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Don Thompson has written an entertaining update to his first pre-crash examination of the art market—and we have an excerpt

The Supermodel and the Brillo Box: Back Stories and Peculiar Economics from the World of Contemporary Art, by Don Thompson

In his first book about the art market, The $12 million Stuffed Shark: the Curious Economics of Contemporary Art (2008), Canadian professor Don Thompson introduced some of the practices in auction houses and art galleries that contributed to the market’s boom. Six years later, Thompson has followed up with The Supermodel and the Brillo Box: Back Stories and Peculiar Economics from the World of Contemporary Art, which is published this month.

The book opens with an analysis of the “Carte Blanche” auction which, unusually, was “guest curated” by Philippe Ségalot in New York on 8 November 2010 at Phillips de Pury (now Phillips). The “supermodel” of the book’s title refers to Maurizio Cattelan’s 2003 sculpture of a nude Stephanie Seymour, which was bought at this auction by the collector Jose Mugrabi for $2.4m (and makes for an eye-catching cover).

Thompson says his book is about the “themes that swirl around the top of the art market” and sets out the reasons behind his belief that “half of the works purchased at auction in 2013 will likely never again resell at their hammer price”. He updates us on the market’s dynamics since his 2008 book, including the marked growth of private sales now conducted by the major auction houses.

The extracts below, published exclusively by The Art Newspaper, look at why private sales can be preferable to auction, including which artists fare (generally) better under the radar, and why.

Private passions: selling work out of the public glare can be good for dealers and artists

Absent a recession, why would a consignor choose a private treaty sale rather than selling at auction? [Stephane] Connery [previously at Sotheby’s, now a private dealer] says the reasons are not financial, but rather relate to the needs of the individual client. The great advantage of private treaty is confidentiality and anonymity. Neither the work nor source is revealed—of special value to those embroiled in a financial crisis or divorce. An auction is a public event. The identity of the consignor may or may not be public, but often someone recognises the art. The desire for discretion goes beyond financial or family problems. Dominique Lévy [the New York art dealer] points out that in her birthplace, Switzerland, all asset management is private. Individuals are not willing [for] the sale of any asset or the resulting inflow of capital [to] become public.

A work marketed privately can still achieve wide exposure. When a Hirst or Koons is consigned to a private dealer, high resolution digital images go out to other dealers, auction houses and collectors with the question, “Any interest in this, or might you know a buyer?” Sometimes offers (conditional on seeing the work) come back within the hour.

The other major advantage of private sale is this immediacy. From consignment to auction to final payment may take six months. A private transaction may be concluded in days.

Certain kinds of art make more sense for private sales. Emilio Steinberger [an art dealer, now at Dominique Lévy’s gallery] nominates art of great importance but with a limited market. He points out that Frank Stella and Dan Flavin sell less well at auction than privately. “Commercial” Warhols sell better at auction, while non-typical ones sell better

privately. Connery says that early and historically important work by an artist often sells better privately, as does work that is important because it influenced other artist—he offers Paul Cézanne as an example.

Steinberger also suggests the example of Balthus (Balthasar Klossowski, French, 1908-2001), an important artist but one whose best work (comparable to the 1957 Girl at a Window in [New York’s] Metropolitan Museum) has not appeared at auction, so auction records do not reflect real value. Connery offers the example of an early “dark” Francis Bacon as a work that would bring a better price if sold privately.

Collectors also turn to private sales for works that are out of favour. Italian artist Francesco Clemente is an example. In the 1980s, Clemente was “hot”, considered as an equal to Julian Schnabel or Keith Haring. At the end of the 1980s there was one point where three New York galleries showed his work simultaneously. Then Clemente was dropped by Gagosian, and his visibility declined. In 2011, his [2000] painting Parabola, earlier estimated by Sotheby’s in 2010 at $80,000, sold for $31,000 [hammer price $37,500]. Since then, most Clemente paintings have traded privately.

Dominique Lévy offers a different example: a consignor has a major De Kooning, at a time when two other De Koonings are known to be coming up in the next round of evening auctions. It may be better to offer this De Kooning privately, after the auction, when interest is still high and the identity of some under-bidders is known, rather than dilute the auction offering with a competing work.

Another motive for choosing private treaty is the ability to quickly reoffer a work if it fails to sell. A consignment at auction that fails to meet its reserve is “burned” and devalued. The work is usually not reoffered for at least two years. Delay is not necessary with a failed private sale. The idea of a work being burned has always seemed to me a strange concept, but Connery insists it is important, particularly at the higher levels of the market. “Think of real estate that has been on the market for months; everyone wonders what is wrong with it that it has not sold.”

There are always surprises. While I was researching this topic, several dealers told me similar versions of the same story, involving Francis Bacon’s Three Studies for a Portrait of Lucian Freud, 1964. This is a difficult (and “dark”) Bacon; each panel shows a different perspective of a distorted face. It would seem well suited for private placement.

It was offered in 2009-10, first privately through a London dealer, then privately through Christie’s, finally privately through Sotheby’s. As the story goes, the only decent offer for the triptych was $18m, generated by Christie’s and quickly rejected by the consignor. Three Studies was then offered at auction at Sotheby’s, London, in February 2011, bringing £23m ($37m)—double the auction estimate, from an unnamed bidder.

In more robust economic times, private sales offer a way to flip new art without getting caught. A speculator who has risen to the top of a waiting list for a hot artist can immediately resell the work to Japan or Russia, with minimal chance the artist or gallery will learn of the sale and cut off further sales to the flipper.

If a consignor decides to sell privately, should she use an auction house rather than a dealer? Dominique Lévy says there is a trade-off. The dealer offers more personal service and hand-holding. The auction house offers an unsurpassed database, a great advantage in knowing who is looking for what. The database is updated as cameras record each major auction. The house knows the identity (from paddle numbers and registration) of every person who has bid on a work by Maurizio Cattelan over the past decade, in person or by phone or online. The auction database is unrivalled in being able to spit out the names of five collectors domiciled in Kazakhstan who may never have appeared at a dealership or auction in New York or London, but bid by phone or online.

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