Anyone who views investing in art as a financial enterprise must be fascinated by the profit margins, which are sometimes a result of a quick resale in auctions.
Critics are opposed to this practice, and the artists do not always profit.
But does art flipping influence the art world or is it primarily a media only phenomenon?
INVESTING IN ART CHECKLIST
- Art flipping is economically attractive, since the media only ever reports of the few successful attempts at rapid increases in value, but not the countless futile attempts.
- The developments in the art market suggest that several parallel markets have developed, which obey a different set of rules.
- The rumor spread of 'hot' names harbors the danger of bubble formation.
- Formulating which artists and artworks will be significant can only be predicted by an intensive and long-term discussion with the art world.
- Anyone who treats investing in art like securities runs the risk of permanently losing the trust of gallery owners and artists.
The interest driven, high profit buying, and the rapid resale of works by young artists are constantly on focus
A PUBLICITY DRIVEN MARKET?
Wherever art lovers look art flipping, the interest driven, high profit investing in art, and the rapid resale of works by young artists are constantly on focus.
Whether the discussion is conducted critically or is surprisingly fascinating (it is usually both at the same time) it is remarkable how much the focus is on the art trade.
Art news stories are rarely ever about exciting directorial changes to museums, nor is it about current exhibitions or the next art fair.
Artistic themes seem to have been pushed into the background with the entire media energy and attention seemingly absorbed by the economy of the art market.
Major market developments are heavily covered by the art section of newspapers, where only the extremes, the few peaks, which are all too often about success stories, which are written up and shared.
Through the media, public perception of art is shaped by notion that:
- There are no limits to trade in contemporary art.
- Works can be resold 3 times within 7 years with a total price increase of 450%
- Even artists who had their first gallery exhibition 3 years ago can earn millions.
- The works of young artists are now passed directly to the auction market, where they reach top prices.
Nobody reports about the many purchases of artworks, or the countless careers of artists, who never took off.
HAS SPECULATION INCREASED THE WORTH OF ART?
It’s no wonder that investors and speculators, who haven’t had any prior education or interest in art, are attracted with these stories of “Eldorado” and enter without any notion expertise.
With growing interest in contemporary art as speculation, the number of art investment funds has grown substantially in recent years.
Deloitte estimated that at the end of 2012 there were 47 funds operating, with $1.6 billion in assets. Most are in the United States and United Kingdom.
The typical art fund prospectus specifies acquisition of modern and contemporary art works at $1 million and over, with a 15% annual target rate of return, a 2% year management fee and a 20% performance fee levied on returns above the target amount.
Generally funds say their investing in art strategy is to buy and hold for a minimum of 5 years.
A couple of funds have tried to include a 10 year investment lock-in period, but few investors were willing to commit for that length of time.
A study commissioned by the New York Times which examined a period of 20 years, does not show any strong trends regarding the number of years before owners consider reselling works of art.
“Reselling art at auction is not a new phenomenon,” wrote Fabian Bocart in the report.
DOES ART FLIPPING THREATEN THE ART WORLD?
Mega art collector Charles Saatchi, who has frequently been accused of flipping art—sometimes buying works by a single artist in bulk or reselling works quickly—offered up some priceless views:
“Being an art buyer these days is comprehensively and indisputably vulgar. It is the sport of the Eurotrashy, hedge-fundy, Hamptonites; of trendy oligarchs and oiligarchs; and of art dealers with masturbatory levels of self-regard.”
Saatchi laments the lack of interest in art among the new wave of collectors who are unable to tell the difference between a good artist and a weak one, with only validation of influencers as guidance.
It is arguable that the same level of expertise is the same in every industry. So long as you have the passion and means to collect this is no reason to suggest a threat to the art world.
In fact it’s the complete opposite as continued acquisitions suggest a strong art market economy.
The basic argument for art price appreciation is one of scarcity. It is said that there are more new billionaires each year than top works of contemporary art coming to market.
Some of those billionaires will create their own museums, keeping their art off the market and creating demand for more works.
The reasons for investing in art are, above all, passion for art, intellectual added value in dealing with works, and a desire to surround themselves with beautiful things.
Speculation on value is ranked second.
WHAT DO THE GALLERY OWNERS SAY?
For galleries art flipping is a real threat, for the one young artist that continuous to grow in the millions there are dozens who’ve been chewed up and spit out.
Art flipping is always a topic for galleries that try to place their artists in serious, substantial and long-lasting collections.
For a cautionary tale, consider Matthias Weischer, who was barely into his 30s when his 2003 work ‘Wand (Wall)’ sold for $125,588 at Sotheby’s in London in 2006.
Passion for art, intellectual added value in dealing with works, and a desire to surround themselves with beautiful things
In only five years later the same piece fetched just $58,419 at a 2011 auction in Berlin.
Art galleries are careful about whom they sell too by focusing on the profile of their artists, with a hope that their association with respectable collectors will soon be reflected in the media.
The media focus on the topic is also a thorn in the eyes of many gallery owners and artists, because it is increasingly related to the current misunderstanding of what art is - to the detriment of the context.
Money and speculation are easier to write than on artistic context. It attracts a wider readership.
WHAT DOES IT MEAN FOR COLLECTING?
Be cautious to whom you sell: this is an attitude of gallery owners to detriment of their relationship to prospective buyers.
No one likes to be rejected. No one likes to miss out.
Due to current art flipping developments, an unspoken distrust of investing in art is drawing in.
Mutual trust in good intentions is an extremely high asset, which must also be recovered: the trust between the gallery and a collector who wants long term success for their artist, and hence their investments.
Countless gallery owners have in good faith sold the work of a sought after young artist to a seemingly enthusiastic new collector only soon after to find the works in secondary market auction catalogs, these experiences will not be so quickly forgotten.
The process of investing in art is becoming more difficult among the traditional gallery set up with “art flippers” considering direct methods to reach artists work.
WHAT DO THE ARTISTS DO?
Another relatively new strategy for the quick turnaround of works of art is to provide direct access to the artist. Consultants who install themselves directly between the artist and the buyer avoid the gallery owners.
They promise sales to the artists and give them access to works they would not otherwise sell.
Instead of a gallery exhibition or a personal studio visit, pictures of the works are sent by smartphone. The prerequisite is that the artist agrees to this distribution channel.
The art that circulates on these paths are very similar: abstract or deliberately naive painting that does not need much to know.
The fact that knowledge is not required here has seen the elimination of many artists who fail to capture the art flipping attention. And even that of great names.
FAST FAME AND "LIQUIDATE"!
The painter Jacob Kassay, came to fame in the shortest possible time by art flipping and reached an auction high of $290,500 in 2011 - 12 months earlier he was selling at $6,000 to $8,000.
Only 6 months after that high point Kassay’s decline saw his auction price lower to $180,000, a 60% drop.
John Kassay’s story of rapid rise, and decline, is due to a lack of attention from his galleries who sold his work for far less ($20,000) than it might bring on an open market, which is an invitation to speculators to purchase and flip by consigning the newly brought works to an auction house.
Once the high end art collectors were satisfied in their Kassay purchase, there was little demand at the dramatically higher price level.
Collectors expect modest price increases, never multiple stage jumps. Those on the waiting list expect to buy at the original price, which the gallery will now not honor.
Warhol may have invented art as a business, and artists such as Jeff Koons, Takashi Murakami and Damien Hirst have each expanded and refined art.
Today, however, young artists are born into the market. Whether they are market-savvy or not, they have to acknowledge the positives and risks associated with art flipping.
DISTINCTION AND REPUTATION
So what is this unrighteous, unfavorable reaction to art flipping all about?
Since profiteers of this practice do not directly harm anybody directly, it is difficult to formulate a reproach that does not sound like misgivings and concubines.
Only the ones who have set themselves on a lot of bad, meaningless art, according to venture capital logic, are in the misty hope of soon launching a second Kassay on the auction market.
If this event does not occur, it is not written.
But it is precisely these risk-capitalist ways of thinking that disclose an unspoken agreement about what art is for buyer.
For example, anyone who moves around in the art market, as in the real estate, ignores the requirement that investing in art should be worked out.
You may be too late. You may be coming into the market just as the savvy investors are bailing out
Should an artist’s market price be managed and increased systematically by a dealer?
Should major auction houses agree not to sell a work of art for a period of time after its first gallery sale?
Or was the Kassay process reasonable? With the price for primary market art determined by the final two bidders at each auction.
These are questions that are hard to answer and we are getting no closer to finding a solution with very little transparency, or governing body, to control how the art market is processed.
Within this very flexible and elastic market, what is the principle mistake that art flippers must avoid?
"Don't buy what everyone else is buying," advises Philip Hoffman, director of Fine Art Fund. "You may be too late. You may be coming into the market just as the savvy investors are bailing out."