A Look Ahead

Happy New Year!

The Financial Times just published an interesting look at expectations for the art market and the business of art.  It includes what is in store in 2016, auction houses, art dealers, hybrid sales, and lawsuits.  All very interesting to professional personal property appraisers.

The Financial Times reports

What’s in store for the art market this year?
The new year starts with upheaval in the auction houses, a slowing, but by no means slumping, market for art, anxious dealers and a likely retreat from the guarantees that have bolstered the high end of art sales for the past two years.

“We think the art market is cooling and becoming more selective even at the higher end which has, until now, appeared immune to negative economic and international news,” says Michael Plummer, principal of Artvest Partners and co-director of Spring Masters New York.

Auction houses
One of the most watched areas will be that of the auction market, which is dominated by Sotheby’s and Christie’s, which had a combined 42 per cent share in 2014 (total figures for 2015 are not yet available). The top of the market has been where the most eye-watering prices are made but, because of intense competition between the two houses, it is also where the rewards are slimmest.

The bottom lines of both are suffering. Christie’s as a private company does not report profits but insider information indicates it is not happy with its profitability. A spokeswoman said: “We run a profitable business . . . We are very focused on [giving] clients lots of choice and [making] money whatever the market conditions.”

Sotheby’s reported a loss in the third quarter of 2015; its share price fell by more than a third last year and at press time was standing at $26. And Phillips is also in the throes of change, hiring high-profile specialists while losing others, and moving into new sectors such as modern paintings.

Two results are likely to be played out this year. First, increased staff movements: already Sotheby’s has poached Christie’s long-timer Marc Porter to work on business development. With increased pressure to produce more revenues, it is likely that other auction-house staffers might seek other pastures, and already a number of Sotheby’s people have responded to the offer of voluntary redundancies.

The other scenario is a sharp cutting back on guarantees, which have become a two-edged sword for the salerooms. They have brought in huge consignments — such as the Taubman estate, to Sotheby’s — but also put the money into consignors’ pockets rather than those of the auction houses.

“If the art market does cool and become more selective, in 2016 it will be more difficult for auction houses to make as many guarantees as they have in 2014 and 2015,” notes Plummer, “because it becomes a much riskier bet on their part to find the right price level in a market that is moving sideways rather than mostly up.”

Art dealers
While a scaling-back of auction-house guarantees has cheered some art dealers, who hope to snaffle some of the works that would have gone to the salerooms, the mid-level gallerists in particular continue to feel under threat. “Grow or go” seems to be the relentless drumbeat, but not all galleries want to do 10 fairs a year or have three spaces to run.

Another problem is that many galleries, particularly those in cities where real estate prices are soaring, are abandoning ground-floor showrooms for upper-floor offices and doing more fairs. This is something the art fairs will have to address, as until now they have selected galleries on the basis of their programmes. This, plus the issue of how to deal with the growing number of “nomadic” galleries with no fixed showroom, should also be on the agenda for fairs this year.

Hybrid sales
One characteristic of the past two years has been “hybrid” auctions, which mix the top lots from traditional categories such as Impressionist and modern art with contemporary works, creating “Masterpiece” sales. The thinking seems to be that these higher-powered auctions are easier to source for, and that they correspond to buyers’ tastes. Few collectors stick to one category today, say the auction houses.

However, to an extent, these sales are pushing the less stellar material into a weaker “also ran” evening sale. And a couple of these high-profile sales last year did not turn out quite as desired: “The whole point was that contemporary was outperforming Impressionist and modern art, and the auction houses thought that mixing the two might help the latter,” says art adviser Lisa Schiff, who points out that while the policy seemed to bolster the Impressionist/modern sector, it also seemed to hurt contemporary. Artists such as Christopher Wool, Richard Prince, Andy Warhol and Jean-Michel Basquiat all underperformed, she says.

So the jury is still out on how well these mixed auctions can continue to do, especially if the market goes “sideways”, as Plummer says, making it more difficult to source the very top lots. Even so, expect to see the trend persist: Christie’s has already rolled its traditional Old Master sale, initially scheduled for December last year, into a new “Classic Art Week” in April, which will group Old Masters, antiquities, sculpture and decorative art, again with a higher-value auction dubbed “Revolution”.

Lawsuits
The epic battle between Yves Bouvier, art shipper, freeport owner and, it turns out, art dealer and/or agent, and his former client the Russian billionaire Dmitry Rybolovlev was continuing at press time. The fallout from this may well claim more victims this year among art galleries that were financed, even if only partly, by Bouvier. And his plan to develop a storage and cultural space on the Île Seguin in the Seine seems, er, dead in the water.

Meanwhile, the first Knoedler trial gets under way in Manhattan this month, with Sotheby’s chair and collector Domenico De Sole and his wife, Eleanore, accusing the now defunct gallery, its former director Ann Freedman and others of a multitude of sins under the heavyweight Rico act (Racketeer Influenced and Corrupt Organisations). Allegations in the case include fraud, deceptive trade practices and false advertising, as well as breach of warranty, resulting from the gallery’s sale of works of art that turned out to be forged. The defendants strenuously deny wrongdoing.

None of this enhances the reputation of the art market, at least at its higher end, and will strengthen the arguments of those calling for better regulation of what is still a largely opaque and lightly regulated industry.

Source: The Financial Times