The contemporary art market is on the verge of a deep institutional crisis. So deep, that it is hard to predict what the way out will be and what the art market’s institutional framework will look like in one or two decades from now. The irony is that aggregated sales figures look fine. According to the latest Art Basel and UBS Global Art Market Report, dealer sales in contemporary art grew by 7 percent last year.[1] On the auction market, contemporary art has been one of the main drivers of growth of the last two decades.
But the reality is that only the top segment is flourishing: the art market seems to be increasingly transformed into a winner-take-all market. Megadealers like Hauser & Wirth, David Zwirner or Gagosian are profiting greatly from the booming interest in contemporary art. They are opening one museum-like space after another around the globe, have over 100 employees on the payroll, lure successful artists away from their small competitors and hire curators, directors and critics away from public institutions. In the meantime, the majority of galleries in the mid-and lower segments of the market barely survive. Dealers with annual sales below $250,000 saw their turnover drop 18 percent, while those with turnovers between $10m and $50m saw them rise by 17%.
Small galleries are especially fragile because, as the latest Art Basel and UBS Global Art Market Report reveals, almost 50 percent of sales at smaller (<1 million turnover) galleries comes from just one artist. Steal that artist away, and the gallery can start filing its bankruptcy papers, which a steady stream of dealers has indeed been doing over the last years.
These galleries are facing a perfect storm: while real estate prices are running up in many art capitals, the number of visitors to their spaces is steeply declining.[2] Most buyers are simply too busy to visit galleries in city centers on a Saturday afternoon as they used to do. They prefer to go to the fairs, with their VIP-openings, afterparties, schmoozing, and the pushing and shoving which is necessary to lay your hands on a coveted piece of art. At the fair is where you can buy a ticket to that social scene.
The problem is that visiting fairs is risky and costly for many dealers. They frequently return home with a loss. Just think of the booth rental (easily between 50 and 100 thousand dollars at a major fair), hotel and transportation costs, insurance, and dinner parties that need to be organized to honor artists or loyal collectors. In that respect, the economics of the fair are unfair to say the least: the megadealers are getting an incredibly good deal, while the smaller ones get squeezed. While the costs of visiting a fair are only marginally higher for a megadealer, they sell art for prices with one, two or three digits extra compared to the art sold in the lower and middle segments.
In the end, this winner take all structure system is in nobody’s interest. The megadealers themselves rely on a diverse ecology, composed of both big and small players. It is in abroad, fertile market where innovation and experiment happen, where both the artists and the galleries of the future get discovered and nurtured. But how to sustain a diverse ecology?
The challenge, which few people seem to dispute, is how to let outsized profits of the top trickle down to the rest of the market. Here are some proposals which have recently been floated (surely not an exhaustive list, the discussion has just started): for starters, smaller galleries could themselves invest more in the work of their most promising artists. Once the artist leaves for a more powerful competitor, and her career truly takes off, the gallery still has an inventory of work and can profit from the increases in economic value, even once she has departed.[3] The problem is, however, that galleries in the lower segments rarely have cash lying around to make such investments. Moreover, it is notoriously hard to predict, even for the gallerist, which of the artists she represents will become successful. Make the wrong bets, and the gallerist ends up with an inventory of works of art that are unsaleable.
Another idea that has been floated, among others by myself, is to have a differentiated fee structure at the fairs.[4] This would amount to a form of cross-subsidization, where the megadealers pay higher fees for participation in the fair, with the extra money being channeled to smaller galleries for enabling access. After several mega-dealers signaled that their support to such ideas, Art Basel as well as Frieze introduced differentiated fee structures last year. But the question is whether it is sufficient. For some smaller dealers even free participation in the fairs may not be sufficient to keep them afloat. As long as their commercially most successful artists continue leaving them, it is hard to build up a sustainable business when the environment is so turbulent.
How about learning from the world of soccer, which has faced similar problems for decades, and has gradually carved out a solution?[5] In the soccer world, smaller clubs heavily invest in scouting and developing young talent, but might not be able to recoup those costs if those talents could leave for the big, most successful clubs without any form of compensation. The solution which has long been institutionalized in the world of soccer: transfer fees. Only if a club pays for (the contract of) a player, can a transfer materialize.
Surely such a system would be hard to implement in the current art market. The world of soccer is much more organized than the art market is, with an international umbrella association (FIFA) which, through regional branches, controls the transfer market and many other aspects of the soccer world. The number of professional soccer teams is much smaller than the number of commercial galleries, making arrangements and agreements easier. Moreover, the world of soccer is much more professionalized and regulated through contracts which are taken seriously by all parties.
While these differences could be seen as reasons why transfer fees will never work in the art market, another response would be to say that the soccer world sets an example: professionalization, regulation and centralization is the direction in which the art market should be heading, if it wants to develop a sustainable ecology. In the meantime, smaller galleries may experiment with contracts with their artists, which stipulate that the gallery is entitled to a transfer fee which, for example, depends on the artist’s annual sales. That would not amount to a price tag on an artist, but would be a fair compensation for the investments which the gallery has made in the artist’s career. That compensation is ultimately necessary to keep galleries in the middle and lower segments afloat. In turn, for dealers in the top segment , noblesse oblige: they should voluntarily compensate their smaller counterparts when they lure successful artists away from the latter. After all, it is in their own interest.
Olav Velthuis is the President of TIAMSA and is Associate Professor at the Department of Sociology of the University of Amsterdam, specializing in economic sociology, sociology of the arts and cultural sociology. At the department he is co-director of the program group Cultural Sociology. He has recently studied the emergence and development of art markets in the BRIC-countries (Brazil, Russia, India and China) in a cross-comparative manner. Velthuis is the author of many academic articles and several books, among them ‘Talking Prices. Symbolic Meanings of Prices on the Market for Contemporary Art’ (Princeton University Press, 2005). With Stefano Baia Curioni he recently edited the book ‘Cosmopolitan Canvases. The Globalization of Markets for Contemporary Art’ (Oxford University Press, 2015). His journalistic writings on art markets have appeared in (among others) Artforum, the Art Newspaper and the Financial Times.
[1] See https://www.artbasel.com/about/initiatives/the-art-market
[2] Some sentences in this and the next paragraphs have been taken from: Olav Velthuis, “A new season, a test of survival,” The New York Times, September 18, 2018. https://www.nytimes.com/2018/09/18/opinion/art-fairs-are-hurting-the-art-world.html
[3] See e.g., https://artreview.com/opinion/ar_november_2018_jonathan_td_neil_venture_galleries/
[4] See e.g., https://news.artnet.com/market/art-fair-economics-small-galleries-gamble-989555; Olav Velthuis, “A new season, a test of survival,” The New York Times, September 18, 2018. https://www.nytimes.com/2018/09/18/opinion/art-fairs-are-hurting-the-art-world.html
[5] See also https://news.artnet.com/art-world/professional-sports-gallery-reform-1293632