WEBVTT - How Auction Guarantees Are Changing The World Of Art 0:00:11.360 --> 0:00:15.520 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.680 --> 0:00:20.280 I'm Joe Wisenthal and I'm Tracy Alliwhite. Tracy, did you 0:00:20.320 --> 0:00:22.800 know we just had something in New York that's apparently 0:00:22.840 --> 0:00:25.400 called Gig a Week. See now, I don't know how 0:00:25.440 --> 0:00:28.640 to answer this question because we're sort of talking about 0:00:28.640 --> 0:00:31.840 it a few minutes before we started recording. I am 0:00:31.880 --> 0:00:35.520 aware that there was a big, big art auction. I 0:00:35.560 --> 0:00:39.080 was unaware that it's actually called gig a Week. Yeah, 0:00:39.120 --> 0:00:42.280 I didn't realize that either. Like I guess, every once 0:00:42.320 --> 0:00:46.360 in a while, auctions, big weeks of art auctions are 0:00:46.440 --> 0:00:49.080 kind of like Mardi Gras New Orleans or something. They 0:00:49.120 --> 0:00:51.240 just suddenly just pop up and your feet just gets 0:00:51.520 --> 0:00:54.560 dominated by people who are at this event, and you're like, oh, yeah, 0:00:54.600 --> 0:00:58.080 this is happening again. So obviously in New York recently, 0:00:58.120 --> 0:01:02.400 we just had a series of gigantic art auctions, and 0:01:02.600 --> 0:01:06.240 apparently because of how much money the art sells for 0:01:06.640 --> 0:01:08.960 during the course of the week, they called gig a 0:01:09.000 --> 0:01:12.959 Week because over a billion dollars of art gets sold. Okay, 0:01:13.040 --> 0:01:16.199 so lots of money, uh flowing through those auctions. And 0:01:16.480 --> 0:01:19.360 there was one point of interest in particular because I 0:01:19.360 --> 0:01:22.880 remember you actually tweeting about it. But the father of 0:01:22.920 --> 0:01:28.200 Treasury Secretary Steve Manuchin, he bought a pretty large how 0:01:28.240 --> 0:01:31.600 do I describe it? A sculpture that resembles like a 0:01:31.680 --> 0:01:34.880 balloon bunny. Yeah, and I don't even think it was 0:01:35.040 --> 0:01:37.440 at large, although we can get into it. But yeah, 0:01:37.520 --> 0:01:40.000 so a balloon bunny sold for a ton of money. 0:01:40.040 --> 0:01:42.679 I forget how much. It sold for a crazy amount. 0:01:42.959 --> 0:01:45.839 And the guy who bought it at the auction, although 0:01:45.840 --> 0:01:47.559 I guess he was just a dealer, so he bought 0:01:47.560 --> 0:01:51.600 on behalf of someone else was the Treasury secretary his dad. 0:01:51.640 --> 0:01:53.880 But it was sort of like this perfect, you know, 0:01:54.040 --> 0:01:57.600 zeitgeist other moment thing, an insane amount of money for 0:01:57.640 --> 0:02:01.520 a sculpture of the Treasury secretary's dad. So it seems 0:02:01.560 --> 0:02:04.520 like a good time to talk about the art world 0:02:04.520 --> 0:02:07.800 and the financialization of the art world and where it's 0:02:07.800 --> 0:02:09.400 all going and what it says about the state of 0:02:09.400 --> 0:02:12.600 the economy. Oh, I feel so cultured. This will be 0:02:12.639 --> 0:02:16.280 the most cultured episode of add thoughts. That's probably true 0:02:16.280 --> 0:02:19.240 because I don't think we've talked about this before. So 0:02:19.440 --> 0:02:23.200 without further ado, I wanted to bring in our guests 0:02:23.400 --> 0:02:25.919 and It was actually from a tweet by our guests 0:02:25.960 --> 0:02:27.760 that I the first time I saw the whole thing 0:02:27.800 --> 0:02:32.960 about Manuchan's dad and making the big purchase. So Margaret Carrigan, 0:02:33.080 --> 0:02:36.480 she's the deputy art market editor at the Art Newspapers, 0:02:36.560 --> 0:02:40.000 from her tweet that I saw about the Coon's Bunny sale, 0:02:40.360 --> 0:02:42.120 thank you very much for joining us, Thank you so 0:02:42.200 --> 0:02:45.320 much for having me. So what was that like being 0:02:45.320 --> 0:02:48.000 in the room when the Coon's Bunny sold? And how 0:02:48.080 --> 0:02:50.120 much was it? And sort of tell us what that 0:02:50.200 --> 0:02:52.920 was all about. Well, being in the room, I have 0:02:53.040 --> 0:02:55.680 to say, was pretty much business as usual. This has 0:02:55.720 --> 0:02:58.360 become very de regret to be selling art for that 0:02:58.480 --> 0:03:01.480 much money. Now. Of course I say that rather fliquently 0:03:01.520 --> 0:03:03.440 because I have to cover these all the all the time. 0:03:03.520 --> 0:03:05.680 But you know, it wound up soling for just over 0:03:05.840 --> 0:03:09.640 ninety million, and that's that's nothing to you know, looked 0:03:09.639 --> 0:03:12.959 down your nose at the Coon's Bunny. Work was actually 0:03:12.960 --> 0:03:17.240 really interesting because it sold for eighty million dollars and 0:03:17.280 --> 0:03:20.320 with fees that came out to about million. It was 0:03:20.360 --> 0:03:22.920 sold without a guarantee. Now that's kind of like a 0:03:22.919 --> 0:03:25.720 big deal for a piece that has that much worth 0:03:25.800 --> 0:03:29.000 behind it. More and more frequently, we're seeing the use 0:03:29.120 --> 0:03:33.119 of third party guarantees by auction houses to basically offset 0:03:33.160 --> 0:03:35.440 the risk of selling these high value works of art. 0:03:36.000 --> 0:03:37.640 And this one, they were just kind of let fly 0:03:38.160 --> 0:03:40.720 by the seat of its pants to see how it did. 0:03:41.320 --> 0:03:44.440 Before we get into the question of guarantees and how 0:03:44.560 --> 0:03:47.280 all that works, I just want to talk about the 0:03:47.320 --> 0:03:50.280 bunny a little bit more. And when I saw that 0:03:50.400 --> 0:03:52.800 it was sold for million dollars, I assumed it was 0:03:52.800 --> 0:03:54.960 one of these gigantic sculptures that's as big as an 0:03:55.040 --> 0:03:56.680 entire room where you need to add a wing to 0:03:56.720 --> 0:03:59.800 your house. But it's not really even that big right now, 0:04:00.040 --> 0:04:02.880 only about three and a half feet. That's crazy. If 0:04:02.880 --> 0:04:05.720 it's appropriate, I'd love to give people a visual of 0:04:05.760 --> 0:04:09.440 this bunny. Is looks like a balloon animal and this 0:04:09.480 --> 0:04:11.160 is kind of something that the artist of Coons is 0:04:11.200 --> 0:04:14.000 famous for. It's one of his most iconic works. It 0:04:14.040 --> 0:04:16.400 was one of only four ever made, so in that 0:04:16.440 --> 0:04:19.160 way that because there's a limited amount of these bunny 0:04:19.160 --> 0:04:21.640 sculptures out there, it had a lot of cash a 0:04:22.360 --> 0:04:24.560 but yeah, when you look at it, it looks like 0:04:24.720 --> 0:04:29.400 a silver toy. So let's get back to the guarantees, then, 0:04:29.480 --> 0:04:32.480 can you walk us through what those are exactly? And 0:04:32.560 --> 0:04:35.279 you know you mentioned that it was unusual that the 0:04:35.320 --> 0:04:39.240 coon's bunny or rabbit didn't come with a guarantee given 0:04:39.640 --> 0:04:42.599 the price tag attached to it. How how much of 0:04:42.600 --> 0:04:46.440 the art market currently does come with a guarantee. Well, 0:04:46.600 --> 0:04:49.680 within the last gig a week um earlier in May, 0:04:49.720 --> 0:04:54.320 about all lots were guaranteed, and that could be either 0:04:54.400 --> 0:04:57.960 by an in house guarantee or a third party guarantee. So, 0:04:58.120 --> 0:05:00.720 just to back it up a little bit, in their 0:05:00.760 --> 0:05:03.560 simplest form of guarantee is like, it's just an agreement 0:05:03.600 --> 0:05:05.640 between a seller who wants to consign their work with 0:05:05.680 --> 0:05:08.520 an auction house and the auction house that no matter 0:05:08.560 --> 0:05:10.800 what the outcome of the sale, that seller is going 0:05:10.800 --> 0:05:13.240 to get their money's worth. So the terms and the 0:05:13.279 --> 0:05:17.039 conditions of these agreements can really vary, and they're always 0:05:17.120 --> 0:05:19.400 very secretive, so we don't really know that what goes 0:05:19.440 --> 0:05:23.960 into outlining all of these bare bones guarantees. But whatever 0:05:24.120 --> 0:05:27.600 terms the auction auction house decides to offer is a 0:05:27.640 --> 0:05:30.280 big incentive for that seller to consign with them, So 0:05:30.320 --> 0:05:34.000 it's definitely within the best interests of the auction house 0:05:34.080 --> 0:05:36.200 to minimize the risk for the consigner as much as 0:05:36.240 --> 0:05:39.320 possible if they're trying to get these like high value 0:05:39.480 --> 0:05:42.599 trophy works of art like a coon's rabbit sculpture, because 0:05:42.600 --> 0:05:44.280 they think that will help push it forward on the 0:05:44.320 --> 0:05:48.240 auction block. So just break this down a little bit further. 0:05:48.600 --> 0:05:52.120 Let's say I have a Coon's bunny in my collection 0:05:52.320 --> 0:05:55.039 or some other piece of art that I want to sell, 0:05:55.120 --> 0:05:56.560 and I know it's going to be a big hit 0:05:56.680 --> 0:05:59.960 and multiple how many like big auction houses are there 0:06:00.400 --> 0:06:04.160 in the US. There's three predominant ones, the Christie's, Southeby's, 0:06:04.160 --> 0:06:06.839 and Phillips, and so in theory, what they say is 0:06:07.200 --> 0:06:10.360 list with us or sell it through us, and will 0:06:10.480 --> 0:06:15.360 provide you some guaranteed minimum set right exactly and where 0:06:15.360 --> 0:06:18.160 does that come from? Then there's a third party entity 0:06:18.240 --> 0:06:20.800 that promises to do the bidding. Explain how that all 0:06:20.839 --> 0:06:24.080 works in the traditional just guarantee model with like the 0:06:24.120 --> 0:06:25.760 in house guarantee. And I feel like this is important 0:06:25.800 --> 0:06:27.600 to set up a ut why third party guarantees are 0:06:27.640 --> 0:06:30.040 kind of on the rise right now. Basically the auction 0:06:30.040 --> 0:06:32.880 houses started doing this a lot to attract these bigger 0:06:32.880 --> 0:06:35.560 collections and these bigger works of art, and it can 0:06:35.560 --> 0:06:38.200 play out in one of three ways. In one way, 0:06:38.720 --> 0:06:42.440 the lot fails to sell, and in that case it's 0:06:42.560 --> 0:06:44.919 what's called bought in by the auction house. So the 0:06:44.920 --> 0:06:47.080 auction house then owns that work of art and pays 0:06:47.120 --> 0:06:51.240 the consigner whatever they're you know, lowest bit was. And 0:06:51.279 --> 0:06:54.680 then the problem with that is when and when a 0:06:54.760 --> 0:06:58.040 work is bought in, it's called what's burnt and people 0:06:58.240 --> 0:07:00.560 like act like it was no good for the art, 0:07:00.600 --> 0:07:02.560 and so it actually lowers the value of that work 0:07:02.600 --> 0:07:06.080 of art. Now, if it actually goes for its guaranteed price, 0:07:06.120 --> 0:07:09.240 then everybody wins, you know, the seller gets the money 0:07:09.320 --> 0:07:11.760 they were hoping to get for the work, the auction 0:07:11.760 --> 0:07:13.760 house gets a little off the top. It's all good. 0:07:14.280 --> 0:07:16.800 And then best case scenario is it's going to sell 0:07:17.200 --> 0:07:20.200 for more than it's guaranteed price, and then the auction 0:07:20.200 --> 0:07:23.320 house nets that profit and everyone's a little bit happier. 0:07:23.360 --> 0:07:25.040 It's a little bit cookid. Now that's where the third 0:07:25.040 --> 0:07:27.840 party guarantee really gets going, because they realize that they 0:07:27.840 --> 0:07:30.640 can bring in the auction houses realize that they can 0:07:30.680 --> 0:07:35.200 bring in another person to offset the risk for them 0:07:35.280 --> 0:07:37.760 and that person gets paid out and makes a little 0:07:37.800 --> 0:07:40.040 money off the top, and so does the auction house. 0:07:40.640 --> 0:07:42.640 That's really where it's at right now. With the third 0:07:42.640 --> 0:07:44.680 party guarantee. We've seen the rise of them over the 0:07:44.760 --> 0:07:47.840 last couple of years exponentially, and these are also known 0:07:47.880 --> 0:07:51.600 as irrevocable bids. And what that means is basically that 0:07:51.760 --> 0:07:55.120 third party guaranteer is saying, I put a bit on 0:07:55.120 --> 0:07:58.239 this work no matter what, for this amount. That amount 0:07:58.320 --> 0:08:01.640 is secret, No one knows what that is, and that's 0:08:01.680 --> 0:08:05.440 just negotiated between the auction house and the consigner and 0:08:05.920 --> 0:08:10.440 the third party guarantee before the auction happens. It's probably 0:08:11.200 --> 0:08:14.000 near the low estimate for the work, so that's what 0:08:14.160 --> 0:08:16.640 the usual benchmark, but it could be more, it could 0:08:16.640 --> 0:08:19.920 be less. So it means that when that when that 0:08:20.000 --> 0:08:22.880 third party guaranteer comes in with that work, it's basically 0:08:23.000 --> 0:08:25.840 establishing a market value for that work right then and 0:08:25.880 --> 0:08:29.040 there that no one else knows about. H that's really 0:08:29.080 --> 0:08:32.200 interesting that it's done sort of off of the public market, 0:08:32.280 --> 0:08:35.680 I guess. So walk us through who these third party 0:08:35.920 --> 0:08:39.280 guaranteurs are. And just to be clear, if if the 0:08:39.400 --> 0:08:43.120 art doesn't sell for more than the minimum guaranteed price, 0:08:43.480 --> 0:08:47.080 do they take delivery of that art? Yeah, that's the thing. 0:08:47.720 --> 0:08:52.400 For the most part, these guaranteers used to be dealers 0:08:52.520 --> 0:08:57.000 or collectors that had the capital or the expertise to 0:08:57.080 --> 0:08:59.160 kind of be like, yes, I will front this money 0:08:59.200 --> 0:09:04.800 for this piece. Now that is not necessarily the case anymore. 0:09:04.840 --> 0:09:07.120 We're seeing a lot more people wanting to get in 0:09:07.120 --> 0:09:09.280 on this because they've heard that they're good returns on these. 0:09:09.320 --> 0:09:11.319 So we're seeing a little influx of people that are 0:09:11.320 --> 0:09:15.320 just interested in getting the work, but they will take 0:09:15.360 --> 0:09:18.559 possession of the work if it doesn't sell to somebody 0:09:18.679 --> 0:09:21.840 to a higher bidder. Let's talk about those returns that 0:09:21.880 --> 0:09:24.080 they expect, and let's just sort of go through the math. 0:09:24.240 --> 0:09:27.440 So let's say that there is a piece and maybe 0:09:27.440 --> 0:09:29.640 at the high end they think it could fetch twenty 0:09:29.679 --> 0:09:33.000 million dollars and I'm just talking hypothetically, and maybe the 0:09:33.120 --> 0:09:35.640 ranges tend to twenty and I'm one of these third 0:09:35.679 --> 0:09:38.960 party guaranteurs, and I say, Okay, I'm gonna guarantee that 0:09:39.000 --> 0:09:41.920 I'll bid ten million dollars on it. And then let's 0:09:41.920 --> 0:09:45.000 say it's a blockbuster auction, it goes to twenty million 0:09:45.040 --> 0:09:48.360 dollars and I don't have to. I don't lose any money. 0:09:48.360 --> 0:09:50.880 I didn't buy the piece. What do I get paid 0:09:51.320 --> 0:09:56.760 for having offered that ten million dollar guarantee? Well, the 0:09:56.800 --> 0:09:58.960 math is where it gets tricky. The easiest way to 0:09:58.960 --> 0:10:01.360 look at that is that if you guarantee that work 0:10:01.400 --> 0:10:04.280 for ten million dollars and it went for twenty then 0:10:04.360 --> 0:10:06.640 you are getting a share of that extra ten million 0:10:06.679 --> 0:10:09.600 that it went for. I see, But that breakdown is 0:10:09.600 --> 0:10:12.920 not necessarily clear. That's something that's negotiated between the guaranteer 0:10:12.920 --> 0:10:15.760 and the auction house. But that payout is based somewhere 0:10:16.400 --> 0:10:19.600 on the spread between what I had offered as my 0:10:19.679 --> 0:10:23.840 guarantee and the ultimate price. But in theory, that could 0:10:23.880 --> 0:10:27.000 be a very fast, huge return for me if it 0:10:27.080 --> 0:10:30.040 turns out that the final price is much higher than 0:10:30.040 --> 0:10:33.079 what I had Yes. Absolutely, And in fact, we're seeing 0:10:33.160 --> 0:10:35.600 guarantees being made up until like ten minutes before an 0:10:35.640 --> 0:10:37.839 auction starts. Now it is very new. It used to 0:10:37.920 --> 0:10:40.680 be these were secured more in advance, and they would 0:10:40.679 --> 0:10:43.600 be notated in the catalogs that you would pick up 0:10:43.600 --> 0:10:45.280 at the beginning of an auction, and that are distributed 0:10:45.320 --> 0:10:48.920 the week before the auction. Now, however, there is usually 0:10:48.960 --> 0:10:51.680 like a running tally that the auctioneer will give off 0:10:51.760 --> 0:10:54.800 and the beginning. Some are marked in the catalog, but 0:10:54.880 --> 0:10:58.920 some are made literally as they're walking up into the podium. 0:10:58.960 --> 0:11:03.240 If the auction house is are incentivized to offer minimum 0:11:03.240 --> 0:11:06.679 guarantees in order to get you know, interesting art consigned 0:11:06.720 --> 0:11:10.880 to them from perspective sellers, and if the third party 0:11:10.920 --> 0:11:15.920 guaranteurs are sort of incentivized to provide a floor of 0:11:16.360 --> 0:11:20.160 some store, is is that dynamic? Is that one of 0:11:20.200 --> 0:11:23.800 the reasons why art prices seem to be getting higher 0:11:23.800 --> 0:11:26.000 and higher, at least for certain pieces. Does it add 0:11:26.080 --> 0:11:28.960 upwards pressure on the price of art? So this is 0:11:28.960 --> 0:11:31.240 such an interesting question, and it really gets to the 0:11:31.640 --> 0:11:34.000 heart of the art market in general and why it's 0:11:34.040 --> 0:11:37.560 just so shadowy and weird. So far, there has not 0:11:37.720 --> 0:11:40.920 been of a huge correlation between the use of third 0:11:40.920 --> 0:11:45.079 party guarantees and the upward prices of art in general. 0:11:45.480 --> 0:11:48.679 That seems to just being dueled by general you know, 0:11:49.280 --> 0:11:52.439 wealth in the world today that's driving those prices forward. 0:11:52.720 --> 0:11:54.640 But this a lot of these studies that have been 0:11:54.679 --> 0:11:58.640 done about the correlation between third party guarantees and the 0:11:58.679 --> 0:12:01.840 price of a work of art came out several years ago, 0:12:02.040 --> 0:12:05.160 and this has changed just within that time. To backchecked 0:12:05.200 --> 0:12:07.440 just a little bit, the use of these irrevocable bit 0:12:07.600 --> 0:12:12.080 bids became increasingly popular after the two eight financial crisis 0:12:12.120 --> 0:12:14.760 when the major auction houses had to pay out some 0:12:14.840 --> 0:12:17.840 big sums to consigners for works that they had guaranteed 0:12:17.840 --> 0:12:20.840 in house when those failed to sell. And I think 0:12:20.840 --> 0:12:23.840 between Christy's and Sotheby's two million was paid out for 0:12:23.880 --> 0:12:26.640 these consigners that guaranteed work with them and they couldn't 0:12:26.840 --> 0:12:29.640 sell it. So that's when they we really started to 0:12:29.679 --> 0:12:33.240 see people bringing in the third party guaranteers, and again 0:12:33.280 --> 0:12:37.240 those were significant usually significant collectors like the Mods and 0:12:37.360 --> 0:12:39.959 mcgrat families like those people were the ones fronting the 0:12:40.000 --> 0:12:43.360 money for these things. Also, big name um dealers like 0:12:43.400 --> 0:12:47.240 a Gosion Pace Jasmin, they'd come in and also front 0:12:47.280 --> 0:12:49.160 the money for it because they'd be looking to, you know, 0:12:49.480 --> 0:12:53.800 kind of back their own artists markets. So this third 0:12:53.880 --> 0:12:57.280 party model actually started to increase the liquidity of the 0:12:57.360 --> 0:13:00.120 art market, which is the notorious problem because it's at 0:13:00.160 --> 0:13:03.000 attempting people to buy and sell work when they didn't 0:13:03.040 --> 0:13:05.839 necessarily need to by offering the promise of some kind 0:13:05.840 --> 0:13:08.440 of return on it, and it started to morph into 0:13:08.440 --> 0:13:11.559 the speculative tool then and now there are just a 0:13:11.559 --> 0:13:13.400 lot more people that are wanting to get into this. 0:13:13.480 --> 0:13:15.920 And then I think according to a recent report that 0:13:15.960 --> 0:13:19.280 was published in the Wall Street Journal, before the recession, 0:13:20.040 --> 0:13:22.880 there was a handful of people doing third party guarantees 0:13:23.000 --> 0:13:27.720 and they you know, the overage and half the buyer's 0:13:27.720 --> 0:13:31.319 premier in exchange for staking these works. And today guaranteers 0:13:31.320 --> 0:13:34.000 say that they're expanding ranks, have already started whittling the 0:13:34.040 --> 0:13:36.960 returns on this, and they're only getting about fifteen of 0:13:37.000 --> 0:13:40.520 that overage. So it's kind of an interesting dynamic where 0:13:40.559 --> 0:13:43.120 there's not a lot of like concrete numbers to back 0:13:43.200 --> 0:14:00.120 up why this is financially feasible for some people. So 0:14:00.160 --> 0:14:03.000 it's interesting thinking about these kind of returns. And you 0:14:03.040 --> 0:14:06.559 mentioned that a lot of the third party guaranteurs were 0:14:06.600 --> 0:14:10.559 these famous collectors of art, and they had lots of them. 0:14:10.760 --> 0:14:13.680 But essentially you could, I mean, is it getting to 0:14:13.720 --> 0:14:17.440 the point where people are who have zero interest in 0:14:17.640 --> 0:14:21.120 art or the art world are backing funds they just 0:14:21.160 --> 0:14:23.320 do nothing. But you know, you have one guy's like 0:14:23.360 --> 0:14:26.440 I'm really good at price and guarantees back me. Give me, 0:14:26.520 --> 0:14:28.720 you know, I'll raise a hundred million and we'll do 0:14:28.760 --> 0:14:30.760 all these and you don't have to care about art 0:14:30.800 --> 0:14:33.200 at all, but makes some money for you. Yeah, there 0:14:33.240 --> 0:14:35.520 has been a huge woman like a boutique industry of 0:14:35.560 --> 0:14:40.480 businesses that are actually tailored to backing guarantees essentially. I 0:14:40.520 --> 0:14:42.160 mean they do other work as well. And this is 0:14:42.280 --> 0:14:44.800 it's kind of a big function of what is called 0:14:45.520 --> 0:14:48.640 art secured lending at this point, where people are leveraging 0:14:48.960 --> 0:14:51.040 specific works of art arty and their collection or the 0:14:51.160 --> 0:14:54.840 entirety of their collections get money upfront to guarantee other works. 0:14:55.200 --> 0:14:57.800 So it's this kind of like circular loop here and 0:14:57.840 --> 0:15:02.240 then but beyond that, we've seen a lot of guarantees 0:15:02.280 --> 0:15:06.160 at Southeby's and Christie's mainly, but also Phillips and I 0:15:06.200 --> 0:15:11.160 think last year around one point three billion combined was 0:15:11.480 --> 0:15:14.400 guaranteed in sales across those auction houses all year long. 0:15:14.560 --> 0:15:17.360 That's according to a report by arch Tactic, which is 0:15:17.400 --> 0:15:20.640 an auction tracking firm, and all of these are counted 0:15:20.680 --> 0:15:23.680 about fifty of the value of the houses, evening sales 0:15:24.080 --> 0:15:26.200 of like postwar contemporary which is like the big money 0:15:26.200 --> 0:15:28.840 maker sales that you see all the headlines about. That's 0:15:28.920 --> 0:15:32.000 up thirty from recently, I think two thousand and sixteen. 0:15:32.880 --> 0:15:36.400 And what's really interesting about that is that a lot 0:15:36.480 --> 0:15:40.000 of these art financing companies are offering loans to investors 0:15:40.040 --> 0:15:42.480 that they expect will guarantee works. There's one called Athena 0:15:42.520 --> 0:15:45.360 that publishes lists of auction offerings that will look like 0:15:45.440 --> 0:15:49.160 safe bets going into the major auction rounds. Other companies 0:15:49.240 --> 0:15:52.560 also offer these art back loans to guaranteers that are, 0:15:52.680 --> 0:15:54.760 you know, just so that they can buy out the 0:15:54.800 --> 0:15:57.240 work that they stake that ended up not selling that 0:15:57.280 --> 0:15:59.520 they thought would. And then, like I said last night, 0:15:59.520 --> 0:16:01.480 guarantee are kind of feeling as well because there's a 0:16:01.520 --> 0:16:04.120 sense that, like you, the markets shifting at any given time. 0:16:04.680 --> 0:16:07.080 There's a new firm called pi X I think started 0:16:07.120 --> 0:16:09.280 within the last couple of years. They are trying to 0:16:09.320 --> 0:16:12.440 turn the guarantee into a sort of like derivative, with 0:16:12.560 --> 0:16:15.280 shares of risk being parceled out to like a dozen 0:16:15.280 --> 0:16:18.000 investors in any given time who don't know one another 0:16:18.080 --> 0:16:19.880 and don't share the same taste in art, and maybe 0:16:19.920 --> 0:16:22.400 don't even like art, and it's kind of aimed at 0:16:22.400 --> 0:16:26.240 bringing an institutional investors, and they're offering these contract on 0:16:26.320 --> 0:16:29.880 future sales and treating it like a futures contract and 0:16:29.920 --> 0:16:33.960 therefore it's tradeable. So it's the first product like that too, 0:16:34.040 --> 0:16:37.120 also to be authorized by the UK's Financial Conduct Authority. 0:16:37.240 --> 0:16:38.760 We haven't have the same kind of ruling on it 0:16:38.760 --> 0:16:41.960 in America. But actually, which is interesting because the US 0:16:42.040 --> 0:16:43.840 market is the largest art market in the world and 0:16:43.840 --> 0:16:47.280 it's also where most of these guarantees are happening. Wow. Okay, 0:16:47.400 --> 0:16:49.840 so it sounds like there's quite a lot going on. 0:16:50.320 --> 0:16:51.960 I suppose if you put all of this under the 0:16:52.040 --> 0:16:55.520 umbrella term like the financialization of the art market, I'm 0:16:55.520 --> 0:16:59.960 wondering is is that financialization is part of it reflect 0:17:00.000 --> 0:17:04.360 active of the nature of the art market itself at 0:17:04.400 --> 0:17:06.320 the moment. And what I mean by that is you 0:17:06.359 --> 0:17:08.840 have a bunch of people who are sort of interested 0:17:08.880 --> 0:17:11.800 in it, maybe because they have newfound wealth, um. But 0:17:12.160 --> 0:17:15.000 at the same time, you have a lot of new artists, 0:17:15.400 --> 0:17:19.199 modern artists, who are you know, contributing new pieces, and 0:17:19.320 --> 0:17:22.119 it feels to me like for a lot of that 0:17:22.280 --> 0:17:26.560 modern art it's much harder to attach a firm price 0:17:26.640 --> 0:17:28.440 tag to it right, because you don't really know what's 0:17:28.440 --> 0:17:30.720 going to happen with the artist. You don't really know 0:17:30.800 --> 0:17:33.160 what the scarcity value of that art is going to be. 0:17:33.280 --> 0:17:35.680 You know, if if Jeff Coon's wakes up and decides 0:17:35.720 --> 0:17:39.359 to do another like five hundred bunny statues, does that 0:17:39.440 --> 0:17:43.560 diminish the value of the one that Robert Manuchin just bought? 0:17:44.200 --> 0:17:46.720 Is that part of the problem when it comes to financialization. 0:17:46.760 --> 0:17:50.200 Are people trying to solve that issue through all these 0:17:50.240 --> 0:17:55.119 different financings, Yes, although I'm hesitant to say solved because 0:17:55.119 --> 0:17:59.800 there's a huge tension here between the finance industries approached 0:18:00.080 --> 0:18:02.159 art and the art world's approach to art, which has 0:18:02.200 --> 0:18:05.200 been really interesting to see this because the issue is 0:18:05.200 --> 0:18:09.240 is that institutional investment has always kind of shied away 0:18:09.240 --> 0:18:11.119 from the art market because it is just so i 0:18:11.200 --> 0:18:15.280 liquid and so unregulated and shadowy. There's an adage that's 0:18:15.400 --> 0:18:18.439 like the art world is the most unregulated market behind 0:18:19.160 --> 0:18:22.960 guns and drugs, and I don't really know if that's true, 0:18:23.000 --> 0:18:26.199 but it's certainly like take something rather nerdy and sexes 0:18:26.240 --> 0:18:30.000 it up. But the opacity and the volatility of the 0:18:30.040 --> 0:18:35.320 market for especially contemporary art, because supply is so unregulated. 0:18:35.359 --> 0:18:38.400 These artists are still alive and working and creating art 0:18:38.520 --> 0:18:41.600 for the most part, makes it a really bad investment prospect. 0:18:41.760 --> 0:18:43.399 So there hasn't been a lot of things like that 0:18:43.920 --> 0:18:47.040 going on until the last couple of years. That being said, 0:18:47.119 --> 0:18:49.399 I do want to like offer because I feel like 0:18:49.440 --> 0:18:52.240 there's a lot of media hype around what's happening with 0:18:52.280 --> 0:18:54.800 the art market right now. It does command a lot 0:18:54.800 --> 0:18:57.000 of attention, and it does futch these big numbers which 0:18:57.040 --> 0:18:58.760 drawing people and be like, oh wow, this has never 0:18:58.760 --> 0:19:01.240 been seen before. I will say, I think that there 0:19:01.280 --> 0:19:03.960 has been a lot of speculation on the art market 0:19:04.280 --> 0:19:08.480 in smaller, more delegitimized fashion for a really long time. 0:19:08.800 --> 0:19:10.680 Something I always like to bring up actually is that 0:19:10.920 --> 0:19:13.080 in the early twentieth century, there is actually this French 0:19:13.600 --> 0:19:16.960 financier named Andre Lavelle who kind of started out what 0:19:17.000 --> 0:19:19.600 we would turn the first art investment fund when he 0:19:19.680 --> 0:19:22.080 pulled together money from I think like a dozen people 0:19:22.520 --> 0:19:28.520 and created this scheme called the Delure excuse my terrible French, 0:19:28.520 --> 0:19:30.960 which it means the skin of the bear um and 0:19:31.080 --> 0:19:33.080 this pool of money was used to invest in around 0:19:33.080 --> 0:19:35.320 a hundred works of art at the time by up 0:19:35.359 --> 0:19:38.920 and coming artists that were performing well, selling well. That 0:19:39.040 --> 0:19:43.560 included then oh I remember this, Yeah, I concluded people 0:19:43.560 --> 0:19:45.239 like Bablo Becaza at the time, like he was an 0:19:45.240 --> 0:19:48.680 emerging artist doing well. And um, the collection was liquidated 0:19:48.680 --> 0:19:52.120 in nineteen fourteen and everyone, you know, profits were shared 0:19:52.160 --> 0:19:54.120 out to everyone that invested, and by then the works 0:19:54.119 --> 0:19:56.120 had about like quadrupled in price. It was a tidy 0:19:56.160 --> 0:19:58.760 little something that they got. When was this this century? 0:19:58.800 --> 0:20:01.439 It was in the early twentieth century. Yeah, so this 0:20:01.520 --> 0:20:04.600 isn't exactly like a new idea per se. And like 0:20:04.680 --> 0:20:07.600 by the fifties and sixties then New York Times is 0:20:07.600 --> 0:20:10.440 already publishing articles about using art as an investment tool, 0:20:10.720 --> 0:20:13.600 but it was just happening on such a smaller level. Now, 0:20:13.840 --> 0:20:16.560 like you said, Jacy, like the art market is just grown, 0:20:16.720 --> 0:20:18.760 it's just bigger now. That's like you said, there's just 0:20:18.760 --> 0:20:20.919 more people with money and they want somewhere to spend it. 0:20:21.480 --> 0:20:25.200 And then according to the annual Ubs and Art Art 0:20:25.240 --> 0:20:28.560 BOSL Art Market Report, which is published every year, last 0:20:28.640 --> 0:20:33.800 year's dales amounted to sixties seven billion worldwide. Most of 0:20:33.840 --> 0:20:35.879 that was in the US, but that is also trailed 0:20:35.880 --> 0:20:38.159 by UK and China. But yeah, I want to go 0:20:38.200 --> 0:20:41.280 back to something you said very early on that I 0:20:41.600 --> 0:20:43.880 meant to follow up on that, which, as you said, 0:20:45.240 --> 0:20:48.959 when the auction house had its own in house guarantee 0:20:49.440 --> 0:20:52.679 and had to take inventory, and that was called the 0:20:52.800 --> 0:20:55.600 art being burnt in Is that what you said? But 0:20:55.640 --> 0:20:57.400 if it's botten, it was burnt, and so then there 0:20:57.440 --> 0:21:00.280 was a stigma to attach to that art forever. Is 0:21:00.320 --> 0:21:05.040 there a stigma the same way attached to pieces of 0:21:05.160 --> 0:21:07.760 art that had to be acquired by a third party guaranteur? 0:21:08.600 --> 0:21:13.159 So not really, that's yeah, Okay, this gets into the 0:21:13.760 --> 0:21:16.000 thing I mentioned earlier where there is kind of a 0:21:16.080 --> 0:21:18.960 moral issue at state between the art world and the 0:21:19.000 --> 0:21:22.560