The NY Times has an interesting article on the slow growth of the art market and what various players are doing to offset the lack of interest and lack of sales. Some are increasing fees and diversifying into other areas. The Sotheby's and Christie's recent increased in buyer premium thresholds is one example of trying to maximize fees, while the Sotheby's purchase of the Mei Moses art index show the diversification strategy in offering additional and proprietary services.
As the art market changes, all professionals need to be aware and reassess and possibly reinvent what they are doing. For example, the London based Fine Art Fund Group has changed its name to the Fine Art Group and is now offering art advisory services.
I have recently seen more art advisory work in my own appraisal practice, and I would like to see it continue and to grow. I have recently registered for the SEAK How to Be an Effective and Successful Appraisal Witness program scheduled for the ISA conference in late March as well, as I have recently been involved in several cases which had or have litigation potential. For more information on the SEAK Expert Witness program at the ISA Annual Conference, click HERE.
Just a few days ago I posted on changes in delivery of art market education, and the need for our appraisal organizations to be aware of these changes and to be progressive when dealing with membership needs and education. Times as well as markets and clients are different than just a few short years ago, especially due to vastly changing technology, education delivery options and the growing and unique demands of collectors and users of appraisals. The good news is I see more young professionals with excellent market experience coming into appraising and they appear to be well prepared.
Take a few minutes to read the NY Times article and also think about how you might wish to diversity your practice.
The NY Times reports
Source: The NY TimesLONDON — How do you make money in a low-growth world?
Any number of companies and private investors are asking this question. It’s certainly a pressing one for businesses trying to make money out of art, at a time when the well-off have become more reluctant to buy — and sell — valuable artworks.
This month’s bellwether evening auctions in New York of postwar and contemporary art at Christie’s, Sotheby’s and Phillips have been estimated to raise at least $536 million. The equivalent sales in November 2015, when the market was already beginning to cool, grossed $1.2 billion with fees.
“Everyone regrets that the presidential election, Brexit and other macro factors have made sellers risk-averse,” said Neal Meltzer, an art adviser based in New York. Like many professionals in the art market, Mr. Meltzer has noted how the sales rooms’ newfound reluctance to guarantee minimum prices has resulted in a drought of “masterpiece quality” works priced at more than $50 million.
Faced with challenging conditions, companies tend to do two things. First, they try to enhance existing sales. Second, they diversify. And this is exactly how the West’s major auction houses are responding.
In an attempt to eke out more income from purchasers, Christie’s and Sotheby’s have both increased the price bands in which buyers pay higher fees. In September, Christie’s raised the ceiling to which it charges a maximum 25 percent commission on works sold, to $150,000 from $100,000; while last month Sotheby’s announced it was increasing its own ceiling to $250,000 from the same figure. The upper limit of the next band, in which buyers pay 20 percent, has been increased at both houses to $3 million from $2 million. In addition, Sotheby’s now charges 12.5 percent on bids above $3 million, compared with 12 percent at Christie’s and Phillips. Phillips’s charges, revised in May, levy buyers 25 percent up to $200,000.
“We’re locked in this death spiral of ever-more aggressive deals to the vendor that have to be recouped from the buyer,” said Edward Dolman, the chairman and chief executive of Phillips.
According to Mr. Dolman, there has been a “dramatic collapse” in the fees the major auction houses charge sellers. “The bigger the buyer’s premium, the more money you have to incentivize the seller. It’s all about enhanced hammer deals,” he added, referring to auction houses’ practice of attracting high-value artworks by not charging owners and offering them a percentage of the fees paid by the buyer.
Guarantees, with or without backing from third parties, are also still on the table for those few works that shift market share. Phillips’s Nov. 16 auction of 20th-century and contemporary art is estimated to raise more than $100 million, far in excess of the $66.9 million its equivalent raised last year.
The value of this potentially game-changing sale for the company has been bolstered by the 1963 Gerhard Richter photo-based painting “Düsenjäger,” estimated at $25 million to $35 million, and a circa 1948 Clyfford Still abstract at $12 million to $18 million. The sellers of both works have been guaranteed minimum prices by third parties.
Sotheby’s Nov. 17 contemporary sale includes paintings by big-name artists such as Mr. Richter and Georg Baselitz from the collection of Steven and Ann Ames that have a collective guarantee of $100 million.
But unlike Phillips, Sotheby’s is also actively pursuing a strategy of financial diversification. On Oct. 27 the New York-headquartered auction house announced it had bought the Mei Moses Art Indices, a constantly updated database of 45,000 repeat auction sales.
“We are very happy to be in a position to provide collectors with proprietary information tailored to their needs,“ Adam Chinn, Sotheby’s executive vice president, said in a statement on the surprise acquisition, which will now be called Sotheby’s Mei Moses. Sotheby’s would not divulge the purchase price, but Michael Goss, the auction house’s chief financial officer, described it as so small as to be “immaterial.”
The index tracks successful resales at auction, but ignores the unsold lots that routinely represent 20 to 40 percent of the material at any public sale. “It’s a one-dimensional index. It narrows the sample to winners,” said Anders Petterson, founder of the London-based art market analysts ArtTactic. “But it could be useful to have something that tells clients that such and such a market is up 5 percent.”
It is clearly regarded as a useful product by Sotheby’s, particularly now that the Taikang Life Insurance Company of China has become its biggest shareholder (since July).
“Asian collectors prefer to buy at auction. For them, it’s a better one-stop shop than an art fair,” said Adrian Cheng, a billionaire collector whose nonprofit K11 Art Foundation, based in Hong Kong, nurtures the careers of young contemporary artists and curators in mainland China. He added that the salesrooms gave new buyers instant access to expertise. “The auction house shows you what you should buy — or what it wants you to buy,” he said.
The publicly listed Sotheby’s is evolving, to a far greater extent than Christie’s and Phillips, from a traditional auction house into a diversified asset management company, with its various public and private sales, art advisory, art lending and now art index businesses. Some other players in the art market are following suit.
The London-based Fine Art Fund Group, one of the pioneers of the art fund investment model when it was founded in 2001, rebranded itself in June as the Fine Art Group, reflecting its diversification into art advisory services. Last month, the group announced it was starting a high-end art lending business, Fine Art Financial Services. The subsidiary aims to compete with Sotheby’s art lending arm, which posted revenues of $29.5 million on $630 million of loans in the first half of this year, up 20 percent on the equivalent period last year.
Funded by the group’s own client base, Fine Art Financial Services will offer loans over three months to three years secured against 50 percent of the value of artworks. The loans will be charged at an undisclosed annual interest rate of “mid-single” digits, according to Philip Hoffman, founder and chief executive of the Fine Art Group.
Like rival lenders Falcon Fine Art and Athena, but unlike Sotheby’s, Fine Art will offer loans secured only against the art, rather than other assets. Falcon and Athena both charge annual interest rates of 7 percent to 9 percent, Sotheby’s 6.5 percent to 8 percent. So far, Fine Art Financial Services has been shown about $300 million in potential collateral, Mr. Hoffman said.
The “art business” continues to expand. Meanwhile, the pool of actual art on which much of this business is based continues to contract.
Last month, Sotheby’s and Christie’s evening “Frieze Week” auctions of contemporary art offered works by 31 and 34 artists respectively, more than 20 percent fewer than last October, according to data compiled by ArtTactic, the art market analysts. Paintings by Mr. Richter generated 20 percent of the £82.3 million taken in those sales. An additional 10 paintings by Mr. Richter will be offered in this month’s evening auctions in New York.
“There is a relatively small sample of artists in play at the moment,” said Mr. Petterson, founder of ArtTactic. “It feels like the process is very curated. The market has found a level.”
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