Contemporary art collectors paint the town green

By Ryan Sachetta

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Elvis Presley and Marlon Brando took center stage last month at Christie’s auction house in Rockefeller Plaza. Both icons, immortalized in paint by Andy Warhol, did what they do best: captivate an audience. Triple Elvis and Four Marlons sold back-to-back for a combined $151 million.

The price tags sound stupefying, but contemporary art sales are flourishing in this veiled society of ultra-rich individuals who instead of betting on traditional stocks and bonds are making plays on the futures of artworks. By the end of the second week in November, Manhattan’s auction houses had sold a record $1.7 billion of contemporary art.

“There is a much greater number of people willing to spend a greater amount of money on contemporary art than ever before,” said Marion Maneker, editor of Art Market Monitor.

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The motivations driving collectors to the market are changing, according to Deloitte’s Art and Finance Report 2014. It’s not enough to admire the artist or appreciate an artwork’s significance. Collectors are shopping with a discriminating eye toward an artwork’s investment potential. The report found that 76 percent of art collectors are “buying art for collecting purposes, but with an investment view,” an increase from 53 percent in 2012.

This upswing paints a particular picture: Collectors can increasingly look beyond an artwork’s colors so long as they can see green in its future.

“A lot of people are entering the post-war market because that’s the art that’s precious,” said Michael Moses, art economist and co-founder of the Mei Moses Fine Art Index. At the auction houses, such periods as post-war and contemporary can be grouped together, both encompassing artwork made after 1945. Among its collectors, particularly the newly wealthy, basic supply and demand prevails. There’s a fixed supply of artworks from the masters, but a pipeline of emerging artists whose work isn’t as costly.

“You are going to be hard-pressed to find a spectacular Picasso for $500,000 today,” Moses said. “But, you might be able to find a young artist who is developing a substantial track record and still be able to get one of his or her best works for $500,000.”

The art market attracts some of the richest individuals in the world. It’s a playground for celebrities from finance and tech industries, including Steve Cohen of Point72 Asset Management, J. Tomilson Hill of Blackstone Group, and Paul Allen who co-founded Microsoft. November’s historic spending spree for contemporary art came as the ultra high net worth population rose 6 percent in 2014 to include more than 211,000 people who hold at least $30 million in net assets, according to the Wealth-X and UBS World Ultra Wealth Report 2014. Members of this exclusive club spend a combined $25 billion on art, accounting for nearly 38 percent of the art market.

“Art has become a form of currency in both store of value as well as a way to participate in a global class of very wealthy people,” Maneker said.

After Christie’s racked up $852.9 million in post-war and contemporary sales on Nov. 12, a question began swirling around the art world: Can Christie’s reach $1 billion?

“No one thought this was doable a few years ago,” Maneker said. “I’m sure anything is possible in this environment.”

When a collector goes to market, auction houses are just one of the many open storefronts. They can shop for straight-from-the-studio artworks on the primary market at galleries and art fairs or step into the secondary market, buying from auction houses and private dealers. Collectors can even pool money in art investment funds similar to hedge funds – an industry that Deloitte estimates is presently worth $1.26 billion.

Because artworks are coming to auction earlier, it’s disrupting a business structure formerly dominated by galleries.

“For a long period of time, no one took auction houses seriously about contemporary art because they didn’t have experts,” said Jim Yood, a freelance arts journalist and professor at the School of the Art Institute of Chicago. “It takes a certain instinct about contemporary art and gallery owners were better at that.”

Auction houses aren’t competing only for the pocketbooks of collectors. They’re gaming each other to consign blockbuster works they hope will balloon in price, grab the headlines and subsequently attract new clients looking to unload their troves. Christie’s and Sotheby’s wear the crowns for top houses, but their market positions clash: Christie’s is a privately owned company and Sotheby’s is a publicly traded company whose operations are open to public scrutiny.

This juxtaposition has been pronounced in recent months after activist investor Dan Loeb lobbied for the ousting of Sotheby’s CEO William Ruprecht. Loeb, the company’s leading shareholder who became a board member this summer, expressed frustration about Christie’s surge in the contemporary art market, writing in an Oct. 2013 letter filed with the Securities and Exchange Commission: “Sotheby’s success will be defined in large part by its ability to generate sales and profits in contemporary and modern art, as this is where the greatest growth potential lies.”

This November, nine days after Sotheby’s contemporary auction grossed $343.7 million in sales, Ruprecht announced his plans to resign. Speculation surfaced in the wake of the announcement as to whether Sotheby’s, a company older than America’s independence, would leave the public spotlight and go private.

“The future of Sotheby’s is very much an open question and it’s not because of management’s choices,” Maneker said. “It’s whether there’s a role for a publicly traded, independent auction house.”

In a stunning turn that reverberated across Manhattan, Christie’s CEO Steven Murphy announced on Dec. 2 that he was leaving the company at the end of this year. Murphy, who took the helm in 2010, said Christie’s had “now successfully concluded an ambitious three-year plan and the company is in the strongest leadership position in its history.” Patricia Barbizet will take over as CEO of Christie’s, while Sotheby’s has yet to announce Ruprecht’s successor.

Ironically, auction houses lend transparency to an otherwise opaque market of traditionally private buyers and sellers. This comes despite the spectacle of an auction fit with its anonymous bidders calling in gambles, chandelier bids where the auctioneer acknowledges a phantom bidder to spike demand, and continued uncertainty regarding the amount auction houses are guaranteeing the sale of particular works with their own purse.

“Transparency is the key to the health of any asset class,” Moses said. “If the auction houses disappeared, the art market would disappear or become much smaller.”

Georgia O’Keeffe, a revered American painter of the Southwest aesthetic, set the auction record for a female artist at Sotheby’s American Art sale on Nov. 20. Jimson Weed/White Flower No. 1 fetched $44.4 million, but Maneker stressed that the historic sale doesn’t imply that O’Keeffe is the best female artist.

“The art market is a voting machine, not a weighing machine,” Maneker said. “All it’s telling you is what someone is willing to part with for a particular work of art at a particular time.”

In his 1975 book The Philosophy of Andy Warhol (From A to B and Back Again), Warhol proposed hanging $200,000 on the wall rather than investing that same amount in a painting. “Then when someone visited you the first thing they would see is the money on the wall,” he reasoned.

Warhol acutely understood the celebrity of art and riffed on its capitalistic underbelly. With low interest rates and mania flooding the contemporary art market, he might have modified his suggestion: Buy that painting, hang it over the couch, host a few parties, send it to auction and multiply the money.