What Does $33.6 Million Mean in the Art World?

Lucian Freud‘s painting Benefits Supervisor Sleeping recently set a sale record for a living artist at $33.6 million.

Does this symbolize a thriving art market, is it a happy exception, or is it even worth the price?

According to one estimate, the money paid for the painting could have paid for 20 minutes of America’s gasoline consumption.

Benefits Supervisor SleepingBenefits Supervisor Sleeping, Christie’s Images Ltd., 2008

We asked Olav Velthuis, author of Talking Prices: Symbolic Meanings of Prices on the Market for Contemporary Art and David Galenson, University of Chicago professor of economics and author of Old Masters and Young Geniuses, about the sale and what it really means for the art world.

Q: Would this particular piece have sold for the same, less, or higher amount if Lucian Freud had died last year?

Velthuis: Difficult to say. From an economic perspective one would expect the price to rise, since the supply of works by the artist who died cannot be augmented anymore. But apparently you don’t have to be an economist to think that: many collectors do — so they decide to sell the work to profit from an expected rise in the price level once the artist dies.

The effect is, however, the opposite: the market gets flooded with work, so prices decrease. That happened, for instance, after Andy Warhol died in 1987.

Galenson: There is no simple, strong effect of an artist’s death on the value of his or her works. I believe this is because an artist’s death usually doesn’t have much impact on that artist’s influence on other artists.

Q: What might have most increased the value of the painting?

Velthuis: What may help in general is that Lucian Freud is not only a great painter, but also the grandson of Sigmund Freud, the psychoanalyst. He’s got a good biography, in other words, and some collectors may like that.

By the way, in the case of Bacon‘s triptych which Roman Abramovich — the Russian billionaire who bought Benefits Supervisor Sleeping — also bought, it definitely did not harm the price that it has been owned by a prestigious French family, the Moueix, who own the famous Bordeaux wine brand Chateau Pétrus.

Galenson: Larger paintings — like Benefits Supervisor — are usually more valuable than smaller ones. Paintings aren’t carpeting, so this isn’t because you’re paying by the square foot, but traditionally artists have set out to make more important statements in larger works. Some artists don’t follow this pattern, but I think Freud does; his larger paintings tend to be more ambitious than his smaller ones.

Q: How much does nudity and/or shock value affect the selling price and value of a painting?

Velthuis:
Not much, at least not if you look at the most expensive paintings ever sold at auction. The list is still dominated by Vincent van Gogh and Pablo Picasso, whose oeuvres are (at least in our own days) not very shocking.

It is of course the case that quite a few contemporary artists have made their reputations (and high prices) making shocking works of art. Think of Piss Christ by Andres Serrano, Maurizio Cattelan‘s sculpture of the pope struck by a meteorite, or Jeff Koons‘s pornographic pictures of himself and his — then — Italian wife Cicciolina.

But apparently that does not suffice to make it on the list of the 10, 25, or 100 most expensive works ever. There are quite a few portraits of women on the list (Dora Maar by Picasso, Adele Bloch-Bauer by Klimt), but they all have their clothes on.

Granted, there is one exception: in a private sale a year and a half ago, a painting of a naked woman by Willem de Kooning was sold for $137.5 million dollars, but that painting is rather abstract and definitely not erotic.

To make my point in a different way: the previous record for a work by a contemporary artist was a huge metal hanging heart, made by Jeff Koons (it sold for $23.6 million dollars in November last year). Some people may say that’s silly, but it’s definitely not shocking.

So Benefits Supervisor Sleeping is the exception to the rule. Apart from Freud, the only artist that comes close to making high prices with shocking, or at least anguishing works of art, is Francis Bacon. Interestingly, Abramovich last week also bought a triptych by Bacon for $86.3 million dollars.

Q: Would you hang Benefits Supervisor Sleeping in your living room?

Galenson: I would love to have Benefits Supervisor in my living room. Freud’s paintings are much more interesting in person than in reproduction; they are built up of layers of paint, over the course of dozens of sittings, and a lot of their interest comes from subtle visual effects involving the texture of the paint.

Freud only paints people he knows, and the portraits he makes of them have amazing psychological depth. They look very different at different times, in different light, and you learn more about them the more you look at them.

Q: What’s your best guess as to what the buyer’s main motivation was in purchasing Benefits Supervisor?

Velthuis: Abramovich is definitely not known as a big art connoisseur. He is known as a connoisseur of soccer (he happens to own the British club Chelsea and invested almost half a billion dollars in new soccer players to make it the best club of Europe) and of super yachts — he reportedly owns five of them, one of which, the Eclipse, cost $300 million dollars.

Here are two answers as to why he all of a sudden decided to spend this amount of money on art:

To start with, this amount means nothing to him. According to the last Forbes‘s list of richest people he has $23.5 billion dollars worth of assets.

So the painting took a tiny fraction of only 0.1 percent out of his wealth. That’s the same as when somebody whose net worth is $100 thousand dollars, buys a painting of $125 dollars. Not an amount to lay awake about, is it?

The other answer is that though he may be very wealthy, he may feel he does not have a lot of status, especially not among the global cultural elite. These acquisitions can be seen as an attempt to buy his way into this elite. The fact that his treasures are quite risky — and not very pleasing to the eye, at least — might help in accomplishing just that.

Q: Is art perceived as having more value if someone is willing to pay more for it or the reverse?

Velthuis: Both ways: if it has artistic or aesthetic, or cultural value, people are willing to pay for it. But, as I show in my book Talking Prices: Symbolic prices on the Market for Contemporary Art, a high price definitely makes people think it must be an important piece of art.

People’s valuations of art — contemporary art in particular — are influenced by a lot of things: what other people think, in which context they see it, what they know about the artists, but also what they know about the price.

Empirical studies show, by the way, that if you take some indicator of cultural value (for instance, museum shows or pieces by art critics) it usually correlates very well with the selling price.

Galenson: Artistic importance causes high prices. Artists are always the first to recognize important innovations: when they respond by using these, others in the art world — critics, dealers, and collectors — eventually recognize this, and the price of the influential work rises.

Q: Is this record sale an indicator of the health of the modern art market or an exception? How should the art world take it?

Velthuis:
To put it mildly, it is striking that art still fetches these record prices. I had expected the art market to collapse even before the financial crisis started.

Of course, what’s difficult about prices for art is that they have no “fundamental value,” unlike, for instance, real estate prices or stocks.

But the pace of price increases on the art market in the last three or four years is simply unsustainable. Pundits say it’s because “new world billionaires” like Abramovich have entered the market, but I don’t see how such a small number of new collectors in Russia, the Middle East, or China can or will support the present price level much longer.

Q: What’s an often ignored factor that can affect modern art pricing and value?

Velthuis: For contemporary works of art on the primary market (that is: the gallery market where works of art are sold for the first time, out of the artist’s studio), the most striking factor is definitely size. Larger works by an artist are invariably priced higher than smaller works, no matter if the artist put more work into the smaller piece or if the smaller piece is, for one reason or another, easier to sell.

Galenson: The most surprising thing to most people about art prices may be the fact that there are consistent correlations between artists’ ages and the value of their work.

Conceptual innovators — e.g. Johns, Rauschenberg, or Warhol — make their greatest contributions early in their careers, and their early works are much more valuable than late ones.

Experimental innovators — e.g. Bourgeois, Bacon, or Freud – improve with age, and their late works are much more valuable than early ones. These age effects are very strong. I think they surprise people because art experts like to claim art markets are irrational — but they are wrong.


Q:
What one thing would you change about the way modern art is valued?

Velthuis: What I find particularly annoying is that works of art that are perfectly reproducible, such as videos or photographs, are usually made in editions of 5 or 10. By doing this, the gallerists want to keep the prices up and maintain a sense of exclusivity.

This may not only be against the interest of the gallery and the artists (I call gallerists price maximizers rather than profit maximizers), it also goes against the ideology of the art world — at least of its more critical parts, which hold that art is or should be democratic. But by making works in limited editions, its elitist character is maintained.

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  1. Jim McQ says:

    I have to disagree with Dr. Galenson’s argument that art markets are ‘rational.’ The economic conceptualization of rationality is quite narrow; to be ‘rational’ to an economist is to be an asocial utility maximizer. While such a conceptualization is occasionally useful theoretically, it does little to explain empirical reality. Market action is governed by a complex of social rules that are rooted in the history of the market actors and the market itself. That’s not to say that people don’t pursue goals, try to meet their need/wants, etc on the market; they do, but in a much different way than that implied by the concept of ‘rationality.’

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  2. liberalarts says:

    Interesting interview. But I guess that I am very unsophisticated when it comes to art, because I wouldn’t pay five cents for that painting (unless of course I was allowed to resell it).

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  3. Abhishek says:

    The title bar on the browser says “What does .6 million mean in the art world”.. Firefox issues?

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  4. Balaji says:

    Thanks for answering some basic questions about why art pieces can fetch outrageous prices.
    Well if the case is that the art is being purchased to make a statement among their community, then that artists work is partly helping to feed the ego of the buyer. It would be interesting to know what the artists think of the buyers.
    I agree that art needs to be accessible to everyone. If it can be reproduced and shared with more people, then the chances of sparking the interest of a future artist are also higher.

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  5. michael james hawk says:

    i appreciate the art market for what it is: speculation, a hedge in asset allocation, clearinghouse for social and psychological utility, market-making, transfers of international wealth, and seeming valuations of image/cultural importance with the price mechanism. art that we read about are luxury goods – veblen goods. yet great art is still easy to come by on all budgets, since middle and low-priced markets of quality exist worldwide. it is when soho/chelsea/london/et.al fixes a market, and the trades publicize it, that we get a buzz, and a made market. these high prices do not compare with art-entertainments like ‘grand theft auto,’ however, which can take in 500m USD in one week! that is drawn art there, animated, culturally relevant, ready to be displayed on museum walls, and be productized much further than a limited plastic oeuvre.

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  6. Robert says:

    Why is the title of this post just above the article text different from the HTML title tag?

    In text:

    What Does $33.6 Million Mean in the Art World?

    In the title tag:

    What Does $.6 Million Mean in the Art World?

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  7. Nicholas Vahlkamp says:

    This article compels me to buy Dr.Galenson’s book. I’m an art dealer myself and am always asking myself “Why”…that particular artist….that particular painting…that particular era….that (record) price. And it is in that sense that I still maintain the market to be irrational.It can’t be predicted, it can only be marketed. The “selections” the auction houses make have as much to do with the consequences of fate (death,divorce,debt) as it does with art historical cunning. Also the art market, in as much as it reflects the overall economic health of the global economy, is essentially a “trailing” indicator. E.G.,the money spent isn’t speculative, (capital), its social (expense), by those who spend it. And they actually tend to spend the most just after an economic peak. What should concern most art experts, economists and social critics is how narrow this market is, (mr.Abrahamovich +/- a couple of middle-east oil families looking for West European social cache + Oligarchs of the FSSR) and the economic source of this wealth (mostly commodities and state/family plutocracy). When this economic science really gets good, then we will no longer need trend and market makers in the art world.

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  8. Munich P says:

    Are there any instances of an important work being viewable only in person? This would be in a very controlled environment where they make sure no one can ever take a picture of it. Seeing it would be like looking into the face of God. The only people allowed to see it would be important art figures and people like tom cruise and angelina jolie. Then, after a buzz is built, there would be soirees at the gallery where the price of admittance is a fistful of diamonds. The doorman is djimon honsou, if he deems your fistful to be a bit light, he’ll expel you from the premises. Anyone who gets thrown out is considered gauche. He makes these judgements with his eye alone. Some people might bring a ton of diamonds and still get thrown out. Sometimes its not clear if he’s inspecting the diamonds or if he’s inspecting you. No one ever knows how many diamonds are enough, so they always give plenty.

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