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Recent Acquisitions
(And Some Thoughts on the Current Art Market)

July 12, 2016 to October 07, 2016

The whole world appears broken. Instead of spreading democracy, the failure of Communism, the Iraq wars and the Arab Spring fostered unrest throughout the former Soviet empire and the Middle East. The neo-liberal economic policies promulgated by Ronald Reagan, Margaret Thatcher and their successors created a glut of wealth at the top of the economic pyramid, but little of the promised trickle-down ever materialized. Income inequality and the concomitant evisceration of the middle class were furthered by globalization, outsourcing, deindustrialization and automation. While these developments occurred piecemeal over a long period of time, we are today confronting systemic socioeconomic upheaval on a scale not seen since the demise of the agrarian economy in the late nineteenth and early twentieth centuries. The xenophobic demagoguery that permeates the political atmosphere, both at home and abroad, is reminiscent of the 1930s.

The art world, a perceived elite that lacks organized political clout, has been an easy target for populist rage ever since Hitler mounted his campaign against “Degenerate Art.” Though art is no more corrupt than any other field of endeavor, the business has lately been wracked by scandal and calls for reform. At the World Economic Forum in Davos, Switzerland, last year, Nouriel Roubini (famous for predicting the 2008 collapse of the mortgage market) described the art scene as “full of shady stuff”: “routine trading on inside information…price manipulation…and tax avoidance.” The potential misuse of art as a vehicle for money laundering and tax evasion was highlighted in the revelations about the Panama-based law-firm Mossack Fonseca (which sets up shell corporations to hide billionaires’ assets, including art) and the Geneva Freeport “king” Yves Bouvier (whose little-known activities as a dealer in blue-chip art were exposed by a former client’s lawsuit). Perhaps not coincidentally, Bouvier’s legal adversary, the Russian oligarch Dmitry Rybolovlev, also figures in the “Panama Papers.” Most unnerving to art-world insiders was the trial, earlier this year, pitting the now-defunct Knoedler Gallery and its erstwhile president, Ann Freedman, against Domenico and Eleanore De Sole, who purchased a fake Mark Rothko painting from the gallery for $8.3 million in 2004. Because the parties settled before the conclusion of the trial, the legal implications of the dispute remain fuzzy. What is clear, however, is that between 1994 and 2008, Knoedler, then one of the most prestigious galleries in New York, sold some $80 million worth of Abstract Expressionist forgeries, which Freedman had acquired from an obscure Long Island dealer named Glafira Rosales. The case served as a stinging moral indictment of the art trade, affirming the belief (in the words of ARTnews reporter M. H. Miller) that this is “the largest unregulated industry in the world, besides guns and drugs.”

The private nature of most art transfers, coupled with the large sums of money that can be involved, create an aura of malfeasance even where none exists. Neither offshore corporations nor freeports are illegal, and those who take advantage of them are not de-facto criminals. The use of such entities to mask criminal activity speaks to a failure of global governance that far transcends the art world. On a local level, the art market is hardly unregulated. Art sales are subject to the same consumer protections and taxes as other transactions, while money-laundering protocols exist throughout the world. The U.S. Attorney’s Office for the Southern District of New York, in tandem with Homeland Security, periodically seizes suspect art, and sales tax investigations routinely root out scofflaws. While rising values increase the potential magnitude of art crimes, higher stakes also encourage greater due diligence. For example, the rash of recent cases involving Nazi-looted art has led to significantly better provenance research. Pricing transparency has likewise been improved by online resources. The problem is not so much a lack of information, but that valuations fluctuate so wildly they can be impossible to interpret.

“Fair market value” is defined as the price a willing buyer would pay a willing seller, neither being under any compulsion to conclude the deal and both being in possession of the relevant facts. Lately, however, the concentrated wealth of the .01% has distorted this dynamic. Egged on by auction-house personnel, collectors converge on trophy lots, generating prices that bear no relationship to the broader market and often cannot be replicated upon resale. In a year of high-profile art-related lawsuits, the one between the dealers Larry Gagosian and Pelham Europe, Ltd., is of interest less for the underlying contractual issues than for the price of the subject artwork, Picasso’s Bust of a Woman: $47.4 million when Pelham contracted to sell it to a Qatari royal in November 2014, and $106 million when Gagosian preempted that transaction and sold the sculpture to the financier Leon Black in May 2015. Given that none of the parties can be considered ignorant of the relevant facts, one wonders how the same artwork could be valued so differently within the space of just a few months. The pressures of an overheated, irrational market may also in part account for the vast discrepancies between the prices that Dmitry Rybolovlev paid Yves Bouvier and the amounts received by the owners of the paintings. According to a profile in the New Yorker, Bouvier’s markup ranged from approximately 26% to over 100%. Yet neither the billionaire buyer nor the sellers, who included mega-collector Steve Cohen, were unsophisticated. The only pertinent fact of which both sides were evidently ignorant was Bouvier’s profit. Rybolovlev’s suit against Bouvier hinges on whether the dealer lied about his compensation or merely failed to disclose it.

Art transactions generally conform to one of two models: outright purchase or consignment. For much of the twentieth century, auctions were primarily wholesale outlets, and most dealers owned their inventory. Given the risk inherent in such investments and the cost of capital, a 100% markup was not unusual. As auction houses moved into the retail trade in the 1980s, however, sellers became accustomed to participating in the profit upon resale. In order to compete with auctions, dealers began favoring the consignment model. Today most serious secondary market art sales, whether at auction or through a dealer, are governed by contracts in which the commission structure is clearly spelled out. On occasion a seller will accept a fixed net payment, but usually he or she wants to know how much the dealer is making and to be compensated in proportion to the final selling price.

Sellers of desirable artworks have considerable leverage in negotiating consignments. Auction houses not only waive the seller’s fee on such lots, but regularly kick back a portion of the buyer’s premium to the consignor. Guarantees, often necessary to win the choicest properties, are a double-edged sword. The auction house must either cede some of its profits to a third-party guarantor, or put its own funds at risk. To land the collection of its former chairman, A. Alfred Taubman, in 2015, Sotheby’s had to fork over $515 million, a sum it seems unlikely to recoup if marketing costs are taken into account. Since 2009, Sotheby’s gross sales have more than doubled, but its commission margin dropped from 21% to 14%. In the second half of 2015, the company’s stock fell 45%. Despite headline-grabbing billion-dollar sales weeks and nine-figure lots, net income at both Sotheby’s and Christie’s was down last year.

Furthermore, those nine-figure paintings do not reflect the art market as a whole. In 2014, a mere 1,500 works (0.5% of lots sold) accounted for 48% of total auction revenues. The air at the top is very thin. Only a few hundred people in the world have the $100 million in disposable income necessary to buy a $5 million work of art. Meanwhile, small and mid-sized dealers struggle constantly to meet their overhead and finance participation in costly but necessary art fairs. According to Magnus Resch, professor of art management at the University of St. Gallen in Switzerland, most galleries gross less than $200,000 a year, and fully 30% operate in the red. Contrary to appearances, art dealing is a difficult and not especially lucrative profession.

“There is art money and there is living money,” the legendary postwar dealer André Emmerich once observed. “You cannot and must not confuse the two.” Few dealers have the financial resources of their top clients. “We talk quite casually about $100,000 as a modest amount, while of course in terms of groceries and rent and school tuition, it’s a staggering sum,” Emmerich continued. “A dealer must be comfortable in dealing with the rich, without losing either his self-respect or his self-confidence.… You must know you are with them, but not of them. Some colleagues of mine suddenly find it impossible to conceive that they were not born with a silver spoon. It’s a problem, really, of inner integrity.”

Individuals go astray when they expect the art market to provide monetary returns of which it is incapable. This may be what hooked Ann Freedman on the seemingly underpriced forgeries that secured Knoedler’s profitability for some fifteen years. More insidious, because it is more widespread, is the effort to transform art into an investment vehicle. Even if auctions could be stripped of all the factors, like guarantees and secret reserves, that distort prices, they will never provide objective indices of value comparable to those generated by the stock market. Unlike stocks, every work of art is unique, and genuine collecting is motivated as much by emotion as by reason. Art funds have historically poor track records, because it is enormously difficult to select the right artworks, predict the rate of appreciation and then to time resales in a manner that reconciles market conditions with investor demands. Some collector/investors therefore focus on the short-term. Much like venture capitalists who throw money at multiple startups in the hope of funding a “unicorn,” these buyers spread their purchases among a variety of emerging artists. Services like ArtRank track such investments and offer online buy/sell recommendations. An algorithm, ArtRank explains, is used to assess “the intrinsic [financial] value of an artwork, not its survival value. We do not judge any works’ [sic] aesthetic or emotional value.” At all levels of the market, profit-oriented collectors try to emulate “influencers”: those known for spotting talent early on. But this can backfire if insiders pump up an artist’s prices beyond levels that can be sustained by general demand. This is what apparently happened to the once-popular brand of vacuous abstraction known as Zombie Formalism, which suffered a precipitous drop in value last year.

Daniel Loeb, the activist shareholder who took control of Sotheby’s in May 2014, is pursuing a different sort of investment strategy. Recent changes at the auction house are clearly designed to boost the company’s stock price. Within a year of Loeb’s takeover, longtime CEO William Ruprecht was forced out and replaced by Tad Smith, whose $20 million first-year pay package consists largely of Sotheby’s shares. At the end of 2015, Smith initiated cost-cutting measures that pushed 80 staffers to accept buyouts. It remains to be seen whether these tactics will really improve Sotheby’s bottom line. The buyouts decimated the auction house’s ranks of senior specialists, along with client relationships built up over decades. “The old art-collecting families, whose collections will soon enough be estates headed to market, will have no connection to the house,” a dealer told Artnet News. Hardest hit by the buyouts were the Impressionist and modern art departments, which have traditionally generated the highest grossing sales. Sotheby’s recent $50 million purchase of the art advisory firm Art Agency Partners suggests that the auction house is banking on a market to shift into the contemporary arena.

In 2015, Christie’s Impressionist and modern art sales rose 57%, while its contemporary sales declined by 14%. Thus far 2016 has seen a reversal of this trend at both major auction houses. One third of the lots in Sotheby’s May 10 sale of Impressionist and modern art failed to sell, and two days later Christie’s Imp/mod sales total barely exceeded the low estimate. However, the contemporary sales that same week fared considerably better. To be sure, sales in all categories were down as compared to 2015. There were fewer lots on offer, with lower estimates. Many potential consignors were deterred by the drop in oil prices, economic troubles in China, Russia and Brazil, and the forthcoming American elections. Both Sotheby’s and Christie’s cut back on guarantees, and as a result there were no nine-figure blockbusters. All these factors weakened the Imp/mod sales and called attention to the dwindling availability of great material in that category.

At Sotheby’s, the second-tier Impressionists owned by the late Elmer Bobst (a wealthy pharmaceutical executive and prominent supporter of Richard Nixon) typified the sort of collection that was once de rigueur on Park Avenue. This slightly sad grouping attested to the fickleness of taste, indirectly raising questions about the longevity of the Christopher Wools and Basquiats favored by contemporary collectors. “Of the artists selling well today, roughly 80% will be basically unsellable in twenty years,” notes Marc Spiegler, director of the Art Basel empire. And this, he says, is as it should be. “Collecting contemporary art is about engaging with the Zeitgeist. People should buy art they believe in.”

The connection between art and passionate belief has been missing from the investment-oriented diatribes (pro and con) of the last few years. Market forces abet the disconnect. Where once artists remained loyal to the dealers who launched their careers, today it is a given that the successful ones will trade up to powerhouse galleries like Pace, Gagosian and David Zwirner. Deprived of the ability to profit from their prescience, smaller galleries rely on secondary market sales to bolster their income: a Warhol here, a Kippenberger there. In both the primary and the secondary markets, dealers today often lack a long-term commitment to and understanding of what they are selling. A case in point is Knoedler’s Ann Freedman. Unlike the gallery’s prior director, Lawrence Rubin, who had close personal ties to artists such as Frank Stella and Richard Diebenkorn, Freedman was basically an excellent salesperson. It is impossible to determine whether she knew the Rosales paintings were forgeries, and the art world continues to argue over whether she should have known. We do know that for fifteen years a fake Jackson Pollock hung in Freedman’s personal collection, and she never noticed that the signature was misspelled. She did not look; she did not see.

“An art dealer’s depth of experience working with particular artists, schools and periods is critical for the long-lasting, trusted relationships that successful galleries build with both artists and collectors,” notes Adam Scheffer, President of the Art Dealers Association of America. Perhaps, he optimistically suggests, the Knoedler debacle will reinforce the “fundamental roles [of] research and connoisseurship.” And perhaps, on a deeper level, the recent gyrations of the art market, the misguided emphasis on investment and the resultant scandals will encourage a renewed appreciation of the aesthetic and spiritual values that are art’s greatest reward.

The billionaires and occasional felons who dominate the headlines, after all, are not representative of the art world. Below the tip of the pyramid there exist many thousands of collectors, dealers, art historians, critics, curators and artists who are deeply passionate and knowledgeable about art. They are motivated neither by money nor by glory, because there is little of either in what they do. They recognize the responsibilities of their chosen profession, and they feel fortunate to be spending their lives with beautiful objects that they love.

Art has always been partly about money, but it has never been entirely about money. By definition collectors must have a surfeit of income after their material needs are met. However, unlike other luxuries enjoyed by the wealthy, art also serves a redemptive function. Art links human beings to the eternal, and thereby grants them a glimpse of immortality. People once ascribed such properties to the bones of saints, and to what were said to be pieces of the cross on which Christ was crucified. From the Renaissance onward, art, both religious and secular, came to serve a similar function. Great art captures something enduring about the human experience; it transcends time. In a broken world, art offers hope.


As is customary, the Galerie St. Etienne’s summer show not only surveys recent acquisitions, but also recaps the past season’s projects. Last autumn we presented a highly acclaimed exhibition of works by the German artist Paula-Modersohn-Becker—her first in the United States since 1985. We followed up this spring with a show featuring never-before-exhibited watercolors and drawings by Ernst Ludwig Kirchner from the Robert Lehman collection. Our summer exhibition reassembles selected works from the Modersohn-Becker retrospective, and features Kirchner in the company of his Brücke colleagues Erich Heckel, Otto Mueller, Emil Nolde, Hermann Max Pechstein and Karl Schmidt-Rottluff. Also included in our show are highlights from the Belvedere Museum’s recent exhibition “The Women of Klimt, Schiele and Kokoschka” (co-curated by St. Etienne Co-Director Jane Kallir). Works by such gallery favorites as Leonard Baskin and Grandma Moses round out the presentation.