Sold! The Art Market: Goes Crazy

It went crazy, it stays crazy, but don't ask what the art market is doing to museums and the public

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By harping on the investment value of art, by hiring personable young sales cadres to explain the significance of the Meissen jug or the not-quite-Rubens, by creating user-friendly expertise, the auctioneers defused this wariness. By the early '80s dealers were getting cut out of the game by collectors buying directly at auction. And by 1988, when the auction room had been promoted into a Reagan-decade cathouse of febrile extravagance, where people in black tie and jewels applauded winning bids as though they were arias sung by heroic tenors, private dealers (at least those dealing in the work of dead artists) had less margin of resale to work with. Their market share today is still enormous, but the auction houses are after it, and it is shrinking.

The idea that Taubman debased a saintly enterprise with the values of the shopping mall is not true. All he did was shove an already competitive business into the ruthless habitat of the '80s. It is not true either, as anyone knows who has followed the fortunes of the two houses, that Sotheby's is all hustle and Christie's all starch. In fact, it was Christie's that got into trouble with the law over falsifying an auction. In 1985 David Bathurst admitted that four years earlier, when he was president of Christie's New York branch, he had reported selling two paintings that had not, in fact, found buyers at auction in New York: a Van Gogh at a supposed price of $2.1 million and a Gauguin at $1.3 million. Bathurst said he had lied to protect the art market from depression.

The auction practice that has attracted the most criticism lately -- and goes to the heart of the nature of auctions themselves and the ethics of the trade -- is giving guarantees to the seller of a work of art and loans to the buyer. If X has a work of art that auctioneer Y wants to sell, Y can issue a "guarantee" that X will get, say, $5 million from the sale. If the work does not make $5 million, X still gets his check, but the work remains with the auction house for later sale. Guarantees are a strong inducement to sellers.

Loans to the buyer are made before the auction, and completed after it, at an interest rate that may go as high as 4% over prime. A common amount is 50% of the hammer price -- whatever the work reaches.

Guarantees can backfire. Sotheby's guarantee on the recent four-day sale of the collection of John T. Dorrance Jr., the late Campbell's soup heir, nearly did so. According to ARTnewsletter, a trade sheet, the dealer William Acquavella offered the Dorrance estate a guarantee of $100 million, but Sotheby's trumped him with $110 million. Though the sale realized a total of $131.29 million, it did so only because Sotheby's had persuaded the heirs to accept a "global reserve" (the minimum price acceptable to the seller on the whole collection), instead of placing a reserve, or minimum, on each lot, as is more usual. This enabled Sotheby's to meet the bottom line by selling 15 out of 44 impressionist and modern paintings far under its low estimate, rather than not sell them at all -- and gamble on making up the slack over the next three days.

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