Innovative ways of investing in contemporary art market Opportunity recognition perspective
Innovative ways of investing in contemporary art market Opportunity recognition perspective
MSc Business Administration – Entrepreneurship and Innovation
Supervisor: Roel van der Voort Associate Professor
Student: Victor Turcan Student ID: 10825592
Statement of originality
This document is written by Student Victor Turcan who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of Contents
TABLE OF CONTENTS 4
ABSTRACT 6
1. INTRODUCTION 7
1.1 PROBLEM STATEMENT AND RESEARCH QUESTION 7
1.2 LITERATURE 9
1.3 OBJECTIVE 11
1.4 METHODOLOGY 12
2. CONTEMPORARY ART MARKET 14
2.1 TRENDS 14
2.2 RISK 15
2.3 INVESTMENT SPECIFICITY 19
2.4 RETURNS 26
3. OPPORTUNITY RECOGNITION AND EXPLOITATION 30
3.1 THEORY 30 3.2 OPPORTUNITY 31 4. RESEARCH DESIGN 34 4.1 INTERVIEWS 34 4.2 UNIT OF ANALYSIS 35 4.3 THEORETICAL PROPOSITIONS 35
5. RENOWNED CONTEMPORARY ARTISTS 36
5.1 JEFF KOONS 38
5.2 ZENG FANZHI 39
5.3 CHRISTOPHER WOOL 40
5.4 MARTIN KIPPENBERGER 40
5.5 PETER DOIG 41
6. CONTEMPORARY ART CONSIDERATIONS 43
6.1 FORMAT 43
6.2 CONCENTRATION 44
6.3 INVESTMENT TIMELINE AND SCALE 45
7.1 BUSINESS MODEL 48 7.2 ART:I:CURATE’S PROMINENT NEWLY-EMERGING ARTISTS 55
7.2.1 TIM LEE 56 7.2.2 ALICJA DOBRUCKA 57 7.2.3 AUDREY SALMON 59 7.2.4 FLORENCE LAM 60 8. DISCUSSION 63 9. CONCLUSION 67 BIBLIOGRAPHY 68 APPENDIX I 71 APPENDIX II 73 APPENDIX III 77 APPENDIX IV 79
Abstract
Financial markets have been heavily destabilized in recent years following periods of
financial crisis and credit crunch. As a result, investors turn their attention towards alternative investments. Contemporary art has become one of the most prominent markets with
tremendous growth but this market is also characterized by volatility, speculation and huge supply of newly-emerging artists.
Contemporary art is highly subjective given the market expenditure, ever-changing trends and lack of unit of comparison. Despite the market’s appeal and apparent attractive returns many investors are hesitant when it comes to artwork acquisition precisely because they are uncertain how market value will evolve in the short and long run. Furthermore,
well-established artists have occupied much of the market and subsequent search for potentially successful emerging artists has become even more complex.
This thesis takes an entrepreneurial stance where we delve into contemporary art market and try to comprehend how it is structured. We will strive to find ways of efficiently recognizing and exploiting opportunities and adjust to current direction the market takes.
1! Introduction
The era after the financial crisis in 2007-08 redefined the way financial markets work. Regulation has prompted financial institutions such as investment banks to take on more capital to better secure their liquidity. However, this has also detracted investors’ interest from investing into stocks and bonds. Today, these offer significantly higher volatility and less attractive returns. Investors are pushed to look for alternative investment opportunities which can offer more appealing gains but at a cost which requires significant time, research and active involvement. Most alternative investments are comprised of hedge funds,
derivatives, real estate and commodities.
Alternatives, however, go beyond the aforementioned list but the reason they are excluded, arts in particular, is their unexplored and less quantifiable nature. Alternative investments carry a lot more risk than traditional securities, and that underpins the importance of
quantitative analysis that focuses on two dimensions – risk and return. Beyond these little is of any significance. Nonetheless, a number of other attributes such as opportunity
recognition, potential, pattern and research pertaining to qualitative and behavioral domain are essential in and exploiting above-normal gains.
Contemporary art is partly subjective and partly emerging despite its history that traces back to 1950s. Its instantaneous recognition marked new art direction but it is only in 2000s that contemporary art market has become significant in magnitude and growth pace. Its subjective side is what causes setbacks in the right decision-making process. For this reason, we will look for patters and common characteristics for success, both financial and artistic, shared among well-established and newly-emerging artists.
1.1!Problem statement and research question
Contemporary art has been recently viewed as a popular investment category for it appears that investors have positive gains despite volatile markets. The market has dramatically changed during the past decade and there is a sense of an upcoming boom. Is this a long-term perspective or just a short-lived bubble that will confuse the market?
The art market has a reputation to evolve in a fast-paced manner. Since 2004 it has been growing exponentially up until late 2007 when financial crisis hit the market. Volatility comes along with high returns, and contemporary art market is not different in that respect. Unlike the stock market which is volatile with unpredictable returns and bond market which is rather flat, contemporary art market has been quick to recover and exerts the same pattern of growth as it had been prior to credit crunch era. To put this in perspective, in 2014 the art market doubled its turnover with respect to 2010 results. In 2013 the contemporary art market had a 15 percent gain and in 2014 the growth was 33 percent totalling $1.5 billion in
revenues, a multiple of ten from 2004. Despite the market’s sharp slump caused by the financial crisis the contemporary art market is more attractive an investment than other traditional securities such as bonds and stocks and recently natural resources such as oil and gas, which often fail to meet expectations.
There is a lot of happening within the industry which clearly demonstrates the growing demand for contemporary art as an investment and not only for collection purposes. The market has been enriched by gallery networks, curators, consultants and auction houses who hold predominant position and lead the market. Other concepts start evolving such as buying shares in particular art pieces. As a result, investing in art does not have to necessarily lead to art acquisition. Instead, you diversify your options and increase your overall portfolio.
Looking at art as an investment requires expertise. It is the same as investing in a start-up company. Investors look for successful and innovative firms that require low upfront investments. Once the company value goes up you sell your shares high. The same concept holds for the art industry. However, spotting a successful artist at the beginning of their career is a challenge that involves entrepreneurial perspective and talent for seeking and exploiting opportunities.
Research question
The research will focus on contemporary art as an investment, and its risk and return in the short- and long-term. The aim is to understand the entrepreneurial aspect of investing in art and the knowledge behind that distinguishes successful art from the one with less potential to grow in the future.
The aim of this paper is to analyse whether it makes sense for investors to diversify their portfolios with contemporary art investments. We want to comprehend how contemporary art market behaves in different financial periods, on what basis art appreciates, and what forces behind make the contemporary art market such an attractive investment proposition. It is also important to explore different geographies since emerging markets have their share on contemporary art development in recent years. We will analyse the evolution of the market and look at recent trends that range from auction marketplaces to firms that curate art and try to spot newly emerging artists that might become central for attractive investments.
Research question: How to invest safely in contemporary art to achieve above-average returns?
1.2!Literature
Noah Horowitz underlines the tight connection between art and money. He stresses how prices have attained its peaks while definition of contemporary art has been widely distorted. Artists’ goals have shifted from creating art for art purposes to creating art for commercial and business grounds. Today these goals are aligned with investors’ goals who more often than not perceive art as means of building up wealth. Artists think strategically and, as a result, focus on selling and branding it.
Noah Horowitz analyses the contemporary art market and explains its origins, evolvement and future trends. He focuses on how art has become globalised with business playing a central role for its development. Noah Horowitz also details how investors take advantage of the industry and speculate in the market. Art of the Deal brings clarity into today’s art market and what the reasoning behind investing in art is. In his book, Art of the Deal, Noah
Horowitz talks about the art market behaviour during periods of financial spikes which further explains the attractiveness of the market and how investors seek to expand
opportunities. Noah Horowitz is known for his critical analysis and deep understanding of the research area, and Art of the Deal will help establish a sound grounding to the research question.
Ethan Wagner and Thea Westreich Wagner take a different stance on contemporary art market analysis. Their book, Collecting Art for Love, Money and More, focuses on
entrepreneurial side of investing in art. The authors argue that acquiring art involves a plethora of factors that range from investment appetite, knowledge and intellectual exploration to social status, publicity and risk. The book is experience-based as Ethan Wagner manages business and financial practices in the art market and Thea Wagner works in art advisory services. It analyses art from a more artistic approach discussing commercial side of art, which serves informative purposes. Noah Horowitz is factual and brings a financial insight into the art market while Ethan Wagner and Thea Wagner offer art
knowledge that enriches the understanding and reasoning behind artworks. The authors bring the social layer explaining the reasons behind investing and relationship between commercial and public art.
Richard Polsky, on the other hand, introduces his personal experience in selling art. His book, I sold Andy Warhol, explains how art industry moved from art appraisal towards monetary appreciation. His book can be paralleled to Noah Horowitz’s Art of the Deal. The difference comes in personal experience that clearly gives Richard Polsky advantage. He describes the industry and its trends in different periods of time. The beginning of the millennium was dominated by auction houses that managed to sell artworks as high as $400 million a day. Richard Polsky closely collaborated with famous artists such as Joseph Cornell, Andy Warhol and Ed Ruscha. His personal insight helps us understand the commercial part of art and how that appeals to people investing in it and directing the trends.
It is important to recognise industry changes and developments. Investors are entrepreneurs who have to discover and exploit opportunities (Shane, 2000). Shane bases his arguments on Austrian economics stating that “opportunity discovery is a function of the distribution of information in society” (Hayek, 1945). Contemporary art market does not expose a lot of information. As a result, information asymmetry is central in the market and thorough search for opportunities is required for abnormal returns on investment. Shane also supports his argumentation by emphasising that opportunity discovery is built on the grounds of knowledge possession. In the case of art market, it is necessary to understand art which is more complex in nature than understanding other types of alternative investments such as precious metals. Shane brings four main arguments which provide a parallel to the art market. It is necessary to test Shane’s assumptions and reconfirm whether they hold true. Shane’s theory is relevant to art industry for it underlines two important factors, prior knowledge and opportunity discovery that stems from that knowledge.
Eckhardt and Shane then delve into the role of opportunities in the entrepreneurial process. Entrepreneurship is a result of disequilibrium that gives rise to opportunity discovery and exploitation (Eckhardt and Shane, 2003). Eckhardt’s input is especially important because he mentions disequilibrium in prices which are a determining factor in the contemporary art market. We will look into artwork prices and decompose them to understand what
information they convey and to what extend prices drive the market. Eckhardt also mentions demand and supply changes which is relevant in our discussion because art market is fast-paced with quick swifts. For instance, art installations or videos have become more central and artists are willing to take more risk to become less conventional and draw attention as a result.
We will look at artworks from a causation and effectuation perspective (Sarasvathy, 2001). We need to investigate whether an artist aims at setting a specific goal or a concrete price tag, or whether an artist lets a loose flow without knowing or predicting the evolvement of their artworks. It might give us an idea whether an artist has business intent or creates art for art. We will look for a relationship between artists and investors in this area as this might be a prerequisite for investors’ confidence in an artist. As a result, we may find that it is equally important to understand not only an artwork and its price but also an artist and their goal, and align these to build up credibility. We will analyse the effectuation process of artists and how that has an impact on investors’ discovery and exploitation of opportunities in the
contemporary art market.
1.3!Objective
What we are interested in is to investigate the attractiveness of contemporary art from a financial perspective but through an entrepreneurial process of looking for opportunities. For that we will need to answer sub-questions that will be central to our thesis. We will gather data on the questions below to comprehend the art market and the way entrepreneurs should behave.
,! Where are the most efficient contemporary art markets? ,! What are the attributes of the most successful artists? ,! How can we see such attributes in newly emerging artists?
,! What kind of expectations should we have when analysing an opportunity? ,! How should we approach an opportunity and what timeframe should we expect to
achieve our goals?
,! What are the new business practices in contemporary art market and how can we exploit them?
Based on thorough analysis of the market we will jump on analysing artists on a more general scale. We want to understand the probability of success and for that we have to know what markets evolve in a fast pace, what kind of artists gain publicity, what the time horizon for they success is and how artwork correlates with artists’ achievements. With that it is essential to know what goals artists look for, be it pure art, business or combination of both.
The theoretical framework will serve as a basis for our thesis. In particular, we are interested in theory revolving around opportunity recognition and exploitation. As such, our unit of analysis will be artists. While they are central to our research, the main focus is to analyse markets from an entrepreneurial/investor side.
Once we get the direction, which entrepreneurs should pursue, we will delve in the art sector from a financial perspective analysing the benefits in the short and long run, i.e. risk-return profile. We will see how theory was used in practice and analyse real-life cases where entrepreneurs have been searching for alternative ways of raising capital through innovative means.
1.4!Methodology
The research will be qualitative and inductive as we are going to explore recent trends in the art realm and then formulate whether investment in contemporary art is reasonable. Going further, we want to analyse to what extent art investors should consider art within their portfolio. As mentioned earlier, we will look at different markets and analyse various artists within a specific time dimension. Then we want to analyse the underlying factors that form successful artists and factors that make investors choose arts with promising returns on investment. It is also important to differentiate whether artists follow specific trends or create such trends, and whether this can serve as an explanatory factor for future value of artworks. We will delve into the setting surrounding artists and investors, namely curators advising on
arts, and their role in the industry and trend developments that might affect the art selection process. With that in mind we will analyse how art is valued across time and how its future value is elaborated. As a result, we will focus on opportunistic behaviour of investors and the effectuation side of entrepreneurship.
2! Contemporary art market
Contemporary art sector has shown an incredible growth in both, price tag and sales volume, since 2013. The market has become very competitive and undoubtedly speculative. Only Jeff Koons’ artwork sold for a record €38.8 million. Auction sales and turnover both reached their highs for contemporary art sale in 2014.
2.1 Trends
Since 2009 – the year when prices fell sharply – the global turnover doubled in size. This characteristic is rather unique for contemporary art market was quick to restructure and redirect to globalization and sales dematerialization. In 2014, the market reached new sales milestone explained by three factors: increase in prices, surge of auction turnover and highest bids. The global price index of contemporary artworks has increased by more than 70% since 2004. Similar trend holds true for artists’ price index that has increased by 15% since 2007.
To put it in perspective, 13 high-profile contemporary artworks each have a price exceeding €10 million with Jeff Koons’ Balloon Dog breaking the record. Contemporary art sector is volatile with prices fluctuating tremendously. The most speculative artists in the industry who are associated with safe investments are well-tied to curators, gallery networks and
consultants who have great degree of influence in setting the trends. In that sense curators and galleries can be perceived as brokers in the financial markets. It gives us an idea that contemporary art is a market-driven market with artists on the one end, investors on the other and intermediaries such as curators and auction houses in the middle of the transaction.
Success in contemporary art is attributed to mainly two elements; that is demand and tried-and-tested processes. Demand comes from an increasing number of bidding investors shaped by wealth and globalization. On the surface, contemporary art belongs to a high-yield
diversified investment. The attractiveness of the industry is further supported by rapid upswing in prices and volume with more than five times artworks sold than in 2004. Generally, the art market size is estimated to be around €10 billion in 2014, a 12% increase from 2013. Contemporary art market represents a 15% share, up from 9% in 2014. It is the third most profitable sector after post-war and modern art. We are, therefore, facing two
momentums – the overall increase in art market and simultaneous expansion of contemporary art. In 2013, contemporary art surpassed €1 billion threshold while, in 2014, the size was already €1.5 billion, a 33% increase over the previous year and 1,078% over 2004. In 2014, 100 highest-earning painters cumulatively comprised €1 billion in sales compared to €102 million in 2004. Since 2004 top three artists managed to increase their artworks’ prices by 800% due to excessive demand.
Such a tremendous market boom is explained by geographical expansion with whopping 3,663 records, robust status quo of artwork investment and other intangible characteristics such as luck or name. It is further supported by speculation and media coverage which
contribute to overvaluation. In 2014 there were 179 bids exceeding €1 billion, a 61% increase over 2013. In 2004 only nine contemporary artworks surpassed the €1 million benchmark, not to mention €10 million which has become a reality today.
2.2 Risk
Risks associated with returns in contemporary art market reflect the volatility and
attractiveness of artwork acquisition. As alternative investments contemporary works do not bare the same features as traditional securities and need further analysis. It is essential to understand what characteristics contemporary art has and how exactly we are exposed to risks revolving around these characteristics. The table below decomposes work of art into various attributes that shape artwork value and volatility.
Table 1: Artwork characteristics
Characteristics
Heterogeneity
From an economic standpoint heterogeneity describes the extent to which an artwork represents diversity with almost no substitutes with no commoditization.
Originality Originality does not only represent uniqueness but also independence from other artworks.
Authenticity Authenticity is an attribute that pertains to a specific artist and depicts a signature reflected on an artwork.
standard methods for they exert multidimensional characteristics with uncertain qualities. Uncertainty and valuation subjectivity give rise to labels, brands and critics that markets heavily rely upon. These devices determine the value of artworks that are hard to measure quantitatively. As a result, artwork collectors are equipped with what they believe is credible knowledge they need to base their decision. Therefore, such markets rely on quality and not price competition.
Aesthetics Alternative investments, art in particular, call for emotions.
Niche
Contemporary art has a high income elasticity of demand. When elasticity is higher than one demand for luxury goods is not limited since increase in income increases artwork demand more than proportionally.
Prestige
Contemporary art represents a symbol of social status, wealth and power. It directly influences the price of artwork and its future fluctuations.
Legacy
Art can be of cultural importance and have timeless characteristics. Artworks are legally bounded which further contributes to authenticity and originality.
Value
Apart from the artistic perspective the value can be determined on the basis of artist’s name, symbolic ground, emotional attribute and market perception
Before we proceed with specific risks associated with artworks we want to compare
traditional securities to alternative ones to better comprehend to what extent contemporary art market is volatile and in what direction.
Table 2: Comparison of artworks and securities
Artworks Securities
Homogeneity
Artworks share features that are unique, rare and not repeatable. This holds true for the same artist whose productions do not act as substitutes. Therefore,
heterogeneity is well preserved.
Securities, on the other hand, are different in volume which is large, and substitutability which is more often than not perfect.
As such securities are perceived as homogeneous and replaceable for they are solely valued on the basis of credibility, performance, current price and
expectations.
Upkeep
Artworks require special physical treatment where temperature, lighting and humidity need to be preserved for its value not to deteriorate. Going further, artworks are tangible which makes them prone to theft.
Securities do not require any maintenance and there is no risk of theft.
Classification
Blue chip refers to an artwork that has global recognition and an artist who has had tremendous international influence in art development.
Blue chip relates to shares of companies with long track record and long-term stability and confidence. These companies are well capitalized with low share price fluctuations and regular dividend repayment.
Mid cap artworks also exert great national importance but are lower in value and, thus, considered secondary to large-cap art pieces.
Just as the name suggests mid-cap shares relate to companies with market capitalization ranging from $2 to $10 billion. Such companies have less
established track record and share prices are more volatile to market changes. Small cap artworks are on local or
regional level.
Small-cap firms have low market capitalization and are prone to financial distress
with high price fluctuations.
Freedom
Competition is nonexistent since an author can be considered to be a monopolist. Market boundaries are blurred given lack of substitutability and lack of comparison.
The market for securities is competitive given the homogeneous nature.
Market Both, primary and secondary markets exist.
Primary and secondary markets exist but are more formally organized.
Market type
Art market is a niche one and is
considered to be on a luxurious and elite side.
Securities belong to a mass market explained by lack of differentiation and volumes traded.
Institutional market
Institutional market take the form of auctions.
Stock exchanges are used for formal trading.
Informal market
Much of the low-price artwork is sold informally either by an artist directly or by agents.
Over-the-counter markets are used to bypass stock-exchange rules and regulations but these are hard t control nonetheless.
Frequency
Since art belongs to the niche market the deal flow is less frequent but in greater amounts. Therefore, seasonality plays a huge role.
Stock-exchange transactions are made on a daily basis with huge volumes and various transaction sizes.
Information availability
When traded outside auction houses much of the information remains confidential and becomes available for interested and potential parties.
Security prices are publicly available, and assuming arbitrage does not happen all information is accessible and conveyed.
Indices
Sotheby’s Art Index
AMR – Art Market Research Price Index
MM – Mei-Moses Fine Art Index
FTSE 100 NASDAQ
Dow Jones Industrial Average
Art Price Index Fase i van Tol Index Gabrius Index
Hislop’s Art Sales Index
DAX CAC 40 PS 50 WIG
2.3 Investment specificity
Investment in art relates to how artwork intrinsic value changes over time.
Multidimensionality of artwork brings up the complexity of measuring and estimating the value of art across time. Apart from the intrinsic value of the art that is related to the price one must take into account values that revolve around aesthetics, artist, collector, experts and more abstract concepts such as symbolic, religious or cultural values. Entrepreneurs assume positive gains but the time horizon is unknown at the time of acquisition even if an investor knows whether their aim is short- or long-term.
Investments in art can be both, direct and indirect. Direct investment is straight-forward and takes place in primary or secondary markets. Such a transaction is physical in nature when the acquirer is in the possession of the artwork once the transaction is completed. Direct investment requires artistic acumen or assistance of art experts who can bring upon
knowledge about art trends or foreshadow contemporary art movement. Such an active way of managing investments is both costly and time-consuming.
Indirect approach is tied to investments in art fund management who take the lead for you and apply their best practices to generate positive returns. In this case an entrepreneur completely relies on fund’s expertise and gives up any control. In return investors acquire shares that are proportionate to their investment relative to the whole pool of money.
Entrepreneurs might rely on conventional investment funds such as Sotheby’s Holding Inc., Art in Motion Income Fund or Artprice S.A. There are even more specialized funds, namely Fine Art Fund and Collectors Fund.
Direct and indirect approaches had become the sole two options in the market until recently. However, there is an increasing interest in curators who act as advisors with more
personalized offering. The two parties work closely together and seek out the best options with regards to newly-emerging artists. Curators have come up with new techniques as to
how to attract artists and potential art acquirers. Acting as facilitators curators are market makers and, thus, not only do they regulate the price they also shape the trends.
Consequently, curators possess valuable information that impacts art industry.
Direct investments, however, face the prospect of low liquidity while usage of fund management increases liquidity but might be capped by time horizon as well. In general, investment funds use covenants that limit entrepreneur’s access to their share for a certain time. After that, they are free to trade shares but are not advised to do so since the market is characterized by value creation that is time dependent. Entrepreneurs considering direct art acquisition should also bear in mind that art acquisition is a long-term investment, and that is especially the case for unknown art that needs time to increase in value that is mostly ties to the artist. Once again, it is noteworthy to mention the important role of curators who provide their platform for artists to gain exposure and express themselves. In this sense, artists find curators particularly appealing and it might be the first step for entrepreneurs to look for alternative and opportunistic propositions.
While we mentioned that usage of investment funds ties entrepreneurs to time the general idea is that it is a pool of investments. As a result, funds have track record and their investments had begun prior to investor joining such investment pool. In that sense
investment can generate positive or negative gains in much shorter time span since we do not deal with particular artwork but the whole portfolio or art pieces. Such involvement
differentiates from direct investments in that it may bring fixed income which bears resemblance to investments in bonds, or dividends which are repaid irregularly. After all, entrepreneurs investing in funds are not interested in particular artwork performance but how their money is turned around.
Investment purpose in art greatly influences the potential value of art in the future. Goals can be financial and non-financial, and this perspective is decisive. Financial goals are pursued by entrepreneurs and investors while non-financial ones are more typical for art collectors who acquire art for personal reasons. Non-financial goals are tricky in that investors and experts focus more on aesthetic and artistic values which more often than not increase the intrinsic value of art substantially. Art pursued for financial reasons might lack substance essential for value leverage. Therefore, non-financial goals bring up personal benefits to owners in the form of pleasure and once they decide to sell their artwork it brings financial benefits as long
as the value has increased over time.
Table 3: Comparison of artworks and securities with respect to investment attributes
Works of art Securities
Direct investment Indirect investment
Investment type
Direct investment takes the material form and transaction takes place between the seller and buyer.
Indirect investment is done through art fund management or curators. Investment can be either in the form of shares or direct purchase from the curator via mechanisms where the artist no longer participates in the transaction.
Financial instruments are traded. It can be in the form of shares, bonds or derivatives such as options, futures or swaps.
Liquidity
Liquidity is low for contemporary artworks. Entrepreneur or investor cannot access the market easily and is not able to leverage artwork value on their own.
Liquidity is higher than for direct investments and the pool of funds
facilitates the sale of shares after predetermined time horizon. Shareholders are also entitled to received dividends. Liquidity is high given daily activity of stock markets. Trades take place on daily basis.
Time horizon
Time horizon is long, especially for financial goals.
Time horizon varies when investors deal with investment funds. Dealing with curators requires
Time horizon is variable and solely determined by the owner who either sells short or can
comparable time horizon as for direct investments but curator’s expertise and market drive can shorten the period.
hold till maturity if it is the case of bonds.
Return form
Return is only in the form of the final sale.
Return can be in the form of dividends, interest, or sale of shares or bonds.
Return can be in the form of dividends, interest, or sale of shares or bonds. Investment purpose Contemporary art acquirers focus on both financial and non-financial goals. Often aesthetic value is appreciated but financial aspect is frequently pursued.
Indirect investments relate to financial goals only. Positive return is expected and overall performance is pursued with no focus on particular piece of work. Securities are financial instruments that yield returns in various forms such as dividends or interest. Non-financial purpose can be rarely spotted.
Financial reasons are accompanied by two most important dimensions – risk and rate of return of art. Risk in contemporary art relates to the art market itself and to artist performance over time. Risks that are related to the artwork include risk of authenticity, provenance of artwork, physical risk and quality risk. Authenticity risk relates to the extent an artwork is unique and original. The risk involved comes from lack of information or hidden facts. In this sense, an entrepreneur faces moral hazard and should often decide upon investment in the presence of expects who themselves do not guarantee the originality of work because contemporary art lacks track record. Therefore, entrepreneurs should be aware that an art might be non-authentic, signature can be falsified or an artwork could represent a forgery. Certification of authenticity can lower the risk and should be linked to art and artist’s provenance which work as a covenant for investors. Risk of provenance tells us whether an
artwork truly represents its source of origin. Artwork quality risk analyzes technical
capabilities of an artist attributed to workmanship. One wants to know whether an artwork is durable or resistant over longer time span. Physical risk stems from quality risk in that it assesses the material aspect of an artwork and related damage or loss. When assessing risks it is necessary to link art market to the artwork and see how risks are exposed in perspective. Entrepreneurs who seek opportunities and ultimately undergo an artwork transaction have to be aware of seller-buyer risk related to adverse selection and moral hazard. When acquiring a piece of art entrepreneurs have to know the motives behind the sale, what the sale represents from an artistic perspective and what an artist wants to achieve by selling an artwork. Apart from the motives it is also essential to analyze the legal nature of the transaction, agents involved and even the risk of becoming a collector of a particular piece of art. Institutional risks delve into auction house behavior, due diligence and code of conduct. For instance, it is in investor’s or collector’s best interest to acquire a piece of art at its fair value and not an overpriced artwork. An overpriced art might does not have to necessarily rise in price. Auction house manipulations are present and should be accounted for. Hazard risk takes the form of insufficient knowledge of intermediaries and other parties involved in the transaction for they might have diverging interests that do not align with potential buyer’s intent.
Therefore, agency risk represents a huge cost for an acquirer.
Table 4: Risk analysis
Risk type Characteristics
Artwork
Authenticity risk
Authenticity risk involves uncertainty about the artwork in relation to its authenticity often lacking certificates of proof or falsification of a piece of art or signature falsification. Provenance risk There is uncertainty about
the origin of the artwork. Quality risk
Quality risk is reduced when disinterested experts help on advising on the quality
related to the workmanship that defined durability and resistance of the piece of art.
Physical risk
Physical risk is attributable to destruction or damage or improper storage conditions that may affect the quality of the artwork.
Seller-buyer relationship
Legal risk
Legal risk can be caused by the violation of the property rights that are not entitled to the artist, or other
regulations are infringed.
Transaction risk
Transaction risk involves unprecedented changes on the owner’s side. This can relate to change in tastes or preferences.
Intermediaries – auctions
and agents Agency risk
There is a risk of
asymmetric information prior and during the transaction resulting from imbalanced distribution of information. It closely relates to trust and
partnership built over time and the level of credibility among partners. For instance, leading auction houses are capable of various price manipulations whose fees are fixed
transactions.
Internal analysis
Market risk
Market risk is attributed to market changes such as new art directions and or
decrease in popularity of other trends. Market change can lead to difficulties to sell art but also difficulties to attain value and generate positive gains from the sale. Unexpected transaction costs are likely to arise, taxes or other legal requirements such as licenses or fees.
External analysis
Economic risk
Economic risk partly relates to the market risk but incorporates stock exchange fluctuations, relative value of other alternative
investments including real estate, precious metals or wine.
Legal risk
Legal risk can arise from government changes that can cause nationalization, stringent regulation of property rights or difficulties in performing transactions linked to higher tax rates or higher export caps.
Political risk Political risk cannot be controlled but can be
monitored.
Unprecedented risk
Unexpected events can cause loss of artwork or its destruction. Natural
disasters can also bring about artwork value loss. Risk of wrongdoing
Theft is particularly relevant in contemporary art market. Owners have to consider insuring their piece of art.
2.4 Returns
Profitability results from financial rates of return stemming from investment in artwork. Rate of return takes either financial or non-financial shapes. Financial rate of return focuses on market value of the piece of art, i.e. we are interested in the price of the artwork. Non-financial return relates to aspects around psychological, social or even functional areas. Financial rate of return captures solely price or value fluctuations over time. Artwork rate of return is complex to establish given the difficulty related to art heterogeneity as well as irregular presence of the artwork in the market. There are methods that try to establish the rate of return from art investment.
1.! Art index method looks at already sold artwork that serve as benchmarks. Price index is determined based on price benchmarks set over longer time span.
2.! Repeat sale regression analyses data generated from artworks that were sold at least twice. This method requires long-term data collection resulting from rare repeated sales of the same artworks.
3.! Hedonic regression treats artworks as heterogenic products that are viewed as an aggregate and price is based on the sum of partial utilities of their characteristics. 4.! Hybrid model is based on the similar principle as repeat sale regression but is
structured as hednic regression.
5.! Two-step hedonic approach analyses all auction records.
Financial returns are based on purchase and sale prices as well as on transaction costs that are more substantial than for other securities. It is necessary to take into account costs attributed to auction house commissions, fees and taxes related to acquisition, fees such as licenses and exportation permits that are applied to export of the piece of art. Going further, there are costs that arise from future advertisement and promotion of the artwork, exhibitions as well as transport costs. Since a piece of art is a tangible material it requires maintenance costs. All these costs play a great role affecting the rate of return of an artwork, and should be well considered before acquiring a piece of art. Therefore, careful risk analysis, apart from artistic and aesthetical aspects, would serve as a first step in deciding whether or not an acquisition might generate future positive returns or would be dilutive. It is noteworthy to mention the opportunity cost which is the best forgone alternative option. The studies also indicate low correlation between rates of return in art and other securities. It might serve as an indication that adding artworks to the portfolio does not add up volatility nor does it properly hedge the portfolio.
Focusing on particular returns of concrete artworks is a complex and hard to perfect given the heterogeneity feature that is so pronounced in art market and even more so in contemporary art market. The most used methods to construct price index for art are repeat sales estimator and hedonic regression to a data set of auction sales.
As mentioned earlier, repeat sales regression analyzes returns that stem from purchase and sale price relationship and spots such sales of pieces of art that were sold at least twice. This method is advantageous in that it incorporates the quality aspect which is necessary in art industry. The downside is that repeat sales regression is selective in data which is prone to small sample of data. In that sense hedonic regression takes advantage of all available sales information and, therefore, cover a greater array of data providing more rounded estimates. Hedonic regression focuses on transaction prices as a dependent variable using hedonic characteristics as independent variables. Typically, such hedonic characteristics include reputation of the artist, one of the most important factors that determine the future value of the artwork. Other important hedonic characteristics include size of the work as well as the
medium and technique of the artwork. A dummy variable usually takes the form of time to regress the transaction price over various points in time. The return is then measure on the basis of changes in coefficients on the time dummies. The only assumption that needs to be preserved is the quality that holds unchanged irrespective of time.
The hedonic characteristics include the artist, the piece of art, the location and time of sale. It is important to note how markets differ from one another. For instance, in 2000 Christie’s Russian art expert mentioned during an interview that investors in London are looking more for Russian paintings. Not surprisingly these painting are better sold in London than other ones. In New York the trend is more international and would be more interested in art pieces such as Faberge that pertain greater international recognition.
There is an evident difference in performance across countries. The average returns on art during over the period of 40 years up to 2007 ranges from -0.90% (Belgium) to 4.60% (UK). In the case of US market, the return is 3.07%. Interestingly, the average return on artwork is lower than the average GDP growth. In all instances the average art return is also below the average equity return. On a different note, it is important to bear in mind that this is the whole pool of art irrespective whether it is contemporary art or post-war art or even modern art. We want to bring up the overall statistics that focuses on the general performance of artworks in the art market. In the second phase of our thesis we will delve in particular cases and what chances and opportunities we can explore to attain above-average returns. In other words, we are more interested in cases where we buy low and sell high. Part two will primarily focus on the collaboration with curators and newly-emerging artists. However, we want to first
understand how the market is positioned worldwide.
The data suggest that the correlation between risk and return is ambiguous. The highest standard deviation is spotted in Australia with 21.15% and Sweden with 20.18%. The lowest volatility, however, is seen in Germany with 13.12% and USA with 14.31%. It should also be noted that markets showcase comparable movements despite country variation in returns over the long-term period. Historically, these patterns can be seen in 1991 when international art markets – Switzerland, Swede, UK, USA and France – brought substantial price decrease between 29% and 61%. Similar low returns were recorded in 1981. Art markets experienced stronger returns between 1972 and 1973, and between 1986 and 1989. From 1990 art markets experienced weaker returns explained by recession. The same pattern followed in 2000s and
escalated in 2007 when financial crisis deeply impacted the contemporary art market in a negative way.
Works of art are not easily tradable in a country nor across the borders. Their evaluation is complex and should rarely be judged collectively. On a mass scale art market does not exert more attractiveness than investments in securities. On an individual level, however, the market becomes more appealing as only selected art pays substantial return. Geographical segmentation is important and each market is differently shaped. These peculiarities should be well taken into account when exploring new artists and works of art. It is also important to pick the most attractive timeframe since there are year or even long-term periods of financial distress which, while not necessarily devalue pieces of art, make such art illiquid. There are three main takeaways from the global art market returns. First, each country is specific in art demand, therefore, one should bare in mind the close connection between geography and type of an artwork sold. Second, there is a substantial international performance difference across time between 1971 and 2007 which experienced years of downturn as well as years of positive returns. Third, art market returns have been substantially influenced by global GDP performance and equity returns. Economic growth as well as stock market movements also deeply impacted art market performance. There is no evidence that local cultural and ethnical values have been disrupted due to economic integration and technological advancements. At the same time, country specificities matter less when it comes to top-tier artwork sale on the international auction houses.
Evidence also suggests that with multidimensionality of contemporary art market one needs to assess qualitative data simply because of insufficiency and generalization of quantitative approach that is reliable on the aggregate level. This aggregate is not adequate for concrete analysis that requires a refined and individual approach. For this reason, we once again stress the importance of recent emergence of specialized galleries and curators who not only
provide expertise in contemporary art but also redefine and direct the trends. In that sense, an entrepreneur or an investor who acquires art on their own is prone to substantial risk
explained by lack of knowledge and absence of information. As a result, art market returns are only indicative and are not able to explain whether or not the industry is attractive nor can they explain where to seek for opportunities and how to exploit them.
3! Opportunity recognition and exploitation
We will analyze entrepreneurial theories that delve into opportunity recognition process. Opportunity recognition is vital in arts sphere, especially in the contemporary one, for uncertainty and heterogeneity factors require deeper understanding and research of the field.
3.1 Theory
Among most renowned contributors to theories of entrepreneurship related to opportunity recognition belong Israel Kirzner. Shane and Venkataraman look at entrepreneurship from a scholar point of view analyzing opportunities based on who exploits them, how and what effects would be eventually created. This approach delves into the sources of opportunities, discovery process, its evaluation and eventual exploitation. Shane’s General Theory of
Entrepreneurship (2003) has became the epicenter of entrepreneurial study and is much based on Kirzner’s theories.
Kirzner’s theoretical frameworks looks at pries, quantities ad qualities that result in profit opportunities. These attributes form the basis of value disequilibrium that gives rise to arbitrage. Those who are in constant search may notice such market discrepancies and take actions that would eventually clear up the markets. Financial economics studies an
arbitrageur acting as a natural agent who exploits these price and supply inequalities. Over time markets become aware of price and volume differences and supply equals demand. This is a typical case for commodities but is not yet true about niche category which contemporary art belongs to. However, common to both market types market gap plays a crucial role. Market gap gives rise to opportunity recognition and subsequent actions. Success factor is closely related to information asymmetry characterized by an agent who benefits from information that is not accessible to others. From this perspective, the idea of looking at a standard profit-maximization problem such as search algorithm (High, 1980) becomes not only obsolete but rather irrelevant precisely because, as in our case, contemporary art market lacks definition and grounded theory. Therefore, having an insight into the problem becomes more central to increase our probability to succeed provided that others are limited to or have no access to it. Entrepreneurship, as a result, becomes a process of recognizing profit
What Kirzner has in mind tremendously differs from the typical notion of market
disequilibrium, arbitrage opportunities and eventual market clearing. Kirzner believes that market imperfections such as transaction costs, adverse selection, moral hazard and imperfect property rights to name a few are not temporary events. Instead of looking at it as a market equilibrium problem he views it as a permanent and deep-seated disequilibrium. Just as Schumpeter or Knight, Kirzner believes that entrepreneurship attains an economic function. Entrepreneurial function strives to achieve market equilibrium by exploring market gaps and eventually narrowing them. Entrepreneurship always seeks ways of approaching market equilibrium (Selgin, 1987). Entrepreneurial discovery differs from capital investment in that, according to Kirzner, an entrepreneur focuses solely on discovery function rather than an investment function which Knight supports. Capital is put aside and alertness to profit opportunities is moved to the foreground. Kirzner’s theory is so much dedicated to discovery function that the author disregards the importance of behavioral aspects such as charisma, or innovation, creativity and critical thinking. In our thesis we believe that factors neglected by Kirzner are essential and in a later phase we will demonstrate how crucial these are in
contemporary art market. On a different note, the importance of Kirzner’s theory lays basis to our analysis. Kirzner’s work is often referenced in economics and entrepreneurship, and his contribution to entrepreneurial theories is just as profound as the works from his counterparts such as Schumpeter (1911) and Knight (1921).
Kirzner follows on the market-process ideas described in the Austrian school of economics and further develops on the works of Mises (1949) – entrepreneurial aspect – and F.A. Hayek (1946, 1968) – market competition as a result of discovery process and learning. Yet Kirzner was more recognized among management scholars rather than economists precisely because of his opportunity-oriented contribution where he focused on discovery and recognition. Shane and Venkataraman (2000) and Shane (2003) all based their works on Kirzner’s
framework and further develop opportunity-recognition topic as a standalone unit of analysis for research in entrepreneurship.
3.2 Opportunity
Eckhardt and Shane (2003) explored the process of opportunity discovery that individuals or firms pursued through unknown or not experienced ways to generate new means-end bonds.
It is not in individuals’ capacity to recognize all entrepreneurial opportunities (Schumpeter, Kirzner). One of the first prerequisites for opportunities to exist is information asymmetry. Kirzner (1973) argued that only a portion of the population is able to recognize an
opportunity at a give time. This assumption undermines the importance of opportunity search for individuals recognize such opportunity through value recognition based on the new incoming information (Eckhardt and Shane; 2003). Furthermore, Schumpeter (1934) and Kirzner (1973) argue that information regarding opportunities is the main determinant of who is an entrepreneur. Taking a step further, Shane (2000) dictates that opportunity recognition process depends on factors other than individuals’ acumen to take action. Shane further develops that entrepreneurs discover opportunities on the basis of information they have and, consequently, recognize opportunities instead of search for them.
Our unit of analysis is an artist. From an entrepreneurial perspective, and Shane’s (2000) studies confirm it, individual differences serve as a ground for influence of opportunities discovered. We argue that from an investor’s point of view they discover new opportunities and do not actively search for them. In our curator section one can see that an investor who collaborates with curators does not take an active part in opportunity recognition. Instead an investor is offered a set of options and based on the information they possess they take further action.
By looking at ex-post and ex-ante values we can define entrepreneurial profit as a difference between these values (Rumelt, 1987; Shane, 2003). It is noteworthy to point out that
entrepreneurial values are subjective and bound to personal differences. Value determination in the case of innovation is hard to estimate when opportunities are exploited. We will see how this is reflected on art:i:curate’s, a curating platform, innovative processes and how their values are determined.
One of the main problems in contemporary art is related to risk associated with volatility and uncertainty. When an opportunity is exploited entrepreneurs start taking actions as to how to proceed at every stage of opportunity exploitation. This process while unpredictable can be controlled and again is subject to available information and monitoring as well as
knowledgeability. As a result, opportunity exploitation requires new means of organization and implementation of such opportunities (Schumpeter, 1934). Unique to contemporary art, though, is the incomparability of the practices that artists undertake which make the process
complex and unstructured in terms of how broadly opportunity exploitation can be universally implemented. However, it is up to an an entrepreneur or an artist to assess the potential value of their artworks (Sarasvathy, 2001). An investor, however, needs to
understand whether an artist has clear ideas how their works of art or general direction are to be executed. We will discuss how this process is executed without investor’s interference of influence.
Based on Shane’s studies (Shane, 2000) we lay down the following propositions that we will test and see to what extent they apply to contemporary art and opportunity recognition and exploitation.
PROPOSITION I Investors are not equally likely to recognize a given entrepreneurial opportunity.
PROPOSITION II Investors will discover entrepreneurial opportunities without actively searching for them.
PROPOSITION III Investor’s knowledge about artists will influence their discovery of which artworks to fund or invest in to exploit a contemporary art market.
PROPOSITION IV Investor's knowledge about how art markets work will influence their discovery of how to invest in contemporary art market.
PROPOSITION V Investor’s knowledge of audience’s preferences will influence their discovery of artworks to exploit new works.
4! Research design
The purpose of this research is to analyze the best performing contemporary artists based on auction turnover and top hammer prices. We want to look at these artists and understand what factors contributed to their artistic but more importantly financial success. We will identify the pattern that are common for these artists. It is noteworthy to understand that our sample size is small but since we delve into a new and niche market it should be sufficient to exert the kind of characteristics we are looking for. More importantly, in this case we do not need to make a picture of the whole population based on a small sample size. The reason why it is not essential of an element is because the contemporary art market is exclusive in nature and top performers that make up the market are concentrated, i.e. a 20-80 rule applies where 20% of artists make up at least 80% of the market. Precisely for this reason we concur that the small sample size should be of no issue.
The second part of our analysis will consist of two stages. In the first stage, based on the market trends, we will delineate the emergence and importance of curators whose close collaboration with artists opens up the basis for opportunity recognition and exploitation. Therefore, we will look at curators from a mean-end perspective. In the second stage we will look at our chosen curator’s, namely art:i:curate, artists and spot the characteristics that we regard as important based on our research from top contemporary artists. Once again, our sample size is limited given the limitation in the industry and minimal information available but as we will point out later, a small sample size in the case of emerging artists should suffice as well since the curating platform does much of the filtering in terms of artist selection. Therefore, we have substantiated reasons to believe that analysis of four emerging artists picked from the platform is justified and representative for the purposes of our
research.
4.1 Interviews
Structuring interviews proved to be a complex issue for many reasons. For one thing, conducting an interview to find out answers related to financial and entrepreneurial topics proved to be inefficient precisely because every artist claims their work is done for artistic purposes. As a result, we would obtain a denial that they have such ambitions at all. Another
reason why getting an interview proved impossible is the availability of such artists. Instead, art:i:curate was more than willing to provide us with interviews they conducted themselves. A few remarks need to be clarified. Each one of these interviews is different. They have diverging subject matters, questions, scope and general coverage because they are either tied to a specific event, artwork or artist. However, all interviews analyzed are structure for our purposes since all of them discuss the same ideas – artwork and artist. From these interview we understand who an artist is, what style they use, how unique they are and what motivates them to mention a few.
4.2 Unit of analysis
Our unit of analysis is an artist. From step one we want to extract those essential characteristics that are necessary for an artist to be successful. We do not claim these characteristics are sufficient because of externalities such as luck that often blur
comprehension. We will try to find these extracted characteristics in our sample of emerging artists. This stage will be congruent with our analysis of art:i:curate’s platform acting as a centerpiece in enabling opportunity recognition.
4.3!Theoretical propositions
Theoretical propositions define the scope of opportunity recognition process that we try to approve or disapprove. We reflect from these and will get back to them based on our findings. This process will be cyclical and continuous over the course of the thesis. We will also introduce our own propositions specific to contemporary art and use them as checkpoints in order to spot those potentially prominent artists.
5! Renowned contemporary artists
In this part we want to see how well-established contemporary artists compare to newly-emerging artists. We want to understand whether they pursue monetary goals, artistic ones or a combination of both. To do so we will primarily look at artists’ attributes and their work. Since artists do not mention their financial goals openly which would diminish the value of their artworks we will try to spot signs that would suggest that such artists put emphasis on monetary pursuits. We have chosen top 10 contemporary artists on the basis of auction turnover and hammer price. Artists’ provenance includes the USA, United Kingdom, China and Germany. We can see that geographic concentration plays a substantial role in artwork’s value increase.
There is an increasing number of artists that make over €10 million. Only in 2014 this result was attained thirteen times, a 225% increase from 2013. Vintage, a special category within contemporary art, marked a particular success in 2013-2014 period and accounted for half of the works that exceeded a €10 million benchmark; non-existent in 2004. In 2004 only Jeff Koons could enjoy such success but the record was set to be €2 million. A decade after Jeff Koons’s artworks move around a €40 million boundary.
The contemporary art market is clearly a fast-paced one and is continuously reshaped for its trend-changing behavior. However, even this industry can be described as a concentrated one for three artists, namely Koons, Wool and Basquiat, represent roughly 22% of the market globally. All three artists have gained the reputation of the highest-selling artists whose artworks exceed €10 million price tag on regular basis. Damien Hirst has also recently joined the group with its Lullaby Spring work sold fro €12.7 million. Interesting to note is that the estimate was half the price sold at. This remarkable success is not limited to American markets only. Contemporary art market has also gained momentum outside American boundaries represented by the Chinese artist Zeng Fanzhi, the British artist Peter Doig and the German artist Martin Kippenberger.
It is important to note that Koons, Wool and Basquiat share three common attributes: they are all Americans, they work in the high-end market which had been greatly shaped by former artists who literally focused on success factors, and they are all managed by Larry Gagosian,
the dealer who is in charge of fifteen renowned galleries and who is the most affluent in forming the crème de la crème in the contemporary art market. Going further, these artists are in their 50s-60s whose careers have been vigorous and a lot of media exposure which boosted their artwork prices over time. This characteristic explains why long-term perspective is essential in art for the value of the work of art appreciates with time depending on the artist’s progress and influence.
Initially, we get the glimpse of what aspects matter initially or in the process: market concentration, trend focus and representation. While the three most successful artists, in monetary terms, are all Americans it is not the attribute itself that distinguishes them; it is the American market that enables such fruit collection and, therefore, we believe that market concentration or geography is more principal than nationality provenance. Market trend relates to the fact that all these top three artists operate in the trends already established my the most successful artists prior to them. Representation plays a central role for an agent promotes and with time significantly leverages an artist’s name. This is partly explained by the previous artist’s work but even more profoundly the reputation of the agent or an
organization that manages artists. Nowadays, curators have embarked on representing newly-emerging artists, and they will be our main focus area.
Table 5: Top 10 contemporary artists based on auction turnover and top hammer price
Rank Artist Age Origin Auction
turnover Sold lots Top hammer price 1 Basquiat Jean-Michel 1960-1988 USA € 162,277,646 85 € 22,527,700
2 Koons Jeff 1955 USA € 115,039,516 52 € 38,859,600
3 Wool Christopher 1955 USA € 61,759,209 54 € 17,561,550
4 Zeng Fanzhi 1964 China € 59,608,941 64 € 15,172,800
5 Doig Peter 1959 UK € 33,925,162 70 € 10,985,920
6 Prince Richard 1949 USA € 28,132,760 63 € 5,451,750 7 Kippenberger
Martin 1953-97 Germany € 25,902,248 71 € 11,993,850
9 Chen Yifei
1946-2005 China € 22,778,655 38 € 6,638,100 10 Zhang Xiaogang 1958 China € 20,785,876 42 € 7,806,980
5.1 Jeff Koons
Jeff Koons is considered to be the world’s most renowned contemporary art artist. While he has below-the-average sold lots among the top 10 artists in the table his record artwork was sold for more than €38 million and is second in total auction turnover surpassing €115
million. He has the highest price index in the world and his works are displayed in New York at the Whitey Museum of American Art as well as Rockefeller Centre. Before his first
retrospective in 2014 Christie’s had sold Koons’s Balloon Dog using only 5 colors – blue, magenta, orange, red and yellow – for €38.8 million. Much of Koons’s work was acquired by Peter Brant who is well-know businessman. It is noteworthy to mention that the artist’s current and future artwork value depends on who acquires it. Affluent investors or
entrepreneurs who publicly buy artworks have a tremendous impact on the artist’s reputation, and Koons is a great example of it. Comparably Picasso’s paintings are often acquired by wealthy people who play a substantial role in soaring Picasso’s artworks’ values. Qatar’s billionaire former prime minister Hamad bin Jassim bin Jaber Al Thani bought Women of Algiers (Version O) for a record $180 million after outbidding rivals at Christies. Therefore, not only the representative’s name matters in the transaction but also the acquirer’s name as well as the extent to how public a transaction is.
Another distinguishing element in contemporary art are the general characteristics that artworks bear. Gleaming, kitsch and immediately recognizable are critical and considered to be “iconic” if an author like Koons attains it. On top of that, Koons is considered to be highly controversial artist using excessively sensual and sexual motives. This does not impose an artist to use such themes but it raises the need to use provocative themes to gain attention. Contemporary art in itself is a response to more conventional art streams and, therefore, often requires controversy. Jeff Koons is subject to excessive criticism and while most of it is on a negative side and earns him notoriety it always prospers his name and his work. Jeff Koons, unlike many of his contemporaries, started his professional life as a commodities broker in Wall Street. His direction towards taking casual objects and subverting them earned him
attention in the world of the modern art. He established himself while presenting his first art exhibition “The New” with vacuum cleaners fused with permeating neon lights. The feature that has always remained close to Koons is his inclination to be kitsch – an attribute that has amassed people and heavily popularized his pieces of work. While being kitsch would sound detractive to art experts precisely this trait by no means belittles the value of Koons’s
artworks who was quick to take over in auction houses in 1999 selling his Pink Panther for €1.59 million to Peter Brant. The estimated price was around half a million dollars, yet
another unseen phenomenon of overhyped contemporary installations. In 2011 Pink Panther’s value rose to €10.4 million, almost 10 times its original value. Jeff Koons’s virtue is to
market his artwork, a talent he deepened while trading commodities, and liaising with influential agents who position such artists in an advantageous light.
5.2 Zeng Fanzhi
Zeng Fanzhi, the Chinese contemporary artist, attained his popularity in the Chinese contemporary art market with a turnover of €59.6 million in 2014 alone. Fanzhi started his auction participation in 1998 but marked his success in London in 2007 when he surpassed the €1 million threshold, eleven times the initial estimate. Between 2005 and 2008 Chinese market focused on avant-garde characterized by huge speculation and price spikes. As a result, the market had a great performance with sales in London, New York, Hong Kong, Shanghai and Beijing. Fanzhi’s recognition was on par with Zhang Xiaogang’s and Chen Yifei’s. The three artists control the Chinese contemporary art market and closely compete with highest-earning Western peers. After Fanzhi gained momentum in 2007 investors and collectors were quick to purchase his artworks.
Chinese market experienced first price soars in 2005 when auction sales were ten times the low estimates. Price indexes skyrocketed when not only national demand but also
international interest expanded the market boundaries. Already in 2007 Zhang Xiaogang ranked third internationally among top contemporary artists overtaking Jeff Koons. In 2008 the market boom significantly appreciated the value of Fanzhi’s previous works, namely his Mask series from 1996 sold for €5.4 million, five times the low estimate. In 2013 he reached a new record and passed the €10 million line for the first time. His famous Last Supper artwork from 2001 sold for €15.1 million. As the name suggests Last Supper is a reworked Leonardo da Vinci’s painting fused with Chinese elements. Once again we can see the
