The Risks of Using Auction Prices as Artworks’ Fair Market Value
Nov 27, 2018 6:32 pm
Photo by DON EMMERT/AFP/Getty Images.
One interesting trend across the past several cycles of major auctions has been the new forms of stagecraft used by auction houses in order to draw attention and publicity to star lots, with the aim of enhancing their value. Last November’s sale of
’s Portrait of an Artist (Pool with Two Figures) (1972) also generated mounds of publicity for the very public assertion that it would be sold with no guarantee (third-party or otherwise) and no reserve, virtually unheard of in a major auction. This high-wire gambit was further compounded by the sotto voce whisper campaign that the consignor (widely reported to be billionaire Joe Lewis) expected a price of $80 million for the work, and indeed rejected several third-party guarantees just below that threshold, apparently reflecting the consignor’s supreme confidence in his market acumen. The fact that the final hammer struck at exactly $80 million left many to wonder if some shenanigans were in effect. Kenny Schachter even speculated that the consignor could have bought the painting back himself.
However, I’d propose another purely speculative scenario—not because I have any reason to believe it is what actually took place, but rather because it brings forward an interesting question about the role that the public auction markets play as a measure of artworks’ fair market value. The Internal Revenue Service (IRS) defines fair market value as the price paid between a willing buyer and a willing seller, without external encumbrances and with a shared set of relevant facts. It views the price achieved for an artwork at auction (including buyer’s premium) as the fair market value benchmark for that artwork, because of the free determination of the public auction price.
Now, in my purely hypothetical scenario, imagine you own a major David Hockney oil-on-canvas, are very active in the secondary market, and have confidentially secured interest in a private sale of that work to another acquisitive collector in your very selective circle of art-world avatars. However, given the thin trading history of Hockney above $10 million, and the fact the $80 million price tag you expect for the work would exceed the artist’s auction record by several multiples, the potential buyer remains skittish and unconvinced of the sale, without the additional public enshrinement that a sale at auction would otherwise provide.
While most private sales are grounded on the promise of discretion and the anonymity afforded to both parties, in this scenario, publication of the higher-than-previously-established price and the promise of a fair market valuation of the work are conditions central to the buyer’s interests. If she acquired it privately for the undisclosed price of $80 million, and then reoffered it 10 or 15 years later without another public market comparable, she might find the market would only support a price of $60 million. She would therefore prefer the public precedent of an auction sale to establish that price as a foundation on whatever enhancement value might accrue later. Indeed, it is a staple of arts journalism to cite the prior auction price for works when reoffered as a purported measure of inflation and relative return.
As such, the consignor might agree to place the Hockney at auction on the (gentleman’s?) agreement that the prospective private buyer will bid up to the $80 million limit. In doing so, the consignor would also negotiate that a hefty portion of the buyer’s fees, which typically go to the auction house, be included in their take (what’s called a “hammer bonus” in the trade) in order to reduce their transactional costs. In this scenario, a proxy underbidder could then be secured by the seller to ensure that a limit bid is placed one increment below the agreed target price.
Finally, in order to flush out any prospective third parties, the buyer and proxy underbidder could agree to raise the price at minimal increments of, say, $100,000 in the final run up to $80 million, as any alternative bidder waiting in the wings would likely step in to short-circuit these minimal raises. In the absence of a third-party bidder, however, the two parties could control the increase to the agreed target price.
In such a scenario, we have in effect a “first-party” guarantee, in the sense that the consignor secures a guaranteed bid price from an independent party, and then secures a proxy underbidder to elevate the auction to just that price level. Certainly, another bidder could still step in to outbid that figure, but the buyer would then have confidence that they have viable market demand for a future resale, if they chose to go higher.
Of course, I have no indication that such a scenario occurred in this recent case, and it is perfectly conceivable that two bidders independently and autonomously settled on a target price, one of at least $80 million and the other of precisely $79.9 million. Any similarity to real persons and events is entirely coincidental.
Nevertheless, this purely hypothetical scenario underscores the way that public auction results could be manipulated, thereby distorting a work’s fair market value. Although my fictional scenario may sound outlandish, analogous schemes are hardly uncommon: It is widely understood, for example, that dealers will often bid on the artists they represent at auction to prop up their prices; they have even been known to acquire works back in this manner, in order to establish a floor for their retail prices. Certain consortiums of owners of works by prominent artists have also been known to actively bid up artists they own in bulk, in an effort to inflate prices in future sales by establishing a precedent.
My hypothetical scenario might also not technically be illegal (the consignor did not directly bid on their own property, after all), but it could be construed as an inverted form of old-fashioned collusion. As I discuss in my recent book on deaccessions, the legendary
at a country auction in England, by first securing a ring of other dealers to not bid against him, and thus reduce the hammer price. In the current hypothetical, however, the collusion is designed to inflate the price to an agreed level in order to establish a floor or benchmark for future buyers to measure against, to the extent that market participants at large generally have confidence that such prices are a true and unadulterated benchmark of fair market value.
It thus may be time that we bring some skepticism to the “fairness” of current measures of fair market value.
Martin Gammon is the founder of Pergamon Art Group and the author of “Deaccessioning and its Discontents: A Critical History” (MIT Press, 2018).
The opinions expressed above are solely those of the author.
In what looks to many like another sign of the times in the gallery sector, storied New York photography dealer Steven Kasher will close his namesake gallery at the end of this year to join David Zwirner as a director. Kasher announced the news via email this morning.
Although Kasher’s note emphasized that he would work to “source the best vintage photography—not to mention painting and sculpture—from the secondary market” for Zwirner’s collector base, he clarified in a phone conversation with artnet News that his new role will be much more expansive and collaborative. He likened the new union to a “cross-pollination,” in which he can introduce his photo-based collectors to Zwirner’s robust stable of artists (including icons like Donald Judd and Dan Flavin with no direct photographic practice), and his colleagues’ clients can further engage with photography and media through his own expertise and connections.
“There are some divisions of labor [at Zwirner], but they are definitely not media-specific, for one thing, and they’re not even really space-specific,” Kasher explained. “My knowledge of photography will be used by the whole team, and I’ll also be relating to all the different artists that David Zwirner represents for my clients. It goes both ways.”
David Zwirner Gallery at East 69th Street, NYC. Courtesy of David Zwirner Gallery.
A New Home
Kasher says that he will be based on the second floor of Zwirner’s 69th Street project space, where he will also be “interacting daily” with the artists and collectors who appear there. (His current sales director, Cassandra Johnson, will make the move with him.) His responsibilities will include collaborating on the exhibitions presented at the Upper East Side site, regardless of whether or not they center on photo-based work. He mentioned that, while he spent part of today exchanging ideas with James Welling (who will open an exhibition at the space in January), he will be just as involved in the Chris Ofili show that will follow it.
Aside from representing artist-writers Teju Cole and Bob Colacello, as well as feminist pioneer Joan Lyons, Kasher has been an influential dealer in works by some of photography’s most celebrated names, including Irving Penn, Robert Frank, and Diane Arbus, since he began working as a private dealer in 1995.
But with a rigorous background in other media, including studying under celebrated art historian Meyer Schapiro, Kasher is looking forward to engaging with much more than his new employer’s lens-based artists. “I started as a painter and sculptor,” he says. “In a way, it’s coming back to my roots.”
The Long and Winding Road
Over the years, Steven Kasher Gallery developed a reputation as a leader in documentary photography, as well as a champion of the work of African American artists and nontraditional practices. For example, gallery artist Ming Smith owns the distinction of being the first African American female photographer to be collected by the Museum of Modern Art, and photographer Stephen Shames, also represented by the gallery, earned acclaim with his pioneering work documenting the Black Panther Party beginning in the late 1960s. (Shames, who is white, established a close friendship with founding member Bobby Seale early in the group’s life.)
While Kasher was quick to note that he was hardly alone in this endeavor, he confirmed that he had been working very consciously for the past 25 years on broadening the art world’s conception of which images and image-makers are collected under the rubric of photography. Instead of isolating his efforts on images made by self-defined fine-art photographers, he “really pushed hard,” he says, to spotlight photo-based works originating “more from the margins than from the center of the art world,” including works emerging from photojournalism, fashion, science, and more.
Kasher has foregrounded this perspective beyond the gallery walls, too. Apart from his work as a dealer and curator, Kasher is also a prolific scholar. He is the author of many essays and multiple books, including The Civil Rights Movement: A Photographic History, 1954–68¸ America and the Tintype, and Max’s Kansas City: Art, Glamour, and Rock and Roll. Not surprisingly, each of these makes the argument for a more open-minded view of photographic media.
“An image that lives and breathes, that makes us see and feel and understand an important social movement—is that art?” asks Kasher. When he began dealing, he says, these other categories “were not collected, were not part of art museums. Now every museum has this kind of work.”
Ming Smith’s Mother and Child (circa 1977). Courtesy of the artist and Steven Kasher Gallery, New York City.
Challenges and Opportunities
But collecting tastes aren’t all that has changed in the photography market during his quarter-century as a dealer. Kasher notes that prices have skyrocketed, email and the internet have eased the burdens of presenting work to remote clients, and art fairs have ratcheted up exhibitors’ costs and pressures. “It takes more wherewithal to play in this game [today] whether you’re a dealer or a collector,” he says. Even technology’s efficiencies have a distinct downside: “As things get easier and more people do them, there is more competition.”
All of which contributed to Kasher’s decision to make the leap to the mega-gallery. He says the prospect of joining Zwirner arose during discussions about projects the two galleries were collaborating on, and that he explored the possibility for over a year before deciding to make the move.
“It’s very hard running a small gallery like mine,” says Kasher. By joining Zwirner, “I can take away some of those risks and some of that hard effort that doesn’t always get rewarded and have a different set of problems [instead].”
But it wasn’t just the difficulties that spurred Kasher to start this new chapter. The choice also stemmed from somewhat of a sense that he had accomplished his mission. In the email announcement, he highlighted the pride he felt over the fact that “the majority of our sales in recent years have been directly to major museums, a testimony to the importance of the artists we have been showing.” He also noted that he has been “active” in finding new representation for the artists on his gallery’s roster in the months leading up to today’s announcement.
By phone, Kasher added a bit more life perspective to his emailed sentiments. “I’m at a point in my life where my ego isn’t very strong. I don’t need my name on the door, on all the reviews of all the [projects] I’ll be working on. I feel very comfortable giving that up,” he says. “I’ve really enjoyed making a difference in New York… and getting a lot of kudos for that over the years. But it’s not necessarily something I need anymore.”
Kasher is not the first dealer to close up shop and take a job at the growing mega-gallery. Christopher D’Amelio closed his own Chelsea gallery to join Zwirner, where he is now a senior partner, in 2013. And cutting-edge Shanghai dealer Leo Xu shuttered his eponymous space last fall to lead Zwirner’s operation in Hong Kong.
Hauser & Wirth just took a big step forward in its transformation from a gallery into something that’s looking more and more like a museum. The Swiss mega-gallery is launching an independent nonprofit organization to focus on art historical research and the preservation of artists’ archives. The new Hauser & Wirth Institute, as it is being called, will be led by Jennifer Gross, who was previously chief curator and deputy director of the DeCordova Sculpture Park and Museum in Lincoln, Massachusetts. Prior to that, she was curator of modern and contemporary art at the Yale University Art Gallery.
The initiative is billing itself as “wholly independent nonprofit institute,” but it is funded by the gallery and governed by a board of directors that includes gallery co-founder Iwan Wirth as chair, gallery director Marc Payot as treasurer, Grey Art Gallery director Lynn Gumpert as secretary, lawyer David Shevlin, as well as Gross. The board will accept guidance from an independent advisory board comprised of artists, advisors, scholars, and archivists.
Because there are five board members, Wirth and Payot do not have a majority vote, Gross told artnet News. “All of the product is toward the public good and there is no outgrowth of our work that services gallery initiatives,” she said. “We will support projects that include gallery estates, but the product will be public resources.”
The inaugural initiatives announced today include an online catalogue raisonné of Franz Kline‘s paintings from 1950 to 1962, done in cooperation with the artist’s estate. Though Hauser & Wirth does not represent the estate, the Hauser & Wirth Institute provided funding to the Archives of American Art at the Smithsonian Institution to catalogue and digitize the Kline archive in order to realize the project. The institute will also work with the estate of Jason Rhoades, which it co-represents with David Zwirner, to catalogue and create an online portal to the collected materials of his archive, enabling free and open access to it for the first time.
Jennifer Gross, executive director of the Hauser & Wirth Institute. Photo by Axel Dupeux, courtesy of Hauser & Wirth.
Other initiatives supported by the institute include $50,000 fellowships for pre-doctoral, post-doctoral, and senior scholars. For 2018, the fellowships have been awarded to Melissa Rachleff, an associate professor of arts administration at New York University; Robert Slifkin, associate professor of fine arts at New York University; and curator and writer Philip Larratt-Smith, who is researching Louise Bourgeois‘s psychoanalytic writing for publication.
In spring of 2019, the institute will host the first of a series of symposia focused on managing artists’ archives.
Although the institute received only just its non-profit status this past summer and recently finalized the advisory board, it was established in New York in 2016 as a think tank.
Hauser & Wirth is launching yet another new venture: a quarterly art magazine called Ursula, in honor of gallery co-founder Ursula Hauser.
Journalist and novelist Randy Kennedy, who joined the gallery last year as director of special projects after 23 years at the New York Times, is executive editor of Ursula, which debuts in December with contributions by Luc Sante, Robin Coste Lewis, Alissa Bennett, and Pipilotti Rist (on her recipe for Japanese pickles). The managing editor is Catherine Davis, who previously held that role at Interview and Spin magazines. The graphic studio Common Name designed the magazine.
“There has been a lot of thinking about how to make this look right and feel right,” Kennedy told artnet News. “It will be about art that’s being made by the gallery’s artists and art that’s coming out of estates, but it will also feature a lot of writing about living artists, historical work, and dispatches from the worlds of literature, design, architecture, food, and books.” But all the content will be “at least tangentially” related to art, he says.
Kennedy’s had a long affinity for print magazines. He subscribed to Harper’swhile growing up in a small town in West Texas and became particularly fond of a little known hardcover arts magazine called Horizon, which was published between the 1950s and the 1980s. That magazine, which featured writers such as John Ashbery, W.H. Auden, Nancy Mitford, and Frank O’Hara, was an inspiration for Ursula, Kennedy says.
“While some writers had a real connection to the art world, others didn’t but would take on a subject for a profile, or they would write an essay,” he says. “That’s the spirit that I want to do this in. I’m really trying to commission writers who don’t normally write about art or don’t write about it that often but who may have a real affinity for a certain work or period or who who have a great idea for an essay.”
The magazine’s logo. Courtesy of Hauser & Wirth.
Ursula will be distributed internationally on newsstands, major bookstore chains in the US and UK, as well as at several Hauser & Wirth galleries and some museum stores.
“It has always been our mission to make the gallery a home for our artists where other thinkers, writers, and visionaries can also gather and engage,” gallery president Iwan Wirth told artnet News in an email. “Now Ursula will be an editorial home as well, a truly global magazine that reflects our philosophy.”