Wednesday, November 14, 2007

The Dangers of the Secondary Market for Living Artists

Ahhh... the ease of art blogging...How often do I get to start two very different columns with the same quote?

Art bubbles are great.

Art bubbles suck money into the art world.

Who gets hurt in an art bubble? Greedy artists; stupid collectors.

Who else? Nobody with their wits about them gets hurt in an art bubble.

---Dave Hickey, "Schoolyard art: playing fair without the referee," a keynote speech delivered at the Frieze art fair this year (as edited on The Art Newspaper).

This was the first thought that popped into my head when I read Sean Capone's question on yesterday's thread on contracts:

Can anyone explain to me why the gallerist should get first pick to buy back an artist's work before it goes to the secondary market?
I'd like to address the essence of that question, but to do so think it behooves us to re-frame it ever so slightly to read "Can anyone explain to me why someone who has the artist's best interests at heart should get first pick to buy back an artist's work before it goes to the secondary market?" (Instances where it's questionable whether a gallerist truly does have the artist's best interest at heart are another matter altogether in my mind so I'll leave that for another thread.)

In other words, what does a gallerist try to do by having input into how their artists' works enter the secondary market (in addition to making money, that is)? Three main things:
  1. This doesn't apply to all gallerists, but more and more of us are sharing the profits of resales that we handle with our artists as standard practice.
  2. Any good dealer will be trying to ensure their artist's prices remain healthy (i.e., don't skyrocket prematurely or go on public record as having tanked).
  3. Do damage control if the work performs poorly on the secondary market.
1. I attended a panel discussion a while back with three high-powered Chelsea dealers who were sharing their experiences with a group of us younger galleries. One of the established dealers surprised me by announcing she shares a percentage of every resale that goes through her space with her artists. There are many reasons that makes good business sense to me, none the least of which it helps you retain said artists, but also because by giving the artist an interest in how sold work appreciates, the gallery, the collector, and the artist will all be invested in seeing that work appreciate. Consider the case of Richard Prince, who famously renounced his earlier artwork. He might not have done so as quickly were there additional profits for him to be made from their resale (which is an argument for resale rights in general, I realize, but also for resale through a gallery that does this now).

2. The biggest dangers to an artist's prices in the secondary market undoubtedly lie in the auction system. A good gallerist will keep work out of the auction system (by reselling it privately) if it's not the right time to test those waters. If a work's price at auction jumps too quickly, it can skew that artist's market in several significant ways. First, it can turn off good collectors who recognize when works are overpriced, leaving only what Hickey calls the "stupid collectors" buying up the work. Getting one's work into the important collections is critical, and this can wreak havoc on those efforts. Secondly, it will wreak havoc on the artist's primary market. A primary gallery can be working for months to place the work with a museum or important collection, just to see prices jump out of their range and spoil a deal because someone flipped a piece at auction. Third, this can lead to a collective awareness that the work is overpriced, and that can stall an artist's career momentum. Finally, and perhaps the biggest reason galleries don't like to see work rushed to auction is the piece can tank. I've see work at auction that didn't perform well essentially end otherwise promising careers. There is a significant ripple effect to work doing poorly at auction.

3. If an artist's work doesn't have a strong secondary market yet, the gallery is the best place to keep that secret. It may not mean a strong secondary market isn't going to come in time, but a public announcement of a failure, at auction or through the secondary market grape vines, is much harder to control. Potential collectors might lose interest. Current collectors might lose faith. By bringing the work to the primary gallery, the collector ensures that the person reselling the work is going to keep it under their hat if what the market will bear is somewhat less than public perception. Perhaps hanging onto the piece just another two years or so, when said artist's first major museum show is being planned to take place (something the dealer has worked behind the scenes to secure but isn't at liberty to issue a press release on just yet) will make all the difference.

Of course, the above are less of a concern (except for the latent dangers at auction) if it's widely understood that there's a strong secondary market for the work. But that understanding isn't chiseled anywhere in stone. Dealers who tried to have collectors sign contracts ensuring they'd bring work back to the gallery first are shying away from that practice in general for many reasons, none the least of which may be that those contracts are unenforceable. So the fears that galleries are potentially harming an artist by requiring first pick are someone overblown. In my honest opinion, artists should want their gallery to have first pick, even if the work is ready to go to auction, so that someone on their side is involved in the planning and potentially bad fallout of such sales.



Blogger Donna Dodson said...

I had some more questions after reading your post today, Ed, and that is, do large scale public commission do anything to the market value of other bodies of work if the aesthetic is similar to the artist's signature body of work and unique aesthetic vision? Cany ou speak to quantity versus quality of gallery shows and sales, collectors and museum shows? Is there room for the Do It Yourself artist in today's primary and secondary art markets?

11/14/2007 09:58:00 AM  
Blogger Edward_ said...

I think that's a whole other thread Donna. Let me do some thinking/research on that and post on it another day.

11/14/2007 10:02:00 AM  
Blogger Chris Rywalt said...

This has me thinking about things that go into a career in art aside from creating good work. It seems you're discussing market considerations -- "work at auction that didn't perform well essentially end[ed] otherwise promising careers" -- as separate from the quality of the actual work of art. I think maybe Dave Hickey is assuming that we're talking about good work -- that no good artist is harmed by a bubble, because their work is valuable whether or not the market is behaving reasonably.

How does quality enter into these calculations? Or are we just assuming that any gallerist backing an artist does so because they consider the work to be good?

11/14/2007 11:09:00 AM  
Blogger Donna Dodson said...

Thanks Ed- I agree with everything you wrote, some of which I am familiar with, and I have one more questions, and I hope this question is on topic, what is your opinion of the Artist Pension Trust,

11/14/2007 11:15:00 AM  
Blogger Edward_ said...

Quality is an assumed component of why the artist has a good and/or potentially great career. Good art alone doesn't guarantee a great commercial career, however, and so it's important to avoid mistakes that can impact one.

Artist Pension Trust

I think it's a great idea. Whether it pays off for all artists involved remains to be seen, obviously, but I like it in theory and appreciate the efforts of those involved.

11/14/2007 11:45:00 AM  
Blogger Chris Rywalt said...

I guess what I'm wondering is, does higher quality make the market minefield easier to negotiate?

11/14/2007 11:59:00 AM  
Anonymous Anonymous said...

I also was taken aback by "work at auction that didn't perform well essentially end[ed] otherwise promising careers". Could one bad showing (or failure to sell) at auction really end an artist's career? What does that say about the potential collectors who were interested in the work, but now, since it didn't do well at Christie's last night, isn't going to buy it after all? Aren't those collectors mainly speculators, similar to investors rejecting a risky stock? Is that the kind of collector that we, as artists, want? And can they really ruin a career, a career that has otherwise been growing based on sales to people who really like the work on its own merits? Am I being naive to even ask this question? And what if your work never goes to auction because the people who have bought never want to part with it? Isn't that a good thing?


11/14/2007 12:13:00 PM  
Blogger Chris Rywalt said...

I'll say that that aspect of the quote bothered me, too. The idea that a career could somehow be "promising" -- presumably based on the quality of the work -- and then in some manner be "end[ed]" based, not on the work's quality, but on market performance, is chilling. Not that I'm saying it's impossible or even unlikely.

I've been thinking lately about how individual careers grow based on so many things besides talent. And I don't mean just in art, but in many fields, like baseball or high finance.

11/14/2007 12:32:00 PM  
Blogger Edward_ said...

What does that say about the potential collectors who were interested in the work, but now, since it didn't do well at Christie's last night, isn't going to buy it after all? Aren't those collectors mainly speculators, similar to investors rejecting a risky stock?

I think it's a bit more complicated and not as dark as all that actually.

Say you're a collector who really likes the work by Artist B. You've talked to Artist B's dealer and learn that there's a waiting list for the work. Although B's popularity is new, the prices are rising steadily, and although you wouldn't spend the, oh say, $40K for the work of any other artist in the same stage of their career, you do really like this work and are considering violating your own rules of purchase and stretching a bit to plunk down the 40K when a piece becomes available.

In the interim, someone who has a piece about the same size as you want by Artist B already, takes it to auction. At auction though, it sells for $30K or gets bought in with a low estimate of $35K, suggesting that the dealer has set Artist B's prices too high. Bad dealer, you might say, but the dealer would have never let the piece go to auction knowing that it's perhaps too soon or that's not the right piece to test the market with or a number of other reasons (it's got an odd provenance, it's a weaker/non-typical/difficult piece, it's got a technical flaw, etc.) that might not be obvious to someone on the waiting list (who obviously had their own reasons for not buying it at auction).

You, as the collector waiting for a newer piece, might be confused at this point, but suddenly cautious. You could take that auction information back to Artist B's dealer and try to get the piece you're waiting for, for less than $40K, but if they've just sold one for that price to someone else, they're not going to be able to do so very easily.

Multiply that reaction by several collectors and all of a sudden Artist B's waiting list disappears. Stuck between the collectors who refuse to overpay and those who already did overpay, the dealer can't move the work, and only time or some other market force that rejuvenates intense interest will kick-start that career.

11/14/2007 12:37:00 PM  
Anonymous Anonymous said...

Arggh! As if we don't have enough to worry about.


11/14/2007 12:58:00 PM  
Blogger Edward_ said...

you asked. ;-)

11/14/2007 01:45:00 PM  
Anonymous Todd W. said...

Seems items #2 and #3 could be summed up as "Any successful dealer will make their best effort to manipulate prices to their own benefit?" Both of these refer directly to price control and taking interventionist action to alter free-market pricing of the work, in each case to the benefit of the gallerist and his/her "stock", ie protecting the value of works yet to be made or works already in the flat files. If, and it's a big IF, the galleriest adheres to the first principle (sharing profits with the artist) then this appears less malign than it might, but its not clear to me that this is actually a widespread practice.

11/14/2007 01:46:00 PM  
Blogger Edward_ said...

My, you have a low opinion of dealers, Mr. W. ;-)

"Any successful dealer will make their best effort to manipulate prices to their own benefit?"

I'm not saying there are not sleazebags out there, but, generally, most dealers I know are more than honest and very much concerned about their artists' benefit. Which is their mutual benefit (killing the goose who lays the golden egg doesn't work any better in the gallery system than it does in the fairy tale).

There is often a sense that situations like the one in question (you know, the ones that portray the dealer as taking advantage of a situation that one must assume, given the implied moral ramifications, materialized out of thin air, rather than out of years of investing in an artist) are somehow different from those in other industries, at least in intent. In the macro view, the art market operates exactly like other markets. Supply and demand will eventually dictate prices and rule the day regardless of how hard one tries to manipulate things on a day-to-day basis, which is all we're really talking about here: the very human impulse to protect what one has invested in against the tide of market forces. We're not talking about multinational corporations trying to control the price of life-saving drugs.

So long as one doesn't conspire or break the law in other ways, I'm not sure why that's not understandable.

11/14/2007 02:05:00 PM  
Blogger peter said...

What's your opinion of a signed agreement with collectors requiring a percentage from any resale? Is that nuts, and/or a deal-breaker? After all, copyright rests with the artist after a sale, so doesn't it make sense to retain some stake in the ascent of one's prices as well? (Beyond hoarding work, that is.)

I think it's wonderful that you profit-share with your artists, and that some other dealers do too, but I also think it's far from the industry standard.

11/14/2007 08:27:00 PM  
Blogger nat said...

Related to this post and the previous , I recommend Talking Prices.

On contracts-- p.61-62 for why gentleman's agreements can make economic sense, Velthius quotes Richard Caves--"The infeasibility of explicit contracting leads the parties into the language of moral obligation, with reputation the insurance of reasonable performance in the absence of legally binding obligations"...

And chapter 3 of the book, "Promoters vs. Parasites" is all about the secondary and auction market. Reading it, I think, would help in understanding a gallerist's view of auction prices.

Also, I don't see how an artist would argue with a gallery that had right of first refusal contracts(or agreements) with collectors AND gave artist's a percentage of secondary sales. Seems like this would be ideal for an artist sorry to see earlier works sold on the secondary market for which they wouldn't see a red(or blue or yellow) cent.

11/15/2007 02:06:00 AM  
Blogger Chris Rywalt said...

Reading the biography of Picasso, I got the impression that, in France at least, artists get a percentage of secondary sales by law. But the U.S. has no such law. With all the trade balancing being done with the E.U., though, maybe we'll get one here one day.

It makes sense; like residuals for actors.

11/15/2007 10:17:00 AM  
Blogger Lisa Hunter said...

I'm thinking the same thing about artists getting a cut of auction sales. I think y'all should unionize. Seriously.

11/15/2007 02:03:00 PM  
Blogger Chris Rywalt said...

What is this, France? We should protest like the students at the beginning of Bertolucci's The Dreamers?

11/15/2007 02:28:00 PM  
Anonymous Anonymous said...

Chris dear,

Google: Droite de Suite

11/15/2007 03:23:00 PM  
Anonymous Anonymous said...

I support the US Women's Bridge team!

11/15/2007 05:25:00 PM  
Blogger Chris Rywalt said...

Googling Droite de Suite explains that France does have such a law and since 2006 Britain does too, exactly because of the E.U., as I suggested might happen in the U.S. Forces in Britain fought hard against it, though.

The argument against it seems to boil down to the idea that a) knowing that a percentage of the selling price will go to the artist will depress prices and b) very few artists, usually dead ones, will actually make any money.

11/15/2007 10:56:00 PM  
Blogger Sean Capone said...

Thanks, Ed. That helps tie up some threads I felt were left dangling in 'Collecting Contemporary.' They should have interviewed you for that book, I think..

11/16/2007 07:00:00 PM  

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