Friday, July 08, 2005

Right of First Refusals

In an article somewhat sensationally titled "Are Contemporary Dealers too Powerful?," Art Newspaper examines the controversial "trend" for art dealers to sell work only on the condition that collectors give the dealer first dibs at buying it back should the collector decide to resale the art.

Peter R. Stern, an art lawyer at the New York firm McLaughlin & Stern, LLP, says that a dealer’s exclusive right to repurchase “is largely intended for galleries to obtain a percentage of any resale proceeds”. Often, a gallery may give the artist a share of the proceeds, he says, adding that, “In my experience, the clauses are most often used by dealers in representing highly sought-after artists where demand exceeds supply”.
Some may object that the buy-back provision distorts the market for works by any particular artist.

With a right of first refusal, buyers “can’t get the best price for the work on resale because they only have one place to sell it—back to the dealer”, says John R. Cahill, an art lawyer with the firm Friedman Kaplan Seiler & Adelman LLP, New York.

The issue is actually much more mundane than the article's title or any of the lawyers' quoted concerns would suggest. In a nutshell, dealers want two things out of right of first refusal agreements: 1) to ensure their artists' prices rise at a pace that doesn't harm their careers and 2) to ensure their artists receive a percentage of the appreciation price in any resale.

What the first concern boils down to is illustrated by the example of speculators hearing that an artist's reputation is rising and buying up some of their work with the hopes of turning it around quickly and making a profit at auction. Why this is potentially a bad thing for the artist is that "buzz" doesn't always translate in the secondary market, and artists have seen their work rushed to auction where it does very poorly, thereby undoing the price advances all the speculation had artifically spurred and significantly hurting their careers.

The second concern boils down to plain fairness. Unlike writers or actors (etc.) who can receive residuals for their work for the rest of their lives, visual artists currently get screwed royally after their work sells the first time. Only those who are reselling it see any profit from the advances in that artist's career. Dealers, as the artists' primary advocates, are seeking ways to ensure that resold work, particularly at seriously appreciated prices, profits the creator of said work as well. Right of first refusal contracts enable dealers to cut the artists in.

One dealer notorious for not selling work without the right of first refusal clauses in the terms of the sale is Chelsea's Andrea Rosen (who, until Gagosian snagged him, represented John Currin [see image above]). Andrea indicated recently that she's finding an absolutist approach to including such clauses may not be the best thing for all artists, but she stands firmly behind the concept in general:

I have used these clauses on every invoice since I opened the gallery in 1990”, says Andrea Rosen, of Andrea Rosen Gallery in New York, adding that the provision applies to any artist she represents. In the 1980s, an unspoken taboo existed against collectors reselling contemporary art, Ms Rosen says, and even now, dealers may refuse to deal with a collector who has resold a work by an artist the dealer represents. Instead, Mr Rosen says, the right of first refusal spells out her expectations that “if a collector wants to resell a work, they’ll bring it back to the gallery. I never anticipate that this would be disadvantageous to them”, she adds.
California already has a law that protects artists (the California civil code 986 [Resale Royalty Act Code]), which states: "Whenever a work of fine art is sold and the seller resides in California or the sale takes place in California, the seller or the seller's agent shall pay to the artist of such work of fine art or to such artist's agent 5 percent of the amount of such sale." Until such time as other states have similar laws (including most importantly New York), dealers will need right of first refusal clauses and other tools to ensure their artists get what they deserve.

I think we'll be hearing much more of this in years to come.


Anonymous crionna said...

I dunno Edward. I honestly think you've got a tough row to hoe there comparing fine artists to singers and actors. To my knowledge, singers and actors a) aren't the only ones who "own" the work, because of the massive cost in creating that work and b) never "sell" their work in the first place. They sell a "right to display for commercial purposes", whether that's at a movie theater or on the radio.

Should Ferrari be getting a cut for the huge increases in the value of it's older cars, or should it continue to be happy making hundreds of thousands of dollars for it's current models, the popularity of which is partially based on the legacy of the past?

7/10/2005 02:01:00 PM  
Blogger Edward_ said...

You make a strong agrument, but I still see it more in line with singers and actors, crionna. Take Christo, for example. His art is similar to a movie. There are massive costs in creating the work. He doesn't "sell" the actual work in the first place, and the drawings he does sell are parallel to DVDs or copies of a film....just don't examine that analogy too closely.

More than that, though, an artist continues to work his/her life to increase the value of the work a collector buys by increasing the value of the overall body of work. I see each work of art an artists makes as an integral part of the entire body of work.

Take two painters. Both sell a 4' x 5' painting right out of grad school to a collector for $3500. One decides he likes being in a band better and stops painting. The other sticks with it, constantly improving his work, building a reputation, doing all the right/smart things fine artists to to advance their careers. The second painter is investing himself and in doing so increasing the value of that $3500 painting. The first artist does nothing to increase the value of what he had sold.

In a sense, the second artist is earning money for the collector (at least in term of what the painting is worth).

It seems fair to me that an artist get something in return for that work.

The Ferrari, which is made, I assume, in an assembly line, each one varying only superficially from the next, is not the same sort of thing, IMO.

I realize this is not the strongest argument I've ever made...let me ponder it a while.

7/10/2005 04:54:00 PM  
Anonymous Anonymous said...

I am a nascent stage emerging artist and I have discovered that there are some predatory dealers who run their whole business based on the exploitation of the newly emerging. One scenario is offering a first show to the desperate to have a show in chelsea artist. The work is offered with appopriately low prices and and an amount is returned to the artist which is a little less than expected for each piece sold with explanations like-- "I had to bargain" and there is no invoice shown and no collector's name revealed. When said artist gets an official Chelsea opening one or two years later the works miraculously show up for sale just shy of what the new gallery is asking. call it the .5 market.

My point is that there are many dealers like yourself interested in the long haul and protecting the artist. But there are maybe just as many who are not.

7/11/2005 09:57:00 AM  
Blogger Edward_ said...


I have heard similar tales and I wish I had some good advice on how to avoid such dealers. Your best bet is to find and talk with other artists who have worked with anyone offering you an exhibition. If no one can vouch for them (or their business practices), you can use a few tools to protect yourself.

We give each artist we work with a consignment form that outlines the conditions of any sale, including how long the artist should expect to wait to be paid (we pay generally within 14 days), how much of a discount the gallery is authorized to offer without contacting the artist for approval first (we have 10% leeway, anything more than that we must get the artist's approval...this actually works for both the artist and the gallery, as most collectors don't want the artist to know they insisted on more than that). Finally, with each payment, we give the artist details of who bought it, what the discount (if any) was, and how the total is being split.

It's difficult I know when you're beginning a relationship with a gallery to be pushy about such things, which again is why I suggest talking with other artists who've worked with said gallery if you can. You have every right to talk about such matters though, and any dealer who's offended by your request for such protection is probably not going to be someone you want to work with anyway. Hope that helps.

7/11/2005 10:06:00 AM  
Blogger Edward_ said...

I should note that 14 days payment is extremely fast in the art world. If your dealer says anything from 30 to 90 days, you shouldn't take that as a sign that he/she's not reputable.

7/11/2005 10:09:00 AM  
Anonymous Anonymous said...

thanks so much for the valuable info.

7/11/2005 10:49:00 AM  
Blogger Edward_ said...

my pleasure. good luck!

7/11/2005 10:53:00 AM  
Anonymous crionna said...

The Ferrari, which is made, I assume, in an assembly line, each one varying only superficially from the next, is not the same sort of thing, IMO.

True, but like, say, lithographs or photographs, they are of limited numbers (and Ferraris aren't alone, even something as pedestrian as an old Chevelle has value in this manner).

Also, even actors don't get an increasing share of past movies based on their current value do they? They're pretty much stuck with what they negotiated way back when.

And, musicians who sell their work to others lose control of that work. If I recall, doesn't Michael Jackson own a lot of the Beatles licenses? He's free to do with them what he wishes.

I dunno Edward, this sounds like artists desiring to eat their cake (as young artists) and then have it too (as older more popular ones) to me.

7/11/2005 11:20:00 AM  
Blogger Edward_ said...

Here's an example of what spurs artists to want some sort of legal protection though, Crionna.

A famous artist whose prices are skyrocketting, saw a painting sell out of his gallery about 18 months ago for $90,000 (don't feel to bad for him, one thinks, he's rolling in it). The collector, however, who bought that painting took it to auction a year later and got $600,000 for it.

There's no scenario like that in the other arts that I know of, where an artist can see himself cut out of more than a 700% increase in such a short period.

7/11/2005 11:26:00 AM  
Anonymous crionna said...

So, why didn't the artist just hold on to the painting until it could fetch a higher price?

Also, it would be interesting to know what Julia Roberts was paid for Pretty Woman and then what she was paid for her next movie. I'd guess the difference might be just as striking and yet she would have been laughed at had she then gone back to the makers of Pretty Woman and demanded higher residuals right?

You know, this is a lot like start-ups that go public at $15 only to see their stock rise to $250. The company doesn't see a dime of that increase. Even Google, that went out at $80 sees nothing from the increase of its price to $300+.

7/11/2005 12:46:00 PM  
Blogger Edward_ said...

you make a compelling case, crionna. I'll have to do more research into the artist's arguments. I'm supporting this mostly because it's so important to them.

Still, the Calif. law provides a meager 5% to artists. That seems fair to me.

7/11/2005 12:52:00 PM  

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