinese collectors will pay almost anything for what they like."

BBC interviews Chairman of Christie's International on the art market and the commercialisation of art

Last night, BBC HARDtalk's Sara Montague spoke with Edward Dolman, former CEO and current Chairman of Christie's International, on the state of the art market, the appeal of art as an alternative investment to stocks or bonds and the growing commercialisation of art. At present, a full version of the interview does not appear to be available online but an extract can be found here. Based on my own notes of the interview, this is what Dolman had to say:

On art as an investment: investors are looking for "tangible assets, especially in a period of inflation" but investors must realize that "the value [of an artwork] can go up and down." Acquiring art for investment purposes is "hardly a new phenomenon" though the principal drivers for an acquisition should be whether the buyer "engages" with and is "inspired" by the artwork.

On the top-end of the art market: a very discrete group of people composed of around "100 to 150" investors/collectors with "the East [referring to Russia, the Middle East and China in particular] playing a much bigger role."

On the recession: the top-end of the art market has recovered but other areas are seeing a "slow recovery."Some pre-recession trends have continued: post-war contemporary and Chinese art are "still hot" and at "the very high end." Dolman went on to discuss the "serious competition" faced by Christie's from the new auction houses in Beijing. However, he said the fact that "most great Chinese works are outside China" gives Western auction houses a competitive advantage over their Chinese counterparts.

On the record-breaking Picasso auctioned last May: people at Christie's were "not surprised" it sold for $106.5m given Picasso is widely considered to be "the greatest artist of the twentieth century" and the place the 1932 painting holds within the artist's oeuvre. Picasso, Dolman said, is "as close to a blue chip investment as you can make in the art market today."

On Christie's as a taste-maker: the auction house is not responsible for "creating tastes" but rather "responds to what clients are wanting to collect" and to demand for certain "categories of styles."

On the tastes that drive the art market today: modernism, "objects that remind them [buyers] of their own time." For example, Warhol "has a huge appeal because he mirrors the society a lot of collectors lived in." Dolman also noted the emergence and development of a "global taste" with Hirst and Koons collectors in Asia becoming some of the most imporant for these artists.

On Christie's' new CEO as a symbol of the commercialisation of art (see here for background): Christie's "is a business after all," a global one with shareholders "who expect returns." The auction house will benefit from the "fresh eyes of an outsider" and the former CEO (who had been at Christie's for 15 years prior to his appointment as CEO in 1999) said the fact that Murphy had no prior experience in the art world was of no importance because people at Christie's "already have a lot of the knowledge."

On any misgivings about the commercialisation of the art world: None. "Society's recognition of the art world is fundamental." The fact that it's "seen as having such great importance explains the value assigned to art."

On Jerry Saltz's view that money corrupts the creative process: such a critique represents "a denial of everything that's happened in the last one hundred years;" patrons are "historically behind great art" and "money and art [have been] linked for generations and generations" (Dolman makes a reference to the Medici). It is "unwise to disconnect money from the livelihood of the artist and his ability to create" and art's "[monetary] value has allowed it to be preserved."

Explaining the recent record-breaking prices paid at auction

Here's an article from The New York Times art section also related to investing in art, this time about attempting to reconcile the record-breaking prices recently paid at auction ($106.5m at Christie's for Picasso's "Nude, Green Leaves and Bust" and $104.3m at Sotheby's for a Giacometti sculpture) with the current economic climate.