Magnus Resch is always surprised to see how little artists know about the history of the art market, its power structure, and its key players. Like any other market, understanding its history can help us predict its future. This chapter should help you to get a general overview of the art market and make sure you understand the main terms.
Excerpt from Magnus Resch's book HOW TO BECOME A SUCCESSFUL ARTIST (Phaidon, 2021)
HISTORY OF THE MARKET
A useful starting point to understanding the history of the art market is to look at record prices, who paid them, and where. The list of the most expensive artworks sold at auction from 1700 to today tells us immediately that record prices increased dramatically. From £320 in 1701, we reached an extraordinary £340,000,000 in 2017, with the steepest and most rapid increases coming since 2010. We can also see how buyers themselves have changed over time. The last time a public institution paid a record price for an artwork was 1985, when the Getty Museum bought Mantegna’s Adoration of the Magi. Since then, institutions have taken a back seat to those individual buyers known as ultra-high-net-worth individuals, or UHNWI: mostly men, mostly with a finance background, and until now mostly American, although at the end of 2019, the highest price ever paid at auction came out of the Middle East, when Saudi Arabia’s Minister of Culture, Prince Badr bin Abdullah bin Mohammed bin Farhan Al Saud, paid £340 million ($450,312,500) for Leonardo’s Salvator Mundi.
The geographical center for high-value sales has moved from eighteenth-century Amsterdam via nineteenth-century Paris and London to its current home in New York—and more precisely to the New York branches of Sotheby’s and Christie’s— during the twentieth century.
Looking ahead, this adaptable history might suggest that the center could again migrate at any time, away from New York to a new primary hub. Looking at the artists and works themselves, all have three things in common: they are paintings, they originated in Europe, and were all painted by men. This bias toward European men is now, in the contemporary market, under a degree of challenge (as we saw in the previous chapter), but it has been sufficiently internalized over time to confer a lasting advantage on white male artists, reinforcing legitimate accusations of a lack of democracy across the market.
Phases of the Art Market
As well as understanding the numbers behind the art market, it is helpful to understand some of its history. I have broken down the timeline into four phases.
Phase 1: Late fifteenth to early seventeenth century
During the second half of the fifteenth century, Florence was the hub of the art world. Craftsmen acquired professional status, as patrons commissioned them to make artworks for their homes. Artists tended to be members of specialized guilds and closely associated with the church, as these were the sources of many commissions for them. But there were a few individualists, including Albrecht Dürer and Leonardo da Vinci, who operated outside of guild regulations and remained separate, allowing them to create and control the markets for their work. Dürer, in particular, took advantage of new printing technology to distribute his works as prints to a larger audience. Toward the end of the sixteenth century, Amsterdam began to emerge as a leading art city. I am endlessly fascinated by the fact that Dutch households could have between thirty and fifty artworks per room. Between 1580 and 1680, approximately 5 million paintings were produced in Amsterdam. It could hardly be a bigger contrast with our own art collecting practices. What changed? When will the next generation of art buyers arrive, and hang paintings on their walls?
Phase 2: Eighteenth to twentieth century
At the beginning of the eighteenth century, an international art market started to emerge, primarily between Paris, London, Amsterdam, Brussels, and eventually the Americas. Paris established itself as the center of the art market from the mid-eighteenth century until the end of the nineteenth century. During this period the Salon de Paris established itself as the world’s most prestigious art exhibition. A stamp from the Salon was, for all practical purposes, the definitive hallmark of success for an artist. Then, as now, only a handful of people decided which artists would be graced with success.
Toward the end of the seventeenth century, the center began to shift toward London, and by the beginning of the eighteenth century, the city was hosting between fifteen and twenty-five art auctions per year. The British art market was flourishing, and London quickly gathered important stock and expertise in the work of European Old Masters, not least through the founding of Sotheby’s and Christie‘s. Then came the rise of North America. In 1886, Paul Durand-Ruel, a Parisian art dealer, held an exhibition of Impressionist works in New York, and many of the works he sold became the centerpieces of the Impressionist collections in major American museums. It was Joseph Duveen, however, who really pushed the art market into the New World. Duveen observed that booming industry in the United States had given Americans a lot of disposable income, while the dwindling fortunes of European aristocrats meant they were selling their art in order to stay afloat. He began exporting art from Europe to the US, where he sold it to the new money millionaires, including Henry Clay Frick, William Randolph Hearst, J.P. Morgan, Andrew Mellon, and John D. Rockefeller Sr.
Phase 3: Post-war period (twentieth century)
Following the Second World War, many artists and dealers emigrated to New York. It became the new hub of modern and contemporary art, replacing Paris as the home of the avant-garde. In Europe during this period, art fairs began to emerge. First was Kölner Kunstmarkt in 1967 (now known as Art Cologne), which was intended to revitalize the art world in Germany. Cologne, however, only allowed German galleries to exhibit. Feeling left out, Swiss dealers started their own fair in Basel and allowed art galleries from all over the world to exhibit. Art Basel was born.
A few years later, in October 1973, the first single-seller auction and now one of the most famous sales in auction history took place at Sotheby‘s New York, with the collection of Robert C. Scull. Scull was a famous American contemporary art collector, and he put around fifty lots up for sale, mostly pop art. A work by Robert Rauschenberg that Scull had purchased in the late 1950s for $900 (around $8,500 today) ended up selling at Sotheby’s for $85,000 (equivalent to nearly $500,000 today). After the sale, Rauschenberg—in an exchange captured on video—accused Scull of making a profit even though he, the artist, had been “working his ass off.” Scull responded with what is now an absolutely central tenet in art economics: the auction would make his reputation as an artist, because even if Rauschenberg didn’t directly profit from the sale of his work on the secondary market, high prices at auction would raise the value of his other pieces. The video shows how Rauschenberg gradually reacts as the implications of this principle sink in. From that point on, despite on-going debate and protest about commodification of art, collectors grasped the vital importance of auctions, and especially of runaway headline prices. No one could imagine at that time just how much things were going to change.
THE ART MARKET TODAY
Phase 4 is, of course, the art market today, but before we turn to that it is probably helpful to establish a definition of “fine art” and its major components.
Artists born between 1250 and 1750. These are the artists whose names every art history student will recognize, names such as Albrecht Dürer (1471–1528), Michelangelo (1475–1564), Artemisia Gentileschi (1593–c.1656), and Rembrandt van Rijn (1606–69).
Nineteenth-century art Covers the period between 1800 and 1900, but excludes all modern art. This category includes artists such as Caspar David Friedrich (1774–1840), J.M.W. Turner (1775–1851), and Eug ne Delacroix (1798–1863).
Modern art overlaps with nineteenth-century art on a timeline, but artists who fall into this category, such as Vincent van Gogh (1853–90), Wassily Kandinsky (1866–1944), and Dora Maar (1907–97), were pushing the boundaries of art in a way that other artists were not.
Post-war artists were born between 1910 and 1944 and include Agnes Martin (1912–2004), Yves Klein (1928–62), and Sol LeWitt (1928–2007).
The contemporary art category currently comprises artists born after 1945 and features some of the highest paid artists ever, including Jeff Koons (bofrn 1955), Damien Hirst (1965), Cecily Brown (1969), and Jenny Saville (1970). The categories above will serve as a general guide, but it should be noted that in art, as in many disciplines, the boundaries between contemporary, modern, and postwar often tend to become blurred.
Players and Trading Levels
The two main groups of actors in the art market are, of course, artists and collectors. Not much happens in the art world that does not directly involve these two groups. In economic terms, artists create supply, and collectors generate demand. Other players, such as private galleries, museums, and other institutions, are intermediaries. They can be divided into two groups: commercial art mediators and conceptual art mediators. Commercial art mediators, such as private galleries, engage in the transaction of art between collector and artist, or act as a reference for either side. Conceptual art mediators, meanwhile, engage in the transfer of knowledge. They convey the message of art to the public, for example in museums.
This gives them a different but equally powerful impact on the art market. (These are, of course, broad descriptions, and we will return to each relevant player in depth later in the book.) Turning now to the market in which works are sold, the diagram below illustrates the two markets in the commercial art world: the primary and the secondary market.
The primary market is for art that is being traded for the very first time. The key players here are living artists and private galleries. This market is populated by larger numbers (relative to the secondary market) of both artists and buyers. It is also characterized by private sales (and consequently a lack of transparent pricing), little to no stock, small profit margins, and, therefore, very little liquidity (cash). Most artists operate in this market. They either sell via galleries or directly to buyers. Most of the works that are sold in this market don‘t have a resale value.
The secondary market is that which most people think of when they talk about “the art market.” Here, art is changing hands for at least the second time, sometimes more. The biggest players in this market are auction houses, but established galleries and dealers with huge funds and inventories are also present. Very few artists are traded here.
In the primary market, competition is widespread because so many artists are trying to sell to so few buyers. Hence, prices are generally low. The secondary market is quite different; few artists are successful enough to appear on the secondary market, and there is a smaller number of sufficiently well-heeled potential buyers. Key players in the market can therefore exert great power over the rise and fall of an artist and manipulate future price expectations.
ART MARKET DATA
I am a great believer in the value of knowing your numbers, and I am always surprised at how rare it is to see even basic statistics about the art market. It is rarer still to see accurate ones. For example, the press regularly quotes that there are over 300,000 galleries. My team did the research, going through phone books, Google maps, and other databases. Here is our rough breakdown:
- 40,000 museums
- 20,000 galleries
- 1,400 auction houses
- 100,000 art advisers
- 6,000 important art buyers
(who spend more than $100,000 a year on art)
All of these players, plus artists, are involved in buying and selling around 40 million artworks annually, making the value of the art market (as of 2019) between $40 and $65 billion (a wide range, but different reports quote widely varying numbers). While we can’t be certain how big the art market actually is, we can put its size into perspective. FedEx’s revenue in 2019 was $70 billion. One single player in the crowded transportation market is therefore making more revenue than all the galleries, auction houses, dealers, advisers, and online platforms in the art market combined. The art market, then, is in fact quite small. Looking at the numbers, we can also see that the market hasn’t really grown much. Its revenue has remained fairly stable at around the $60 billion mark, while volume (i.e. the number of works sold) grew only slightly. To sum up: talk of a booming art market is largely exaggerated. Only the top end is booming; the rest is not in healthy shape at all.
What Sells Where
In 2019, works that sold for more than a million dollars accounted for a massive 55% of the market value, yet represented less than 1% of the total lots. Meanwhile, at the other end of the scale (see chart below), 72% of all works at auction were sold for under $5,000, accounting for a tiny slice of the market value at just over 2%. This is an eye-opening corrective not only to the broad perception of the money involved in art—it might be there, but not many get much of it—but also evidence of the dominance of a few artists and the extraordinarily unequal distribution of money and power in the market. Geographically, the market is similarly concentrated: the US, UK, and China are responsible for 82% of sales. Smaller residual players such as Germany, France, or Italy play no real role in the market.
ONLINE ART MARKET DATA
In contrast to the impact on much twenty-first-century trade, the online world has intruded only minimally on the art world. Online represents only 9% of global sales value— small beer, considering how much the internet has disrupted other offline retailers. Although the Covid-19 shutdowns of 2020 caused a temporary peak in online activity, a major shift online won’t happen. Buyers in the primary market have remained intensely loyal to galleries and other forms of offline buying, to the extent that if online trade happens at all, it happens at the lower end, with works under $5,000. In the secondary market, too, the average online lot value at auctioneers Christie’s is roughly $8,000. Within the online art market, mobile purchasing accounts for 59% and is expected to reach more than 70% by 2021. Those who do want to try to sell online, therefore, would do well to optimize their platform accordingly.
Excerpt of Chapter 3 from the book HOW TO BECOME A SUCCESSFUL ARTIST by Magnus Resch.
Magnus Resch is an art market expert, University Professor and bestselling book author. He teaches art management at Yale University. The book was published in May 2021 by Phaidon and can be purchased in every book store or kindle.