Chasing Myanmar

By MICHAEL MCCULLOUGH          March 21, 2013

The Global Art Market in 2012

I suppose I started to notice it about eight years ago, when art fairs became the major source of income for most new galleries. Before that, collectors were content to visit individual galleries and attend shows based upon the strength of the artists and artwork on view; to a certain extent, they still are. The art fairs, however, offer a broad range of works in a single event which caters more to those who want to “find” works to buy than to those who want to be “shown” them. As a result, the major fairs have become somewhat of a status symbol for galleries to be taken “seriously” by this new breed of buyers, reminiscent of a trend several years ago where artists needed to have a presence on Google in order to sell their art. All of these are the organizing forces of a nascent global market in artwork, where information and public events provide fodder for market participants to adopt certain palates, follow major trends and purchase artwork.

TEFAF, the world’s leading art fair, opened last Friday and held a symposium to review the global art market during 2012. As TEFAF is the first major fair of the season, it’s quite clever of them to assume the wise-old-man role, and I suspect these market reviews will be a regular event at their fairs. In conjunction with this, they released a report, “TEFAF Art Market Report 2013” analyzing trends in the global art market last year. To no surprise, the worldwide art market contracted by 7% in 2012, as the Chinese market beat a retreat and shrank by almost a quarter.

Regrettably, the report suffers two major flaws from which it cannot recover completely. The first is a miscalculation of the estimated size of the private market, an understandable but fundamental error. The second is a failure to detail the volume of sales in each market sector, which is nothing short of lame.

For instance, they say the public market (auctions) makes up 48% of the total market and the private market (galleries) comprises 52%. To people who actually work in the market, these numbers are off wildly; most people estimate the private market to be at least twice as large as the public market. If my estimates are correct – and we know the global public market was at $27 billion last year- then the global private market was around $54 billion, thus the total global market should have been somewhere around $81 billion. To put this in perspective, if the art market were a separate economy then it would rank seventy-fifth, edging out Croatia and just behind Myanmar (which we should still call Burma).

To the second point, the “art market” is broadly defined as fine art, decorative art and antiques; this is a fair-enough definition, but the report fails to compile statistics on the volume of sales within each category. No reason is given for this omission, leaving the reader to wonder whether their statistics on the private market were so unreliable, or unobtainable, that a finger-in–the-air estimate of the total market size was the best they could do, with further examination relegated to the public market. In consequence of this, the report is only useful in its analysis of the trends within each sector of the market but not for comparisons among them.

One interesting observation is that 83% of the total public market by value is centered in three countries: the US, China and the UK. The US regained its leading position with 33% (up 4% on 2011), China dropped to 25% (down 5%), and the UK remained third with 23% (up 1%). What this really means is that the global public market is focused essentially in four cities: New York, Beijing, Hong Kong and London. This is equally true for the private market, as a brief review of the top galleries bears out.

We should also take note of the continuing strength of the high end of the market. In 2012, 66% of the fine art sales on the public market were of works priced over $250,000, even though these works made up only 2% of sales and 4% of total number of artists whose works sold at auction during the year. The top end of the private market, represented by gallery sales over $13 million, reported an average increase in turnover of 55%. The report mentions anecdotal evidence from gallerists that the market continues to be extremely selective, with some galleries reporting greater difficulty in selling low and medium priced works, while other galleries reported strong sales in higher priced works. Indeed, inquire of any artist or gallerist working in the middle market about its strength and you’ll likely get either a blank stare or a burst of profanity; the middle of the art market is sort of like being on the median of a major highway- everything is passing you by and you can’t seem to get off.

Perhaps feeling a need to explain these recent trends, the report suggests that investors are “minimizing risk by purchasing works by the best-known artists at the top end of the market.” This often-proposed explanation of the art market is, at best, incomplete: wealthy collectors choose art based upon their own tastes and preference with little concern for what market watchers think; investors are just following along for the ride. After all, the art market is still a collector’s market, although maybe just barely.

The report also focuses on China, which supposedly became the world’s principal market for art and antiques in 2011 with sales soaring to 30% of the global total. I recall having a good laugh over these statistics when I was in China last year, as sales figures from Chinese auctioneers were never considered by anyone in the market to be vaguely reliable. In fact, Beijing issued regulations last year to clean up an auction industry fraught with fakes, smuggling and non-payments, all of which tend to have an inflationary effect upon the market. TEFAF says the Chinese art market dropped by 24% to $13.8 billion in 2012, mainly due to a slowdown in economic growth in China and a reduced amount of high quality, high priced works coming onto the market. It also seems that many art funds and other speculative investors in China pulled away from the market last year.

Of course, the most under-reported story in the art market last year was Sotheby’s joint venture in China, which gives the company the ability to have its own auction sales on the mainland. Last September, Sotheby’s invested $1.2 million and took an 80 percent stake in a joint venture with state-owned Beijing Gehua Cultural Development Group. The joint venture, called Sotheby’s (Beijing) Auction Co. Ltd., can take advantage of the new Tianzhu Free Trade Zone in Beijing being developed by Gehua. Sotheby’s will likely gain a sharp market advantage in coming years due to the joint venture, thus propelling the company into a dominant spot in both the auction and private sales markets in China. Other perks of the joint venture are Sotheby’s ability to hold sales outside the free-trade zone and, more importantly, their ability to partner with other entities outside of China.

In fact, on Tuesday of this week TEFAF announced that it has entered into “exclusive discussions” with Sotheby’s to explore the possibilities of developing a high-end art fair for China in 2014, via Sotheby’s joint venture. “TEFAF Beijing 2014,” they say, would represent a ground-breaking collaboration between a leading international auction house and the world’s most important art and antiques fair.

Come to think of it, what is the Chinese word for market share?

Writing a Wrong

New York Changes its Laws to Protect Artists

By MICHAEL MCCULLOUGH          February 7, 2013

In an interview in 1976 with Barbaralee Diamonstein-Spielvogel , the great dealer Leo Castelli said, “[t]he function of an art dealer, well, can be various; certainly, a good art dealer, an art dealer who really cares for art and not about making money, should be to find new artists, make them known to the public.” When asked the insightful question about his role in the business of selling art, he responded, “I am more than somebody who wants to sell paintings. The selling of paintings seems to be a secondary thing. I have to, of course, sell them to finance my activity, but the activity really is the important game, my gallery. And I am very happy to just tag along in the midst of tremendous financial difficulties as long as I can keep the gallery going.”

That, in my opinion, is the way that the art market is supposed to work. Not to say that there is anything wrong with art dealers making money- the economics of operating a gallery have changed dramatically since Castelli’s time- but the basic principal should still stand: at no point in the calculation should the dealer’s interest in the artwork be greater than the sum total of the artist’s. The good dealer understands that the primary objective of a gallery is to promote the artist and the artwork, and there is plenty of money to be made along the way. But, there are people pretending to be art dealers in order to have fun, to throw big parties and to make buckets of money, even as the artists’ interests are abandoned as secondary concerns. And when it all goes horribly wrong with these ventures, as it always does, the death knell sounds when the dealer makes the insalubrious choice to pay the gallery’s debts before paying the artist.

Take the case of Sae Hyun Lee, a talented painter from South Korea, who, like most other artist, painted for years before receiving critical acclaim for his work. After several successful solo exhibitions in Europe, Mr. Lee received an invitation in 2011 from Nicholas Robinson Gallery for a solo show in New York. Ten paintings were consigned immediately. Two of the paintings sold before the show was over and Mr. Lee received his commissions, but things went very silent even before the gallery stopped returning phone calls about the return of the unsold artworks. It wasn’t long before the arrival of a terse letter from Nicholas Robinson’s attorneys about how the gallery was out of money and contemplating bankruptcy. Sadly, as it goes, neither the artwork nor the money could be accounted for properly, which means not at all.

This might have been the end of the story, save for the fact that Mr. Lee is represented in Seoul by Chan-kyu Woo of Hakgoje Gallery, a dealer cast from the Castelli mold. Mr. Woo engaged a New York lawyer, Henry Jung to press for the return of the artwork. Mr. Jung is a former Assistant District Attorney and a very good lawyer who had the very unpleasant experience of being my roommate in law school. Only after Mr. Jung filed a lawsuit in federal court last March, the judge issued a temporary restraining order against the gallery, and Nicholas Robinson himself appeared at a court hearing, did it become clear that Mr. Robinson had sold the paintings and spent the $370,000. Unfortunately for Mr. Lee, Mr. Robinson’s pockets were a bit light; in fact, they were empty. “How could this happen in New York, of all places?” asked Mr. Jung.

It’s not supposed to. In the 1960’s, the Arts and Cultural Affairs Law was passed in New York state to give artists certain protections: artworks consigned by an artist were deemed trust property and the proceeds of their sale were considered trust funds. This was done to dissuade irresponsible people from getting into the gallery business. The problem with the law was that it did not include any measures for enforcement and penalties, which, in a perverse way, enabled a dealer to use an artist’s sales proceeds to pay the gallery’s own operating expenses. If the gallery failed financially, the artist lost the money. In essence, a gallery that absconded with artwork or funds was subject to the same penalties as the drycleaner who failed to return your suit, although the dry cleaner would likely be decent enough to speak with you in person instead of through a lawyer, and might even apologize for the inconvenience.

The District Attorney’s offices might seem like the next port d’escale for Mr. Lee, as selling somebody else’s property and taking the money sounds like it should be a crime. Like most other things in life, it’s more complicated than it seems. That is to say, the failure of a dealer to pay the artist becomes a crime only if the dealer’s inability to pay is itself the result of an underlying criminal act. You may recall Larry Salander went to jail because, among other things, he used the proceeds of art sales to pay off prior debts in a Ponzi scheme. It would also be a criminal act for a dealer to use an artist’s money to enrich him or herself personally. In either example, the crime would be grand larceny which in New York State is pedigreed, like most other things, based upon the dollar amount involved. Law enforcement officials are often interested in art fraud cases, as they represent a welcomed break from drug dealers and purse snatchers; nevertheless the criminal nature of the event needs to be fairly certain for them to get involved. At first blush, the failure of a dealer to pay an artist is not necessarily indicative of any crime, perhaps just an unfortunate business decision. As a result, many of these cases are not investigated and artists, like Mr. Lee, are forced to bring civil lawsuits against galleries and gallery owners in order to protect their rights.

Remarkably, the balance of power shifted in October to favor the artists; a new law was enacted in New York giving teeth to the trust property and trust fund provisions in the existing law. Now, the artwork and the sales proceeds are considered property held “in statutory trust” and cannot become the property of the gallery or be subject to any claims by gallery’s creditors. Perhaps more important, the law adds clear penalties for its violation: a dealer who absconds with artwork or an artist’s money commits a misdemeanor criminal offense and is subject to criminal prosecution and fines. I’ll concede that it’s rare for a defendant convicted of a misdemeanor charge to serve jail time for a first offense, but the new law is ripe for judicial firmness in the most outrageous cases and always a peril for the previously tarnished.

Of course, all of this comes too late for Mr. Lee, as American jurisprudence abhors the ex post facto imposition of new criminal punishment for prior acts. Nonetheless, our government in Albany has finally acted to protect one of New York’s greatest assets, its artists, who are no longer subject to the caprice of businessmen who treat the loss of a painting like a bad investment in a barrel of oil or a bushel of corn. Everybody- well, almost everybody- knows that New York City’s vivacity emanates from the young people who come here to share their creativity with the world. How much longer could New York be called “the art market capital of the world” if the law couldn’t protect vulnerable artists?