Perverse Percentages

While I eagerly await the U.S. release of Management of Art Galleries -- written by everyone's favorite professor/entrepreneur/protein-style-David-Foster-Wallace, Magnus Resch -- some advance intel on its contents has pushed me to think once again about the sales split between artists and gallerists. Because as severe as the industry's standard 50/50 division already is, apparently Resch thinks there are situations where gallerists deserve even more of your milkshake. 

According to James Tarmy's recent preview of the book, one of Resch's recommendations to gallerists is that they crowbar the existing sales split open to an even more uneven 70/30. Yes, that's right: 70 percent to the gallerist, 30 percent to the artist. When I first read it, I almost did a sitcom spit-take. Still, without more information, I decided to let it go for the time being (aside from firing one compact shot at the idea in that week's Gray Market Newsletter).

However, when the topic came up on art Twitter yesterday, the gallerist and author Edward Winkleman added what seems like important context to Resch's advice. (Update: Unfortunately, it appears that the entire tweet thread in question has been deleted.) Winkleman claimed that Resch only recommends the 70/30 split for "pre-representation" situations, or what the entertainment industry would call "hip pocket" deals. 

For the uninitiated, these arrangements are essentially a trial run between talent and rep, be they agent, manager, or gallerist -- one-off deals with no guarantees that the relationship will continue afterward. In this case, a gallerist would hip-pocket an artist by giving her a show without actually adding her to the gallery's roster. If the show goes poorly, the two sides part ways without any kind of complicated severance. However, if the show goes well, the artist is officially welcomed to the fold. 

Though aggressive, Resch's logic on the 70/30 "pre-representation" split is straightforward. The idea is that a gallerist will likely only hip-pocket a relatively unproven artist... meaning an artist whose prices are relatively low. Low prices mean worse margins for the gallerist, who faces punishing overhead costs to show whatever work goes up in her pricey, pristine physical space. Therefore, the simplest and best way to recoup her costs for (allegedly) taking a chance is to capture an even higher percentage of sales than normal. 

Overall, the art market relies on what economists call "dynamic pricing" -- meaning prices rise or fall in response to what the collector is willing to pay. Proposing a 70/30 division of proceeds for hip pocket deals simply means that Resch is applying the dynamic model to the split rather than just the sale. The question is whether he's willing to take the model to its logical, pro-artist endpoint -- and more importantly, whether that even matters. 

I have no doubt that Resch proposes the split should return to 50/50 once the artist's prices rise sufficiently (whatever "sufficiently" means) -- likely once the hip pocket situation has transformed into ongoing, no-caveats representation. But in theory, a truly dynamic split must continue past the halfway mark. If an artist with significantly lower prices should capture LESS than half of her sales prices, then an artist with significantly higher prices should capture MORE than half of her sales prices. 

Allegedly, there is some precedent for this arrangement already. Jeff Koons is widely rumored to receive 70 percent of his sales from Larry Gagosian, and at his height, Damien Hirst supposedly collected a favorable percentage, too. (It's not clear to me what's happened since Hirst's market collapsed like a skyscraper built by children.)

So what's the problem with this arrangement? If you become as successful as Jeff Koons or pre-2008 Damien Hirst, absolutely nothing. But the fact of the matter is that only a very small handful of artists will ever reach that lofty elevation -- whereas thousands more will get to the base camp of a hip-pocket exhibition. 

This creates a perverse situation: the more an artist needs the money, the less of it she gets. And if "less" means "under one-third," as Resch proposes, then gaining a foothold on a career as an artist goes from being extremely difficult to being nearly impossible. Unbranded artists get stranded at the bottom, wealth concentrates even more at the peak, and the path between the two extremes gets snowed under (as I've written before).

What aggravates me about a pro-gallerist 70/30 split is its short-sightedness. Like all other forms of entrepreneurship, producing and selling art both involve risk. If gallerists are concerned about their margins for "unproven" work, then there are two alternative solutions that would be just as, if not more, effective than further distorting an already skewed split. 

The first: Make better bets. If a gallerist chooses the right artists, then over the long run, a 50/50 split will more than even out in her favor. And if she isn't willing to absorb some extremely brief short-term loss -- even in a rare, utterly voluntary hip pocket situation with an artist whose work she theoretically believes in -- then maybe she should reconsider whether she's really built for this.

The second: Sell more. The natural counter to lower margins is higher volume. And with a few exceptions, gallerists' costs are either fixed or marginally diminishing. For instance, their rent doesn't rise if they show more pieces, and hiring art handlers to pick up 20 paintings is only incrementally more expensive than hiring them to pick up 10. So gallerists should use economies of scale to their advantage. Sell out the show, then keep moving units in the endlessly refillable back room. 

Most gallerists would no doubt see these alternative recommendations as crude. But they're no more crude than jacking artists for an additional 20 percent in an attempt to legislate risk out of existence. Turnabout is fair play, and one primitive stone club deserves another.

However, in an era of rising costs and changing models, maybe the real answer is that both sides should be looking for more creative, enlightened, and mutually beneficial ways to re-imagine the gallerist-artist partnership than skewing the split. And that's a book that has yet to be written, no matter when Management of Art Galleries becomes available.