By Kyle Castellanos
Art dealership is a multi-billion-dollar industry. Although not covered by mainstream media, major art auction houses sell hundreds of thousands of dollars’ worth of artwork every day. Christie’s, the largest international art brokerage, reported over $7 billion total revenue in sales for 2018. In the same year Sotheby’s, Christie’s biggest competitor and largest public art auction house, made $5.3 billion in aggregate auction sales. These companies have enjoyed a duopoly over the art dealership industry, marketing over 80% of artworks worth over $1 million.
The art dealership industry as a whole has been following similar economic trends, and as the largest brokerages, Christie’s and Sotheby’s growth are normally indicative of the art dealership industry’s trajectory as a whole. Alongside other premier art auction houses, Sotheby’s continues to flourish economically. Sotheby’s has experienced a 15% increase in auction house sales from 2017, an additional 50,000 new lots sold, and has also expanded its consumer base with 10,000 new bidders engaging in auctions last year. Similarly, Christie’s total revenue increased by over 6% and the percentage of new buyers was up 32%. However, as expansive as the industry sounds on paper, art dealership is an exclusive industry that is both operated by and marketed to elites. The state of art dealership will never open up to the general public due to a prohibitively high cost of entry, the exclusivity of personal and professional relationships within established art dealers and collectors, and the substantial cultural knowledge necessary to participate successfully in the industry.
The most identifiable barrier of entry to the art dealership industry is the need for significant liquid capital. The first two artworks listed on Sotheby’s 2018 annual report sold for $16.7 million and $26.8 million, respectively. Even lower-tiered artworks by artists such as Richard Wright, Liam Gillick, and Martin Boyce are being valued by Sotheby’s at hundreds of thousands of dollars. The fact that artworks in the periphery of the art dealership industry are commanding these prices reinforces the necessity for substantial liquid capital. At Christie’s, 16% of total sales in 2018 were secured through two estate sales—$832.6 million and $323.1 million from the collections of David Rockefeller and Barney Ebsworth, respectively. Without abundant financial resources or disposable income, one cannot place a respectable bid on any reputable artworks at auction. Additionally, to make a considerable amount of profit in art dealership—or even just to “buy in”—one must have readily available capital to invest. This was not always the case but is now the reality of contemporaneous art dealership.
The art dealership industry has recently become obsessed with the idea of acquiring art and flipping it for a profit—viewing art as some sort of stock. Ultimately, this is what has contributed to the monetary barrier of entry into the art dealership industry. The possibility of profit on works of art outweighed the traditional concept of buying art for display and collection. Instead, artworks have become a form of investment, holding both cultural and monetary value. In 1966, then-chairman of Sotheby’s, Peter Wilson, confirmed this shift in ideals, stating that “works of art have proved to be the best investment, better than the majority of stocks and shares in the last 30 years.” This comment was a reaction to the exponential increase in the price of Impressionist paintings in the 1960s. During this period, art dealership had a higher return on investment than the stock market. Leadership at Christie’s and Sotheby’s strived to convince investors that art collection was no longer just the preferred pastime of old-money dynasties—serious profits could be made by investing in art. And thus, funds were poured into the art dealership industry in the pursuit of above-market returns. Ever since, art dealership has become sensationalized, continuing to exponentially increase in price.
However, price alone does not appear to be the only prerequisite to successfully acquire art. The difficulty of finding one’s way into the social circles surrounding the art dealership industry is another significant barrier to entry into the industry. New collectors in today’s market may struggle to purchase artworks that they are interested in acquiring—even if they have sufficient liquidity—because art dealers will only sell renowned pieces to collectors with the proper connections or reputation. Paul Ettlinger, an established international art patron, corroborated the complaints of collectors new to the art scene, stating, “If you’re going for a more established contemporary artist, unless you have an advisor or unless the gallery knows you, it is quite difficult to walk in off the street and just buy art, regardless of how much money you have.” But while sufficient liquid capital and connections to elite art circles ease the process of acquisition for in-demand artworks, even these do not guarantee profitable transactions without proper artistic knowledge.
Due to the cultural and social influence of works of art being their primary price determinant, a vast cultural knowledge is necessary to understand the industry and make successful flips. Familiarity with specific works of art and art movements can come either formally through an academic avenue, or informally through social connections with artists. An understanding of the cultural significance of the works up for sale and their social implications helps collectors discern whether a piece of art has the potential to grow in significance even further and thus potentially grow in market price. Without this essential knowledge—and without the needed liquid money and social connections—one cannot successfully invest in art.
In the future, the barriers of entry into the art dealership industry appear likely to intensify. Sotheby’s has recently announced it is being purchased by French-Israeli Patrick Drahi for $3.7 billion, which is likely to decrease inclusivity and transparency. The purchase will transition Sotheby’s into private ownership like Christie’s, freeing the company from the constraints of appeasing public shareholders. Jerry Wind, a professor at the Wharton School of the University of Pennsylvania explained that “being a public company places significant constraints, especially in the market expectations for quarterly performance and the like.” Instead, the company can now refocus its efforts on marketing solely to elites and auction off a greater quantity of higher-tiered artworks, alongside unreservedly spearheading a more direct approach at expanding its vast market. As a private company, Sotheby’s can focus on lump-sum transactions for larger estates, mimicking Christie’s sales of the Rockefeller and Ebsworth estates. Consequently, Sotheby’s could potentially abandon any concessions to incorporate public opinion into their business strategy.
Sotheby’s transition from public to private has the potential to exacerbate the current barriers of entry into the art dealership industry. As the company continues to push to further their economic success to compete with Christie’s and art continues to be sensationalized as a form of investment, the monetary barrier of entry will exponentially increase. Sotheby’s private acquisition and the continuance of Christie’s business practices could also augment the economic disparity between the entry-level collector and established international art patrons. In turn, the “buy-in” to become a respected art collector in the existing social circles will increase over time, isolating those not already participating in these exclusive groups. As such, the possibility of inclusivity and diversity within art dealership at Christie’s and Sotheby’s looks grim. The companies’ business initiatives under private ownership will come to define their public image as the two dealerships vie for industry dominance.