A guaranteed disaster? Art auction houses left hanging as the market turns.

6 04 2009

Francis Bacon's Study for Self-Portrait




Picture this (if you’ll pardon the pun) – you are the fortunate owner of an artwork of mind-blowing significance. The art market is booming – nay, it’s gone warp speed, hyperbole be damned. You love your painting… have loved it and treasured it for many years. But the sky-rocketing prices prove too much for you. You approach an auction house or three – this is a seller’s market, remember. No point settling for the first offer you get. A pre-auction bidding war ensues. One of the auction houses offers you a guaranteed minimum price – if that price isn’t reached during the auction, the auction house will be compelled to pay you the guaranteed price and to take the painting into its possession. Nothing to lose, right?

Well, it must have seemed like a good idea at the time. But now that art buyers are more concerned about paying the heating bills and filling the fridge than buying art (as much as art warms the cockles of the heart and nourishes the soul), the practice of offering art-sellers a minimum price when they consign works for sale may well have left the big auction houses in a bit of a pickle. In Sotheby’s case, a pickle of the magnitude of up to $US 500 million. That’s a very, very big pickle.

In documents filed with US authorities in April 2007, Sotheby’s listed outstanding guarantees of $US 295 million. Although I’ve been unable to find an indication of the company’s exposure in late 2008 when things started to go pear-shaped, the board set a ceiling of $US 500 million on its exposure through guarantees. Comparable figures for Christie’s, which is not  a public company, are not readily available. But to give a sense of how much of the art that passed through the top end of the market may have been guaranteed, witness the following figures: Sotheby’s guaranteed 78% of a single contemporary sale by value (14 November 2007), and Christie’s 52% of its 13 November 2007 sale.

So, the last sales of 2008 and the first of 2009 are likely to have been pretty tricky for the big auction houses. Artworks consigned for sale under the old guard popped up on the rostrum, with associated guarantees and big promises, but with far fewer big-spenders in the audience. Case in point: Francis Bacon’s Study for Self-Portrait [pictured] turned up at Christie’s in November 2008 with a minimum estimate of  $US 40 million. The Florida-based collector, George Weiss, consigned the painting for sale at Christie’s after the auction house offered him a guaranteed minimum price. But the ultimate timing of the auction wasn’t so flash-hot. Weiss’ painting, which was billed as the sale highlight, was sharing wall-space with works consigned by Lehman Brothers ne’er do well, Richard Fuld. Not a good time to be competing for attention with such a tangible reminder of the unfolding economic disaster.

The Bacon did not sell. In fact, almost a third of the 75 contemporary works on offer that night didn’t find buyers. Weiss expected to be paid his guaranteed minimum price. Christie’s International, citing “the changed climate of the art market”, refused to pay up, according to the breach-of-contract complaint Weiss filed in New York.

Could this just be the tip of the proverbial iceberg?

Image: The Guardian 


Art as investment: or, the root of many evils

29 03 2009





It seems the economic apocalypse will play out in many and varied ways in the art market.

In America, dealer Lawrence Salander has been arrested and charted with counts relating to larceny, fraud, forgery and perjury. Along the way, he managed to fleece tennis über-brat John McEnroe and film legend, Robert De Niro. The amounts are significant: prosecutors claim that up to $US 88 million has been soaked up by illegal dealings.

And we have our very own drama unfolding here in Australia. Until very recently, no major art auction was complete without Ron Coles and his hefty cheque book in attendance. Now, he has disappeared into thin air, leaving behind a chaotic mess of bad debts, dodgy paintings and accusations of fraud on a grand scale.

Through his prosaically named Sydney-based business, ‘Ronald Coles Investment Gallery’, Coles recruited many clients who had little or no experience in the art market. They gave Coles cash on the understanding that he would acquire investment art on their behalf, and store it for them. It seems that investors believed that Coles was holding a collection of art on their collective behalf worth $A 23 million. Local auction house, Bonhams & Goodman estimate that the collection seized in the course of the police investigation is worth somewhere in the vicinity of $A 400,000. Allegations are now leaking out that there are forgeries of work by at least four major Australian artists amongst the works seized by police. Needless to say, investors are not happy. Not happy at all.

If convictions follow from legal action the question must be asked: how did these people get away with so much for so long?

Unfortunate fact of life: the feeding frenzy witnessed in the art market over the last decade was fuelled largely by people whose overriding concern was the investment potential of the art they were acquiring. That, in itself, is not altogether surprising; it’s been shown that, to varying degrees, the great majority of art buyers do consider the investment value of an artwork prior to acquiring it. But what distinguished buyer behaviour this time around is that people were handing over large sums of cash to dealers for artworks that they never intended to take into their possession. They did not spend weeks painstakingly researching and examining an artwork’s various aesthetic and historical qualities, falling in love with it by degrees. No. These artworks were acquired as places to park disposable income or retirement funds, with the expectation that said investment would increase in value over a set period of time. 

It seems that for some dealers the temptation to initiate a painting ponzi scheme was too great to resist. Why sell a painting just once? Why not sell it to five people, none of whom ever expects to take it home and hang it above the sofa? As long as the cash keeps flowing via new investors, there’ll always be money in the bank to pay off clients who decide they want to ‘realise’ their investments. 

But there’s nothing new under the sun. It all reads like a chapter out of Stan Lauryssens’ recently published autobiography, Dali & I. According to his own account, Lauryssen did much the same thing when dealing in work by Salvador Dali in the 1970s and 80s.

Vanished..Ronald Coles at his art gallery in 2004.

Images: Lawrence Salander: NY Daily News; Ron Coles: Sydney Morning Herald

Out with the new, in with the old

23 03 2009





It seems that old art is the new black.

So, you’ve cashed in your stocks and shares. Sure, bitter tears coursed down your cheeks when you thought back to what they were worth a year ago. But what choice did you have? The nausea-inducing swells of this particular financial typhoon got the better of you.

But now… what to do with all that cash? If reports from the Maastricht Fine Art Fair are to be believed, then the thing to do is to buy Old Master paintings and antiquities. Although the article in the International Herald Tribune by Souren Melikian does seem to convey the slightly desperate air of someone trying to talk things up, that might just be my interpretation. I have been diagnosed with a near terminal case of cynicism, after all. And it’s not at all surprising that people would turn to proven market performers as everything else threatens to end up in the septic tank. Dutch genre scenes, Italian Masters and armless Greek goddesses are the art market’s equivalent of gold bullion.

Now that the hedge funds have been pruned back to mere stumps, the rampant speculation in contemporary art by young artists is likely to cease. People will no longer be looking for ‘the next big thing’ to buy and resell in a couple of months for a hilariously large profit. Instead, they’ll be searching for solid, material investments in which to park their cash. The future gains may be modest by comparison, but at least they’ll get something back.

That’s the theory, anyway.

Image: Gabriel Metsu, ‘Old Woman at a Meal’, sold by William Noortman at Maastricht for $US 4.8 million. International Herald Tribune