Damien Hirst’s Sotheby’s Auction Begins the Unwinding of the Hegemonic Gallery/Dealer SystemArt, The Safety and Beauty of Real, Tangible Assets

“Non-financial assets form the greater part of world wealth and have been more stable in value during periods of financial and social turbulence.” – Roger Ibbotson and Gary Brinson, “Global Investing”  

Between September 15th and 17th, Wall Street and world financial markets were turned on their heads as 158 year-old investment bank Lehman Brothers filed for bankruptcy, followed by the Fed’s rescue of the insurance behemoth AIG. Credit markets seized up, stock markets plummeted and gold dramatically reversed its weeks-long downward movement. 

However, it was obvious that no one had though to inform art lovers as concurrent with the carnage on Wall Street, the artist Damien Hirst was busy staging a record auction of work by a single artist, selling $200.7 million of his most recent work at Sotheby’s. The game-changing auction of 223 original pieces of art has effectively changed the rules of the game, permitting an art lover to simply walk in off the street, without having to demonstrate their ‘seriousness’ to a dealer or gallery-owner, bid for a piece of original art and become its owner. Requirement: money. Not required: proper referrals, lineage, documentation of existing portfolio, etc. 

Not only did the sale highlight the juxtaposition between those assets with value (the visual and tangibly creative) and those woefully lacking it (creative financial instruments), but it signals a sea change in the way that artists view their options, as well as the volume of work from which the public can now choose. And in that sense it marks a seismic shift toward a newly democratic artworld. 

The wildly successful auction at which all but five pieces sold marked the first time that original artwork was auctioned without having passed through either a gallery or dealer’s hands. With the increased number of venues for marketing and selling artwork, the argument against consigning art first to high-cost (50% or higher) brick-and-mortar galleries and dealers has acquired a new solidity. 

Poverty is not the cost of respect in any other industry or endeavor, however, it has seemingly been inculcated as such within the realm of art. 

Hirst himself refers to the 50% cut taken by galleries as “an extortionate amount of money.”

When Claude Monet hosted the first exhibition open to the public of Impressionist artwork in the 1800’s, in effect circumventing the prevailing juried system, it’s unlikely there were very many cheers from the establishment. However, the exhibition held on the Boulevard des Capucines undoubtedly altered the way that artists’ sold their work.

Under the dealer/gallery system, a romantic notion was repeated often enough and allowed to codify as a truth, i.e. that artists must suffer to produce good art and that any state other than perpetual poverty for an artist translated to ‘selling out.’ Not in any other creative or sports-related endeavor does this fiction exist, and it has survived only because of the prevailing inefficient sales and management structure under which the levers of power were tilted in favor of distributors instead of producers.

In the end, no industry is spared the power of the market – all are eventually mean-reverting. Hirst’s auction represents quite a few miles logged on the road to reversion.

 

A new era of value equality is unfolding among the worlds’ artists. In the case of the price differential between the work of the contemporary ‘art stars’ and emerging artists, consider for a moment an important influencing factor also found in the stock market: uncertainty. For instance, a company operating in an industry where a key competitor suddenly becomes the subject of an investigation will undoubtedly see its stock price at least temporarily negatively impacted regardless of culpability simply because of investor uncertainty. Lack of knowledge in any industry acts as a damper on value, and let’s face it, the famous are such because to date they’ve received the entirety of the spotlight from the art market apparatchik, hence relatively little is known about those without such support.

 

However, the internet is THE equalizing factor. In an era where the internet functions as the facilitator of the distribution and promotion of the work of emerging artists from all over the world, the era of the ‘art star’ deemed such by the critics, curators and self-appointed art experts has come to a necessary end. 

 

In order to assess value and predict the direction of prices with respect to any asset, including stocks, it’s instructive to look at comparables. The work of the Old Masters and other dead artists has stood the test of time thus guaranteeing its worth in the form of the stratospheric prices garnered today. What is less clear is the rationale for the difference between the prices paid for the work of many contemporary artists and the much larger group of emerging artists. In any other industry, over time such a relative value disparity would disappear. 

 

Given the increasing recognition of the value of art today, equalization of the prices between discovered and undiscovered artists is inevitable if only because the relative value of the latter is highlighted. In the case of two stocks with equal earnings generating power where the sole exogenous, differentiating factor is the amount of ‘coverage’ by Wall Street that each receives, the difference in price to the long-term investor highlights the less expensive as a powerful value, and the common sense choice. Yes, the value stock may lack the imprematur of the big Wall Street analysts, but how many times have they overlooked a diamond covered in coal dust? Emerging artists are the greatest investment opportunity that no one has ever heard of.