Just 25 artists are responsible for almost half of all postwar and contemporary art auction sales, according to joint analysis by artnet Analytics and artnet News. In the first six months of 2017, work by this small group of elite artists sold for a combined $1.2 billion—44.6 percent of the $2.7 billion total generated by all contemporary public auction sales worldwide.
Our findings quantify what many market-watchers have long observed: As increasingly wealthy buyers compete for a shrinking supply of name-brand artists, the art market has become highly concentrated at the top. Nevertheless, the reality—that the work of just 25 artists generated almost as much money at auction as the work of thousands of other artists combined—may be even more extreme than some realized.
Winner Takes All
“The contemporary art market is a good example of a ‘winner-takes-all’ market, where a very small proportion of artists is responsible for a very large market share, and a very large proportion has a very small market share,” says Olav Velthuis, a professor of sociology and anthropology at the University of Amsterdam. The same phenomenon is evident among athletes, actors, and musicians, he notes.
(We defined “postwar and contemporary” as works created after 1945 and based our analysis on prices supplied to artnet’s database by 420 auction houses worldwide in the first half of 2017. The data set includes 70,507 works offered for sale during this period.)
The top-heaviness is more extreme this year than last. In the equivalent period in 2016, the top 25 artists accounted for 37.4 percent of all postwar and contemporary auction sales, according to our data—7.2 percent less than this year, but still a dramatically outsize proportion of the total.
Source: artnet Analytics
A New Era
It was not always this way. There was a time when the bluest of blue-chip did not rule the high-end art market with such a mighty hand. In the 1980s, the emerging class of major collectors was more focused on buying new art on the primary market—Jeff Koons, Cindy Sherman, Gerhard Richter—than snapping up trophies from the recent past at auction.
Andy Warhol, Big Campbell’s Soup Can with Can Opener (Vegetable) (1962). Courtesy of Christie’s Images Ltd.
But after the market crashes of 2000 and 2008, “you saw a more substantial shift to resale material and proven masters,” says Allan Schwartzman, the co-founder of Art Agency Partners and chairman of global fine arts at Sotheby’s.
This shift was made more extreme by the emergence of ultra-wealthy new collectors in Asia, Eastern Europe, and the Gulf, who sent a jolt of fresh money into the auction market. “Most of those new buyers were not entering the market with [purchases of work by] the artists of their generation—they were entering with the most important works by the most important artists,” Schwartzman notes.
The numbers bear this out. In the first half of 2007, when many of these new collectors began flooding into the market and a focus on brand names had firmly taken hold, the top 25 artists accounted for 48.8 percent of total auction sales, a slightly greater proportion than they do today.
Winners and Losers
What do the winners of this 21st-century market dynamic have in common? Perhaps unsurprisingly, almost all artists on the 2017 list are white and male. Thirteen, or just over half, of the top 25 are American.
These statistics surprised Scott Nussbaum, the head of 20th-century and contemporary art at Phillips. “Thinking about how the market has grown in the past decade, [I would presume] it has become more progressive with artists of color, female artists, artists outside the historical canon we all grew up with,” he says. “These numbers just seemed to reinforce the total opposite.” He notes that the same number of women (two) and the same number of African-American artists (one, Jean-Michel Basquiat) appear on the list in 2007, 2016, and 2017.
Beyond their demographic similarities, the vast majority of these artists also have a recognizable style, making their works appealing trophies. “For many buyers, it is important that their peers recognize the works they own—and that is only possible if the pool of artists is relatively small,” Velthuis notes.
At the same time, most of these anointed ones—such as Warhol, Rauschenberg, and Richter—are also quite prolific. “When you have a combination of an artist who, on a per-work basis tends to command fairly high prices, plus a critical mass of work, it’s no surprise that they’re at the top of the list,” Nussbaum says.
Solving the Supply and Demand Puzzle
Still, some things have changed over the past decade. New additions to the list in 2016 and 2017, such as Keith Haring and Jean Dubuffet, illustrate the extent to which the market is willing to revisit previously overlooked talents as the supply of established favorites wanes. By the same token, the fact that artists like Lucian Freud and Jasper Johns dropped off the list between 2007 and 2017 does not necessarily mean their markets are weak, but rather that there are simply fewer top works available.
Source: artnet Analytics
Indeed, the question of who makes it into the upper echelons of today’s auction market has far more to do with supply than demand, experts say. Looking at artnet’s data, Benjamin Mandel, a global strategist for J.P. Morgan Asset Management, notes that between the first half of 2016 and the first half of 2017 the number of lots sold fell by 17 percent, but average price generated by these lots rose by 25.6 percent—a “puzzling dynamic.”
“Usually, when there is a lot of demand, it increases the quantity of goods sold,” because the market responds to meet the desires of consumers, Mandel notes. In this case, “the quantity sold went down, but price went up.”
What this suggests, Mandel says, is that the top-heavy market for postwar and contemporary art has been shaped most recently by a lack of supply. There are simply not enough works to fulfill the demand that exists. As a result, when top works by top artists do make it to market, their prices climb further and further upward.
Not the Whole Story
Of course, looking at the top slice of public auction sales offers a very incomplete picture of the market as a whole. One major painting that sells for $20 million can shoot an artist into the top 25, even if his or her work does not consistently sell for those kinds of stratospheric sums. The figures are also self-reported by auction houses, a small number of which—particularly in China—have been accused of recording bids for works that were never fully paid for as final prices.
These numbers also do not account for works sold privately by auction houses or galleries—a significant portion of the market for contemporary art. Schwartzman says there are a number of artists who routinely sell out exhibitions on the primary market but whose auction record is comparatively low because only minor works have hit the block. (He offers Kai Althoff as an example.)
Similarly, some historically significant and sought-after artists like Jasper Johns have not had a major work appear at auction for several years, which puts their auction market out of sync with the private market.
“There are new players who are major drivers of the market who don’t know Jasper Johns,” Schwartzman notes. “So what will happen when the next major Johns comes forward? In all likelihood, it would probably carry a relatively conservative estimate because there hasn’t been a proven record of lots of money spent, despite rumors of the primary market.”
Another important caveat: By and large, the artists themselves do not directly benefit from these massive auction sales—only their collectors do. “The artists, if they are still alive, receive at best only a small percentage of resale royalties on these sales, but in most cases, don’t receive anything,” Velthuis notes.
Whether a small number of highly coveted artists will continue to subsume a larger and larger proportion of auction sales hinges on the answer to a much bigger question. “It depends on whether the trend in inequality will continue… and it’s hard to say whether inequality in income and wealth will change anytime soon,” Mandel says.
Some market players are hoping this top-heavy dynamic will eventually have to give way to something more balanced. “There’s a lot of other great art that’s equally significant that is not these top 25 names,” Schwartzman says. “As supply decreases and number of people looking for art increase, there is so much great art that could come forward.”
States are targeting those who avoid sales and use taxes
The rules governing taxes on art purchases ‘aren’t clear, and there is a huge matrix of complexity people get trapped in,’ says tax accountant David Lifson.ILLUSTRATION: MICHAEL SLOAN FOR THE WALL STREET JOURNAL
States are cracking down on art collectors who aren’t paying taxes owed on their purchases.
States don’t release details about investigations into evasion of taxes on art purchases. But according to lawyers representing defendants in such cases, state attorneys general and revenue departments around the country have stepped up their investigations and prosecutions for failure to pay sales and use taxes on art purchases.
Thomas C. Danziger, a New York City art lawyer, says investigators in New York and other states monitor art sales through data mining that includes examinations of declared items coming through U.S. Customs, regular audits of major art galleries, reviewing news about art buying in the media, searches of interstate shipping logs and sharing of information with other states. The state attorney general’s office wouldn’t confirm this information.
San Diego tax attorney Sam Brotman says that the increased focus by state officials isn’t just on uncollected taxes on purchases of art. “They also are tracking sales of other big-ticket items such as boats, luxury cars, airplanes and jewelry.” But artworks have become a point of particular concern, he says, especially in California and New York, which are the two largest art markets.
Some prosecutors also have gone after gallery owners who they say have colluded with collectors to evade the required taxes. Charges also have been filed against art dealers who fraudulently claimed that their purchases were exclusively for resale, a legitimate exemption, when in fact the artworks were for their personal enjoyment.
Some finance professionals argue that many transgressions aren’t intentional, but rather the result of a lack of clarity in the tax laws.
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“The rules aren’t clear, and there is a huge matrix of complexity people get trapped in,” says David Lifson, a tax accountant with New York-based firm Crowe Horwath LLP. For example, most people wrongly assume that the vendor pays the sales tax, says Mr. Lifson. But it is the buyer who is required to pay the sales tax, at the time of purchase, unless the piece is being shipped to another state. In that case, a use tax is charged by the destination state. Use taxes typically are equal to the sales tax in each state.
In New York City, the sales tax is 8.875%. Thus, if a $1 million painting was purchased in New York City and was put in the buyer’s New York home, it would entail a sales tax of $88,750. If it were shipped to a buyer’s home in Connecticut, where the sales tax is 6.35%, it would result in no tax charged by New York, but a Connecticut use tax of $63,500.
To avoid legal problems, lawyers and other experts who advise art collectors recommend keeping good records: the price paid for an artwork; where it was shipped to; and where it has been stored or displayed.
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Purchasers of art destined for another state also must be very careful about how the piece is shipped to avoid owing local sales tax. In New York state, the gallery or other seller has to arrange the shipping directly and use a “common carrier,” such as UPS, Federal Express or the U.S. Postal Service. If the buyer takes the item and brings it to the shipper, he or she technically has taken possession of it in New York state and owes the sales tax, says New York lawyer Amelia Brankov.
Collectors in California can avoid that state’s sales and use taxes if the artwork is shipped directly to another state and displayed there for more than 90 days, says Mr. Brotman, the San Diego attorney. Moreover, he notes, if the artwork is shipped directly to Oregon, which has no sales or use tax, and displayed there for more than 90 days, the buyer can avoid taxes altogether. Several art museums in Oregon have participated in this kind of arrangement before the pieces are ultimately shipped back to the purchaser’s home in California.
Most other states, including New York, don’t allow this. If someone who purchased artwork in another state moves it to a residence in New York, even after a period of years, that person will still owe a New York use tax, although the taxpayer would receive credit for the sales or use tax already paid and only would owe the difference between the two.
Private art collectors and investors also have sent their purchases directly to fine-art storage facilities in Delaware, such as Crozier Fine Arts and Delaware Freeport, where the purchases are tax exempt. The collectors forego paying either sales or use tax until they choose to ship the artworks to their homes, says Fritz Dietl, founder and president of Delaware Freeport. For some, “their homes already are full of art, so they might as well store new works where it is tax-exempt,” Mr. Dietl explains. For others, he claims, the issue is deferring taxes until some more propitious time. “Maybe, they buy something at Miami and have it sent to us, figuring that they’ll have more money in a year or two to pay the tax. They can play with that sales-tax money now.”
Art dealers have been known to ship empty containers to other states to evade sales taxes. Buyer takes possession in NY, records show the art was sold to a New Hampshire buyer. It's always a good idea to have a vacation home or friends out-of-state.
Very little of the tax evasion is innocent. The dealers are well aware of what the rules are.
The article brings to mind John Kerry berthing his yacht out-of-state to evade taxes.
Trump is right. The system is rigged in favor of the rich and well connected.