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For the niche community following the new Permanent Subcommittee report on art & money laundering: much has been said about the policy implications. I'll add here that the report also gives some great examples of why auction data is so weird. 1/n
https://www.hsgac.senate.gov/imo/media/doc/2020-07-29%20PSI%20Staff%20Report%20-%20The%20Art%20Industry%20and%20U.S.%20Policies%20that%20Undermine%20Sanctions.pdf
https://www.hsgac.senate.gov/imo/media/doc/2020-07-29%20PSI%20Staff%20Report%20-%20The%20Art%20Industry%20and%20U.S.%20Policies%20that%20Undermine%20Sanctions.pdf
Definitely read the report - it is full of intrigue, the Senate version of a thriller. Although some main conclusions have been suspected (or documented in Panama Papers), the recommendation to revise the BSA is welcome and would be a major win. 2/n
But the report also provides vivid evidence for what happens behind the scenes at auction houses. This is often overlooked by those who work with or discuss auction data. Auction prices are weird, and we should be careful when discussing the price of a single artwork. 3/n
First, art comes to auction through a negotiation process. Sellers shop around their artwork. Auction houses negotiate not just on the appraisal price but on the terms of the sale.
The report discusses how Brucke II by Lyonel Feininger was shopped to Christie's & Sotheby's 4/n
The report discusses how Brucke II by Lyonel Feininger was shopped to Christie's & Sotheby's 4/n
Key Point #1: auctioneers often have buyers in mind before they accept consignment.
Christie's estimated Brucke II at 4-6mil GBP and tried some persuasive tactics (see the pic). I highlighted a key one: *Christie's knew the people who had bid on this painting in the past.* 5/n
Christie's estimated Brucke II at 4-6mil GBP and tried some persuasive tactics (see the pic). I highlighted a key one: *Christie's knew the people who had bid on this painting in the past.* 5/n
Key Point #2: It's not just about one artwork, it's about how it'll bring in bidders for other pieces.
Christie's offered to make Brucke II the "star of the show." I've highlighted terms where Christie's has agreed to spend out of pocket on Brucke II to attract bidders. 6/n
Christie's offered to make Brucke II the "star of the show." I've highlighted terms where Christie's has agreed to spend out of pocket on Brucke II to attract bidders. 6/n
Eventually the seller went with Sotheby's, which gave the same estimate of 4-6 Mil. GBP. But Brucke II never made it into the auction, because Sotheby's could not identify any potential bidders! 7/n
Our image of an art auction being some magical tool of price discovery is not always correct, especially for high-value pieces. Yes, an artwork might set a record. But often the downside risk has been mitigated in advance, and at least some bidders curated by the auctioneer. 8/n
So when we talk about the market value of a single artwork - and not even all the other forms of value discussed in certain fields - we are discussing value that is produced in a somewhat controlled environment, with a lot happening "under the hood" that most of us never see. 9/n
The highly idiosyncratic nature of art shows how risky it is to hold art as an asset. The seller of Brucke II bought it in 2014 & could not sell it at auction in 2019 (tho maybe got a private sale later), showing it's not always possible to "flip" a painting in short run. 10/n
A very interesting new paper by @CSpaenjers et al. makes some some similar points. Even for very successful collectors much of their portfolio value is attributable to a small fraction of their art. 11/n
https://academic.oup.com/raps/article/doi/10.1093/rapstu/raaa001/5716334
https://academic.oup.com/raps/article/doi/10.1093/rapstu/raaa001/5716334
Finally, I make a related point in recent paper on "sleeper" antiquities. Some aspects of law may make it profitable to "flip" ancient art in certain ways. In some case studies this appears to be successful but in others it definitely fails. 12/n https://www.cambridge.org/core/journals/international-journal-of-cultural-property/article/sleeper-antiquities-misattributions-in-sales-of-ancient-art/3086E58D6FFF3FDB94F51DF1FC8CAB34
Moral of story: we should be careful of putting too much weight on individual art prices. The process generating those prices is contingent on context & luck, and we usually observe very little if anything of that process. n/n
