We had an interesting running
conversation at the gallery yesterday. With the world's economy a
wreck why is the art market still thriving? At their big sales
earlier this month the three major auction houses, Christie’s,
Sotheby’s, and Phillips de Pury, sold a combined $633 million worth
of art. Evidently that top 1% of the population with all the wealth
has some cash to spare.
One thing we came up with was the
popularity of a shadowy practice called 'third party guarantee' in
which the auction house sells the work before the sale begins. This
guarantee becomes the what eBay calls the reserve price, the price
below which an item will not sell. There was a time auction houses
guaranteed a minimum price themselves but after losing $200 million
during their fall 2008 sales they increasingly looked to third
parties for their guarantee. The first third party guarantee is
thought to have occurred in 1999 when Sotheby’s found an investor
who pledged $40 million for Pablo Picasso’s “Seated Woman in a
Garden.” Guarantors also can make millions in financing fees so in
effect they get the works at discounted prices.
With some looking I came up with a few
names of dealers who provide guarantees. The list includes Acquavella
Galleries owner Bill Acquavella, former Goldman Sachs partner Bob
Mnuchin, and billionaire art dealers David Nahmad and Adam Lindemann.
More ominous guarantors to those who would rather major works stay in
public view are the
Taiwanese Yageo Corporation and
the Qatari royal family.
Very little is publicly known about
these agreements other than the symbols Sotheby’s and Christie’s
publish in their catalogues to distinguish between the lots
guaranteed by themselves and those backed by third parties. The
identity of the guarantors and the level of the amount of the
guarantee remain a secret. Less well connected bidders have none of
this information so start their bidding at a total disadvantage.
Because of this many dealers think the guarantees simply distort the
market and keep prices artificially and dangerously high. Also there is no clear way to tell what any given work is actually worth.
With all the money involved I think the
market would be much fairer and open if the auction houses just
reported the real prices, disclosed the reserve prices, and named the
third party guarantors as well. A level playing field would be better for
everybody involved.
Maybe I'll just sit back and wait for
the bubble to burst.
