The Art Market: Part II

Heads up! If you haven’t seen part one, I strongly encourage you to read the first part, the link: https://steemit.com/art/@matejtomazin/the-art-market-part-i

In the last blog we broke off when our artist Rachel was approached by a gallerist from gallery A. If we now continue our simulation we see that Rachel has in fact been accepted into the circle of artists, being showcased and promoted in gallery A. In part this was possible because of the obvious reasons, namely that Rachel’s work is still very interesting for potential buyers as the trend wave of impressionist works has shown no signs of stopping. But it is also a fact, that our artist has not signed any contract (or at least any legally binding one) with gallery B, so her transition to gallery A was made effortlessly. Now she of course had to sign one, binding all her sales to go through the channels of gallery A, and this without exception. If before Rachel could sometimes sell her work on the side, even though this was strongly discouraged, she now cannot do this without risking being outcast by her gallery (or even sued).

But this is a small tradeoff for Rachel as her new gallery is in the primary alpha market and as such she can, or rather has to, raise her prices substantially. Her base price is now 1000€ per painting plus expenses, and because our artist has been diligent and has acquired quite a substantial amount of exhibitions and exposure (6 group exhibitions and one solo exhibition, coupled with a few newspaper mentions by name and a recension by some art critic from her home town, whom she paid), she has also applied for a Cultural status. Because Rachel was smart, she only mentioned 80% of her achievements on her field in the application, as she anticipated an automated rejection, due to the possible conservation of funds at the ministry. When she got their reply it did in fact state she just missed the mark with 79 points (81 are required), just as she anticipated. But because all such rejections come with a 15 day period in which one can appeal to the decision and add additional argumentation and proof, she then sent the Ministry of Culture the additional 20% of her achievements and a few recommendation letters from artists she knew or had worked with in the past. After this she got her status and with it Rachel is now eligible to a whopping 4% taxation rate on all her income as an artist and does not have to pay any social security fees or put her money into the government pension fund, the payout of which she’ll probably never see anyway. Sorry to all non Slovenians though, as this example is quite local, but I am sure you have similar options in your own country of residence.

And there is another positive feature in Rachel’s current situation; she now belongs to an alpha gallery, and is now connected to the wast clientele of the gallery. These customers, though still interested in the aesthetic value of the art they purchase, also actively search for investment opportunities. This does not mean that they pour all of their hard-earned money into art, as the art market has an extremely high flop rate compared to other, much more safe and solid markets, even stocks. But the idea of a possible manyfold return as an extra feature of a work of art, that primarily still serves some other function, be it aesthetic, status oriented or otherwise, is still many a collector’s cherry on top of the deal in this segment.

Also gallery A regularly attends art fairs, and Rachel being part of their assortment of artistic talent, her works are now being exhibited around Europe (well not at Frieze or Art Basel, as these are reserved for only the top players in the game — though all of these are part of the primary alpha market). The point of this segment is to find aspiring new talent, the new Picassos, Basquiats and the like to get into circulation in the art market and to boost their careers, in order to get the sweet profits of their sales, of course. But some are also in the game to help the talent, though money talks and as everywhere else the art market in no exception.

Now a curious thing happens, the couple who bought Rachel’s painting to hang over their couch finds out about her success in the arts (because Rachel was again smart and kept in touch with all her customers via an email list and had sent them at least quarterly updates on her work and exhibitions). The couple find that their work is worth quite a bit more than what they initially paid for it and so decide to sell it to a certain private collector of Rachel’s work, who is particularly interested in her early work as he has amassed quite a small collection of her paintings and sees a potential for high returns in the future, especially for her early work. The collector buys the painting from the couple for 2000€ as par of a bidding war caused by another interested collector, and Rachel is now not only worth around 2000€ on the market, but her work has entered the secondary alpha market.

This segment is comprised of resold works, here we find works by Yves Klein, Mondrian, Pollock and the like, and we see this is by far the broadest segment of the market, including not only smaller names but also extremely expensive works. It is though important to address the hierarchical relations that we saw in the first three segments, where one could describe Rachel as climbing the ladder of the art world, suddenly become much more vague here. The secondary alpha market is not only higher on the ladder than the other three, but also spans down into all three. On one side it deems the involved artist’s work as high in quality and a good prospect for investment, and on the other it merely describes the act of reselling art works, that were bought in the lower three segments.

Now that Rachel is being bought regularly on exhibition openings and art fairs, the demand for her older works has increased. On one hand a number of art critics start evaluating her work; if she receives a good critique her price goes up a bit (because of demand or because Rachel herself decides to raise the price solely due to the good critique), and when someone writes a bad one she does not lower her prices, and sometimes even a bad critique stimulates her sales. Rachel knows how to work attention and knows that no media attention is bad, as many of her customers hear about her work from some friend or business acquaintance who totally dismisses her paintings as being any good, but as this is a subjective evaluation, the other person becomes intrigued by the potential terrible paintings, looks them up online or finds them in Rachel’s gallery, and ends up not only liking them, but buying them.

If we now return to Rachels success, and the many works being resold, one collector in particular wishes to buy her first work, namely the portrait of the christened baby, as she wishes to possess it in her large collection of Rachel’s work. She contacts an agency that specialises in finding works of art and negotiation on the buyer’s behalf. Such agents usually end up making 2 - 5 % of the total purchase value of the work, and as our collector has contacted one of the best in town, they are successful in the purchase and Rachel’s work is sold for a whopping 10000€. Rumours start to spread about this large purchase, but as the collector who made it is a very private individual, not many others can confirm the information as genuine. Not soon after this sale an auction of Rachel’s older works is arranged by the local auction house; having heard about the rumours and seen Rachel’s work exhibited dozens of times in both national and international galleries, fairs and the like, they decide it’s time to organise a big, exclusive sale of her work for anyone interested in selling/buying. So quite a lot of collectors apply and soon the house is packed with Rachel’s older works and potential buyers eager to get their hands on the paintings. She has entered the last segment of the art market, the auction market.

The function of this segment is solely to make the sales and prices of sold works accessible and thus transparent to the public, so as to try to minimise price unbalances, that is collectors buying too high or too low.

Rachel now finds herself overworked with all the commissions she is receiving (told you this is a simulation), and looks at ways of delegating her work and actually enjoying her newly acquired riches rather than just slaving away in her studio. She finds answers in the practices of contemporary artist Damien Hirst, who’s production houses are infamous in the art world. She also decides that she will set up a large production studio and employ a few fresh MA graduates from the same Academy, she used to go to. She teaches them her exact process and after a bit of trail an error she ends up with 4 assistants who can mimic her style quite perfectly. Now she only continues to make the rough sketches of the new works and her assistants do the rest (with a few visits by the master artist to check on the work, of course).

When the public hears about this they are appalled and soon this decision is put under scrutiny by collectors and art critics alike. Some collectors welcome her decision and buy the new works but some cease to buy and the situation reaches a highpoint when one of the new works is offered at an auction in Rachel’s town. It becomes obvious that no one is willing to pay the outrageous 20000 € asking price for the work (5000 € more than what is usually offered for similar works of hers), and this mostly due to the ambivalent prospect of the investment because collectors have not yet decided if her decision was a good or bad one for business. But at the last mark an anonymous buyer makes the purchase over the phone and quite bluntly seals the deal on the decision. The general public is quite surprised and the idea that Rachel’s decision was valid slowly seeps into the collective consciousness.

The anonymous buyer who bought the work on the other hand is pleased, as he is an associate of the former owner, who put the work up for sale. They both decided to give a little push to the collectors who were unable to make up their mind about Rachel’s decision. As both own a substantial collection of her work, they were afraid people would stop buying her work and with such a low interest in her, the prices of her work would drop too. So they raised the bar, not only making Rachel’s prices safe from plummeting, but indirectly raising them quite a bit due to the newly sparked interest in her work.

And this is where our story ends, I hope you have enjoyed this two parter and I have maybe shed some light on a topic that sometimes seems shrouded in mystery, or is just left outside of conversations about art, where it is deemed below art to speak about money.