Market Monday: Funny Business

This week, stories that remind us the industry constantly straddles the line between "haha" and "WTF"...
 
THE MARKET BY MOONLIGHT: In my favorite annual reminder that nobody knows anything specific about the industry's macroeconomics, TEFAF publicly released the 2017 edition of its Art Market Report on Friday. This year's study marks the first since longtime lead author Clare McAndrew departed to run numbers for UBS and Art Basel. (Those rival results are due later this month.) Powered by a dramatically different methodology, new TEFAF data czar Rachel Pownall made some equally dramatic estimates about the business in 2016. Standouts include that the global art market was only worth about two-thirds the $63.8B touted by the previous year's report––despite actually GROWING by 1.7 percent––as well as that gallery/dealer sales comprised about 20 percent more of its total transaction value than in 2015. Most important of all, though, if you want to know much more about the path to those conclusions, joke's on you, because Pownall thinks it would be too much work to publicly release her full process and data sets. (Quoth the author: "I have a regular job, I can't just do this all year round.")

I'm not going to spend time dissecting the fundamental absurdity of the TEFAF report again. I already did that last year, and the core of my argument there remains evergreen in light of 2017's secretive, speculative update. Instead, let's focus on Pownall's statement above, because I think it tells us more about the industry's relationship to hard facts and transparency than any excerpt from the TEFAF report (or any competing document) ever could. How so? By highlighting that, despite TEFAF's alleged dedication to delivering useful numbers on an economic niche sorely lacking in them, ITS LEAD OPERATIVE DOESN'T EVEN WORK ON THE PROBLEM FULL TIME. 

If you want to ally yourself with the many analysts and insiders who regularly regurgitate the annual report's findings without caveats, that's your call. Just keep in mind that you're essentially buying a seat on a plane flown by a weekend pilot. It doesn't necessarily mean you'll crash into a water tower. But it does mean I won't even consider joining you on board until the cockpit is occupied by someone willing to make the job their number-one priority. [Artsy]

THE TWO MEANINGS OF "EXPLOSION": Continuing the momentum of last week's Impressionist and Modern sales, Postwar and Contemporary results at the Big Three auction houses collectively roared past their 2016 equivalents this week. The cumulative haul of £643M (~$782M) represented a 53-percent leap over last year in London, even without factoring in the results of Phillips day sale. Christie's contemporary evening auction approached its high estimate ($123.9M) by raking in $117.8M with premiums. Sotheby's premium-inclusive $143.6M total actually broke through its most optimistic projection for nighttime business ($137.2M). And as a result, the two houses' respective accounting departments may or may not have transformed into Migos for a few days [NSFW].

Yet I would argue that a little artist-specific activity gives us an even clearer view of the state of play. One of the week's most talked-about results was the new auction pinnacle for rising star Njideka Akunyili Crosby: just shy of $3.1M for her 2012 painting "The Beautiful Ones." Staying within career records achieved at the same Christie's sale, that mark means that Crosby, who earned her MFA in 2011 and turns 34 this year, has captured roughly 86 percent of the great Albert Oehlen's high hammer ($3.6M), and about 10X that of Wolfgang Tillmans ($328,718), who Jerry Saltz (with broad approval) just defined as a "foundational artist... of the last few decades" when Andrea Rosen announced her closure two weeks ago. 

More telling still: As Nate Freeman notes, Crosby's new high represents a 3,200-percent upgrade in auction value for the artist over a period of just five months. For me, this stat can't help but bring back memories of the notorious "3,000-percent returns" chased by COINs (Collector Only In Name) during the 2011-2015 bull market for young male abstractionists––most of whom the industry now recalls as cautionary tales or not at all. Does similar auction velocity guarantee Crosby will follow most of those artists' journeys onto the side of a street-sign tear-off flyer? No, and I sincerely hope she doesn't. What it does prove, however, is that a plurality of buyers are once again willing––like their predecessors in past uptrends––to start placing big-money bets that they can flip unproven talent onto someone else's trampoline for a profit before we find out for sure if the artist has staying power. Adjust your bullshit detectors accordingly. [ARTnews]

PUTTING THE "VICE" IN "ADVICE": Finally this week, art adviser Lisa Jacobs was ordered to hand over $1M in fraudulent profits to her former client Michael Schulhof, after a New York Supreme Court judge ruled she had breached the terms of a 2011 sales pact concerning Jean-Michel Basquiat's "Future Sciences Versus the Man" (1983). In the contract, Jacobs agreed to total compensation of $50,000 if she succeeded in finding a buyer willing to pay at least $6M for the painting, including her consent "not to accept any [additional] fee from the purchaser." So what did Jacobs do a few weeks after signing on the dotted line? Get Schulhof to approve a sale for $5.5M, sell the painting for $6.5M, and squirrel away the extra milli on the deal without his ever knowing the true transaction price––presumably, on the technicality that said payday was a resale profit, not a "fee from the purchaser" per se.

Yet the most tragicomic part of this affair lies in statements made to the press by Jacobs's attorney, who declared that the ruling against his client puts "art advisers on notice to be careful" even when using "textbook" business practices. And you know what? He's right! This literal double-dealing is the snake-blood of the advisory sector, as we've seen in the most audacious form via the ongoing Yves Bouvier-Dmitry Rybolovlev legal feud. Once Jacobs's behavior came to light, all that saved Schulhof was the contract clause expressly forbidding her from claiming buy-side compensation. That's not standard in advisory agreements (to the extent that said agreements are ever formalized at all), precisely because so many advisers and consultants see no ethical problem with running a business model where acting in their clients' best interests is a roadblock to profit, not the sole guidepost.

This is why I would recommend anyone working with an "adviser"––and boy, do I use that term loosely––always keep in mind my favorite overlooked detail of this story: Apparently, Jacobs didn't think it was enough to try to sneak an extra half million dollars out of Schulhof's pocket by fibbing that she sold the Basquiat for the $6M target price in the agreement. Instead, she hoodwinked him into accepting an UNNECESSARY $500,000 MARKDOWN so she could skate away with a cool million in "textbook" profit. Even the American finance industry (finally) killed the ludicrous incentive structure encouraging this kind of behavior among its advisers. In the art industry, though, it's still business as usual. And whether that's reason to laugh or cry remains up to you. [The Art Newspaper]

That’s all for this edition. Til next time, remember that one person's hilarity is another one's hell.