Market Monday: Odd Man Out

This week, a trio of museum-sector stories, plus one for-profit hanger-on...

Dede Wilsey, longtime board president and CEO of the Fine Arts Museums of San Francisco (which operates the de Young and Legion of Honor), will resign both posts in the wake of a $2 million settlement made to head off a wrongful termination suit stemming from Wilsey's own alleged impropriety. The nonprofit's ex-CFO, Michele Gutierrez, claimed last October that Wilsey pressured her to forgo board approval en route to paying $450,000 in museum funds to former de Young director of registration Therese Chen––who "was well known for doing favors for Wilsey"––after Chen took a leave of absence to care for her ailing husband. Gutierrez later came forward to the board about the pay-out... and was rewarded with a demotion, then placement on "intermittent leave." In response, she blew the whistle to local and state authorities. A resulting probe by the California attorney general's office is still ongoing, with some fearing the FAMSF could ultimately be stripped of its nonprofit status based on the findings. The board may hope that Wilsey's resignation will double as a firewall against that raging catastrophe. Either way, it sounds like she will not be missed by many of her subordinates. (The SF Chronicle story on Gutierrez's original accusations includes the line, "Wilsey's critics say her management style has become autocratic and whimsical," which makes me think of Mussolini tying off balloon animals.) Yet at the same time, Wilsey was a well-documented fundraising superhero in a sector desperate for private cash. According to insiders, she single-handedly corralled $190 million in philanthropy to rebuild the de Young after it suffered serious damage in the Loma Prieta earthquake of 1989. In total, then, her record serves as a reminder that titanic arts institutions, just like for-profit companies, take on the personalities of their chief executives. So it remains to be seen whether change at the top will ultimately strengthen or weaken the FAMSF. [San Francisco Chronicle]

Last weekend, Ben Davis presented a well-reasoned op-ed about a frustrating but unsurprising reality of the American nonprofit arts sector: In the 21st century, it's vastly easier to convince wealthy donors to spend on lavish new architectural expansions than on the unglamorous costs of operating and maintaining buildings that already exist. Davis argues that this phenomenon explains why the Met's recent colonization of the Breuer building, at an estimated additional operating cost of $17M annually, could be completed just weeks before the institution announced it would initiate two years of budget cuts and restructuring to try to fill a $10M deficit. But as Davis mentions in passing, the Met Breuer––and, I would add, the now on-hold $600M David Chipperfield redesign of the museum's modern and contemporary wing––represents more than just the dominant theme in nonprofit infrastructure. It also represents the dominant theme in collectors' taste for art itself. Many, if not most, of these expansion projects specifically aim to champion the institutions' contemporary holdings above the rest of their collections. The same lust for novelty drives both trends. And that's also a big part of the reason why a majority of buyers interested in art primarily as a financial asset will continue to "invest" in more recent pieces, despite that early modernists and Old Masters are often better, more dependable value plays. Whether it's a building, a painting, or anything else, human nature insures that the shiny new thing will almost always win out. [The New York Times]

On Wednesday, the Detroit Institute of Arts inaugurated a three-year, multimillion-dollar campaign aimed at transforming the institution into the country's leader in African-American art. The museum will leverage much of its contemporary acquisitions budget to that effect until mid-2019, while also channeling many of its "exhibitions, artist commissions, community partnerships, staff development, and internships" in the same direction. While the initiative is worthy even in a vacuum, the DIA designed it in part to try to forge a stronger connection with the Detroit community, "starting with the city's overwhelmingly black majority." But that seemingly wise and admirable concept also reveals another major paradox of operating a 21st-century museum. Yes, it's ideal to appeal to the widest possible local audience. But with the exception of arts institutions in New York and San Francisco, general admission usually only covers an average of two to four percent of any American museum's annual operating budget––meaning that community engagement is not automatically a great strategy for keeping the lights on. [Detroit Free Press]
 
Finally, the titular odd man out in this museum-rich week: A year before investigators started zeroing in on noted COIN Jho Low in what may end up as history's largest international money-laundering case, Katya Kazakina reported that Sotheby's extended the Malaysian (paper) billionaire a $107M loan backed by 17 of his artworks. The US Department of Justice chose not to file criminal charges against Low, which in turn clears Sotheby's of any wrongdoing for its tangential role in this saga. But whether you believe Low did or did not use the house to clean any dirty cash––for the (not entirely convincing, IMO) argument in his defense, see Marion Maneker's analysis––Kazakina's piece makes clear that art finance COULD be a full-service fiscal laundromat in other cases. The main reason? Art lenders' willingness to prioritize a potential borrower's collection over his traditional creditworthiness. For one damning example, Mitchell Zuckerman, the architect of Sotheby's Financial Services, states that he "never looked at a financial statement or tax return to make a loan" collateralized by art during his 20 years at the division's helm. But by porting over the more casual standards and practices of the art industry to high finance, art lenders like Sotheby's––which reportedly loaned $1B in 2015––and Christie's––which provides three-to-nine months "advances" on consigned works often "exceeding $10M" each and totaling $50 to $100M "at any given time"––could tweak federal regulators who might otherwise never look in this direction. And if so, this new marriage of art and money could rain the hellfire of outside intervention onto not just the art-fi sector, but the entire for-profit art industry. [Bloomberg] 

That's all for this edition. Til next time, if you find yourself in the majority on just about any issue, consider re-evaluating.