A Rich Man’s Game – A Glance into the Art Market

In November 2013, a Francis Bacon piece was sold for $142 million at Christie’s auction house, which gave the piece the title of “the Most Expensive Artwork Ever Sold at an Auction.” Only in this past year a Picasso was sold for $155 million, a Warhol for $105 million, a Pollock for $58 million, and a Lichtenstein for $56 million. Although arts has long been seen as an investment and a long-term profit, with new collectors from emerging countries such as China and Russia, and with the market experiencing substantial growth in the past 25 years, it is not surprising that prices are increasing dramatically for the finite art pieces – especially those by artists who are no longer alive, often referred to as DWMA (dead white male artists) – causing the market to be known as a Rich Man’s Game.


How much money each artist grossed at auction in each year from 1998 to 2013 adjusted for inflation (Salmon, Reuters).


The art world is one we ‘commoners’ have a hard time understanding and making sense of. It is a totally different parallel universe, where millions are spent momentarily to buy a painting, a sculpture, or an art piece by a recognized artist. While we debate over and over if going through with a 20-year mortgage to get an apartment is a good idea, people in the art world would go through with a transaction worth millions instinctively over a conversation they have with their art consultants. The market has its own unique economic indicators, which explains why supply-demand theory doesn’t apply in this case.


It is a market, in which the price confirms the objects worth; as Ernst Beyeler, Swiss art dealer who helped found Art Basel said: If [you] can’t sell something, [you] just double the price.” It is a rare market that defies simple economics by functioning without the notion of exchange value. An art piece is worth more one day and less the other, just because an auction house creates hype over a specific artist, or a Russian billionaire drives the prices up for a piece that wouldn’t be considered valuable before. If a consultant or a collector agrees with a dealer on the worth of a piece, that becomes its value – it’s as simple as that. It’s what psychologists refer to as ‘anchoring bias’, which is fancy wording for saying that when a specific art piece is linked to a price, the anchor is set and that becomes its ‘natural’ price – no questions asked. Arne Glimcher, founder of world-renowned Pace Gallery, justifies this by his statement: “all you need is two people to make a market.”


Although one imagines that a market dominated by the richest people in the world would not even slightly be affected by the changing economy, taking a look at the statistics, it is safe to say that the stock market crash in the 90s and in 2008 extremely impacted the market, causing price to decrease by 30%. Olav Velthius notes that confidence in the art market had dropped 40% in just a few months after the 2008 crash, bursting the bubble of confident auction houses, dealers, and collector. There is definitely a correlation between the art marker and the financial environment; simply because if the economy is doing well or is stable, the consumer confidence index will be higher, where collectors would be expected to be more actively buying within the market. Today, with recession coming to an end and the stock markets doing well, the consumer confidence is higher; and richest of the richest are competing to buy art worth billions of dollars again, driving the prices up in rocket speed.


Another approach to look into the relation between the art market and the economy is that people buy art in unstable economies, with the belief that it is a better investment since it’s more tangible and lucrative. A study by New York University economist Michael Moses supports the argument that art is a solid investment. Through applying economics theories and equations, Moses found that art as an investment showed significantly better returns than any class of bonds. These are not the billionaires though; they are upper middle class collectors, more interested in pieces worth 5 figures rather than millions. Their activity in the market, again in which they compete with other collectors for a finite number of pieces, result in driving the prices high in the overall market. Swapnil Pawar, chief investment officer at Karvy Private Wealth, suggests that “during the global financial meltdown, the works of most artists saw a steep fall in prices [while] [well-known artists] remained on top.” He claims that after the recession, qualitative works of renowned artists are now more in demand than ever, as they proved to be lucrative investments.


An additional argument to why the prices are increasing in the art market is the exponential growth of the market itself. In 1990 the market was valued at $27 billion, whereas this figure doubled by 2013 ($56 billion). There are now more buyers, more auction houses, and more dealers than ever before. More of everything except for the most sought after art pieces, which are finite in number since they’re mostly by DWMA. The main cause for the market growth is primarily the increasing demand of the newly rich from the emerging countries such as Russia, China, and India. This is now a global market, in which China accounts for 25% of sales, with United States leading with only 33%.


These newcomers, often in search of an identity for themselves in the elite world, turn to the art market to justify their presence. They are attracted to the glamorous life the market promises: parties, art fairs, and biennales. Eli Broad, a Los Angeles based collector, proving that buying art is the way to justify one’s position in society says, “spending [money] on huge yachts is despicable. I have a lot more respect for the people who put their money in art.” They are most often attracted to DWMA because they want to their names to be heard, and what better way to announce their presence than buying a $50 million worth Pollock? “It’s become extraordinarily unpleasant to compete for work in this market with people buying for social-status reasons… What you have now is more buyers overpaying and creating misaligned values,” Dean Valentine, a major art collector states, because while purchasing respect and status through purchasing art, the newly rich drive up the prices in the art market.


While the prices of DMWA art keep rising as collectors compete for “super-status” effect, the mid-market is slowly and steadily dying down. Small galleries are closing, emerging artists are struggling, and niche art is disappearing. Polarization in the market is evident, with the super rich driving up prices for the super valued finite art pieces, and a handful of auction houses benefitting from these major transactions. However, the mid-market is struggling and looks far less optimistic. With creativity no longer valued as art, and art being valued for what it is said to be worth, it seems that the market has become a rich man’s game – maybe all you need is two rich man to make a market after all.