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Also in this section
The world's biggest saleroom
Auctions are moving online. Pages
Neworsecondhand?
Thefns and outs of primary and secondary markets. Page6
Howto make art history
Validation in the contemporary market. PageS
The Pop master's highs and lows
AndyWarholis the bellwether. Page 9
Inflatable investments
ThevolatileartofJeff Koons. Page 11
Treasures reclaimed
China is bringing home its works of art. Page 12
A whole new world
Artis becoming increasingly globalised. Page15
Acknowledgments
Sarah Thorntonfstheaulhor of'Seven Daysin the Art World* (Norton, 2009). The authors would like to express their thanks to the manypeoplewho helped in the preparation of this spe dal report. A full list of acknowledgments and sourcesis at
Pictures
Cover: Sam Taylor-Woo i, "Self-Pc rtrait Suspended V,
20O4,C-print, CourtesyWhiteCube.
Andy Warhol, "Eight Elvises'.OThe Andy Warhol
Foundation forthe Visual Arts.Inc,
ShadiChadirian, 'Like EverydayYellowGlove", 2000-01.
Courtesy Saatchi Gallery,
The art market has suffered from the recession, but globalisation should help it recover, say Fiammetta Roccoand Sarah Thornton
THE longest bull run in a century of art-market history ended on a dramalic note with a sale of 56 works by Damien Hirst, "Beautiful Inside My Head Forever11! at Sotheby's in London on September 05th *a*t (see picture). All but two pieces sold, fetching more than £7om, a record for a sale by a single artist. It was a last hurrah. As the auctioneer called out bids, in New York one of the oldest banks on.Wall Street, Lehman Brothers, filed for bankr up tcy.
The world art market had already been losing momentum for a while after rising vertiginously since 2003, At its peak in 2007 it was worth some $65 billion, reck-ons'Clare McAndrevvyfbunder of Arts Eco-jiojnks, a research firm-double the figure five years earlier. Since then it may have come down to $50 billion. But the market generates interest far beyond its size because it brings together great wealth, enormous egos, greed, passion ana controversy in a way matched by few other industries.
In the weeks and months that followed Mr Hirst's sale, spending of any sort became deeply unfashionable, especially in New York, where the bail-out of the banks coincided with the lnss_rif thousands nf
{'pbsandthe financialdemise of many art-juying investors. In the art world that meantjollectorsstayed away from ealler; ies and salerooms, Sales of contemporary aft fell by two-thirds, and in the most over-heated sector-tor Chinese contemporary art-they were down by nearly 90% in the year to Novemoer^ooS.'Within weeks the
world's two biggest auction houses, Sotheby's and Christie's, had to pay out nearly $20om in guarantees to clients who had placed works for sale with them.
The current downturn in the art market is the worst since the Japanese stopped* buying impressionists at trie end ot 1989, a "move thatstartedthemosf serious contrac-ticn in the market since the second world war. This time experts reckon that prices are about 40% down on their peak on average, though some have been far more volatile. But Edward Dolman, Christie's chief executive, says: "I'm pretty confident we're at the bottom."
What makes this slump different from the last, he says, is that there are s till buyers in the market, whereas in the early 1990s, when interest rates were high, there was no demand even though many collectors wanted to sell. Christie's revenues in the first half of 2009 were still higher than in the first half of 2006. Almost everyone' who was interviewed for this special report said that the biggest problem at the moment is not a Sack of demand but a lack" of good worK to sen. The three ps-death, debt and ciivoice-stlll deliver works of art to the market, But anyone who does not have to sell is keeping away, waitinE for confidence to return.
The best that can be said about the market at the moment is that it is holding its breath. But this special report will argue thatit willbounce back, and that the key to its recovery lies in globalisation. The sup- ►>
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AX ply of the best works of ait wilt always be limited, but in the longer run demand is bound to rise as wealth is spreading ever more wid ely a cross the globe. -^^^®HfWeaI(hBeporAgublishedby |Capg,emini and Merrill Lynch) charts the sp ending habits of the rich the world over. It includes art as one of a range of luxury items they like to buy. According to the report, in IW7 there were over 10m people with investible assets of $im. or more,_Last year that number dropped to 8.6m!ui({ many rich people scaled" b ack their: "investments or passion"—yachts, jets, cars, jewellery ana so on..But the proportion of all luxury spending that went on art ja: creased as investors looked for assets that ' wouianom tneir value in the Ipngerterm.
The regional spread of buyers also changed significantly as some parts of the world became relatively richer. During the boom the number of wealthy people in Russia, India, China and the Middle East rose rapidly. In^oojjgotheby's biggest buy-ers-those who purchased lots costing at least_$5oo,ooo-came from^6)countries. By(§oo7)they were spread overf?3)coun-hiesana their totalnumb er had tripled.
That upward trend is still continuing, and many of the new buyers take a partic-^,     ular interest in the art of their own place * ////    and time, Last year China overtook France
^ as the world's mird-Efggestart market after America and Britain (see char tr). and some 25% by value of the 100,000-plus works of art sold by Christie's went to buyers from
^J°/e Russia, Asia and the Middl e East.
' auction records remain dominated by Impressionist and modern works (see table 2), but the biggest expansion in recent years has beenin contemporary art. Prices of older works keep going up as more pea-pie have money to spend, but few such works become available because~bothcol-
Safesoffineartst auction, by country, £008
lectors and museums tend to hold on to whaTtney nave, uia waster paintings, tor example, have stuck at aroundf^%)of both Sotheby's, and Christie's sales ior many years. By contrast, contemporary art, whichirjjhe early i^qos accounted for less thatx^^of Sotheby's revenues, grew to nearlw^ojpSf greatly increased revenues by lastSSar; Dealers and auction houses now sell more post-war and contemporary art than arrytblnfi else, 'inisreport will concentrate on tiiat part" of the market, which accounts for about half the world's art trade and most of the excitement.
Part of the extra deman dhas come from a large increase in the number of museums, uver tne pastes years moreTfennoo* "have been built, not only m America ana Europe but also in the sheikhdoms of the Persian Gulf and the fast-growing cities in Asia; sometimes in partnership with Western institutions, such as the Guggenheim or the Louvre, sometimes on their own. Many of these institutions have made their mark by buying contemp orary art.
Over the same period the number of wealthy private collectors has also increased many times over, and so has their 'diversity, The record price for one of Andy
Warhol's giant faces of Chairman Mao was $17,4m, paid by Joseph Lau, a Hong Kong property developer. It was the first major Warhol to go to the Far East. A month Hater the Qatar royal family bought a Hirst pill cabinet, entitled "Lullaby Spring", for £9.7m, the first major Hirst bound for the Middle East. Everyone wants an iconic, work, which helps explain the global demand for artists s uch as Warhol, Jeff Koons and MrHirst-and the eye-watering prices such work can command.
Masters of the art universe Straddling all areas of the art market is a handful of individuals who have emerged as the key figures in the art world in recent years. Chief among them is Francois Pi-jiajjU, a luxury-goods billionaire who is also a noted collector of contemporary art and the owner of Christie's. PhilippeSfea-kjj, his French-born adviser, was behind one of the biggest deals involving a single work of art, the private sale of Warhol's 1963 painting, "Eight Elvises". to an anonymous buyer for over $ioom,
Mr Segalot is also believed to be advising the royai family of Qatar, which in the past two yearshas spent large sums buying modem art at auction, including record-breaking works by Mark Eothko and Mr Hirst. Steven Cohen, an American hedge-fund billionaire, also owns works by War-^ hoi, Mr Hirst and Mr Koons. Mr Cohen used to be a sizeable shareholder of Sofh- ■ eby's and is still an important provider of liquidity to art buyers.
The popularity of blockbuster art exhibitions and the emergence ofhiiyers wifb a different cultural history Kava helped change tastes. Artists such as Bdvarfl Munch and Vasily Kandinsky rose sharply after solo sh ows in London and New York. Alexei von Jawlensky and Emil Nolde »
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> were regarded as specialist interests until   tioneers.-both at sales and privately.
Bonhams, which is based in London but
RuMmncollectorsbeganseekingthemout.       Rising costs brought trouble to many has several offices abroad, and Doyle in
rahanWiliiisnd to be just another Chinese old-fashioned fine-art dealer emporiums. New York. The other half is generated by
painter-in-exile; now he is recognised as an In London Christopher Gibbs has sold his" private dealers and galleries that are noto-
Abstract Expressionist master influenced stock and Partridge is in administration. In riouslysecretive.Oneofthebiggestprivate
byPaulKleeandpraisedbybothJoanMird Paris Galerie Segoura has closed, as has deals in recent years came to light only be-
andPablo Picasso. Salvatore Romano in Florence. Many dealers now prefer to take art works on con-
Howtosellit One of the biggest changes since the marke t last peaked in 1989 has been the expansion of the auction houses and the change
cause the details were disclosed in an American court following the Bernard Ma-
signment, matching sellers to buyers for a doff scandal,- Last July ten paintings" by
commission ratherth an investingin stocks Rothkoandtwo sculptures by Alb erto Gia-
of art,   '■ cometri were sold by a New York financier
About half the market's business, reck- to help repay Mr Madoff s investors. A
mthe nature of the dealer business. TV/en-   ons Ms McAndrew of Arts Economics, is   mystery buyer spent $3iom on the works,
ty years ago auction houses sold tn dpaJprs and dealers sgl^ tn pri'
Two dealers earned $37.5mrn fees,
By comparison with that private world,
conducted at public auctions, with Chris-To-   tie's and Sotheby's taking th e lion's share, ay many collectors are advised by auc-   Smaller houses include Drouot in Paris,   Sotheby's and Christie's auction business
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Hooks like a model of transparency. Although buyers and sellers are rarely named, the auction price is public. Yet even here there are dark corners. The lead-ing auctioneers offer inducements such as guaranteed prices to persuade sellers to part with their treasures, and generous terms of paymentfor buyers.
One thing that differentiates the two auction houses is theirlownersnip struy-" ture) Sotheby's is a quoted company whereas Christie.'s, once listed, was taken private in 1999 by its current owner, Mr Pi-nault. Christie's business has since expanded hugely, partly thanks to Mr Pi-nault's pivotal position in the international art world. Even though the company can pick and choose what infnrr mation it wants to reveaj, it has in fact be-come more open over the past ten years.
Sotheby's, for its part, is still smarting from the public beating it received in America nearly a decade ago when its chairroanj/Kitred taubman^and its chief executivefotanaBroDks/were found guilty of conspiring with Christie's to fix com> missions, Mr Taubman served ten months of a one-year prison sentence; Mrs Brooks was given six months' house arrest, a $350,000 fine and 1,000 hours of community service. No one was charged at Christie's, which had blownthe whisde on the commtssion-nxme.^othebv'sjlives in fear of the regulators and discloses only as muchfinancial information as ithas ta
in the decade since the scandal both auction houses have concentrated on expansion jTOuiebgj was the first auctioneer to become interested in Russia and re-
mains bigger there than its rival, (ffiristie'js? which has long been especially strong iiy the Far East, has put a lot of effort into ChiyM na. Foreigners are not allowed to own auction houses there, but Christie's has got around that by signing a licensing agreement with a leading Chinese auctioneer. Both houses have their eye on the Middle East, Christie's holds regular auctions in Bubal of which its art and j ewellery sales are the most successful. Sotheby's has opened an office in Qatar which is important for its relationship with the Qatar royal family, one of its biggest clients.
The response of both auction houses to the current slump has been broadly similar: slaffcuts, unpaid leave, a squeeze on salaries, slashed marketing and travel bud-gets, and an edict that the flossy auction catalogues, which in the boom cost each of them£25m a year to produce, were no longer to be-handed out like chocolate drops.
With a hugely expanded international client base, it was only a matter of time be-fore both auctioneers started to muscle in
on areas serve
oth auctioneers started to muscle m ;as that had previously been the pre-of private dealers, matching buyers illers and sellinp new art rather than
and sellers and selling new art rather than items that had already been in the market. Sotheby's proved to be much the more. 'ruthless of the two, All the lots in Mr Hirst's September 2008 sale, for example, had been consigned to Sotheby's directly from the artist's workshop, which shocke d dealers who had not previously tho ught of the luctionhouses as direct competitors.
In 2006 Sotheby's paid $56,501 for [oqrtman Master Paintings^ a leading [er_in Old Masters. Less than a year lat-
er Christie's b oughttRaunch of ~VenTsoii^ another high-profile dealer set up in 2002/ whose founders included a former director of Christie's contemporary-art department. Noortman gave Sotheby's an entry into the Maastricht Art Fair, the pre-eminent dealers' fest, and Haunch of Venison helped make Christie's Mr Pinaultthe biggest art trader in the market. Both galleries operate independently of the auction houses, but the relationships are close.
All things to all men
Both auction houses have also put a lot of effort into advising buyers on how to improve their collections, AsJussiPylkkanen, Christie's European president, says, '|Ws£re much more than an auction house now," The recession iias made many collectors nervous about offering their treasures at auction, so they aryselling them privates In 2007 Christie's chalked up private sales of $542tti and Sotheby's of $730111, which means the two auction houses are now among the world's biggest private dealers. Both often get calls like the one Sotheby's recendy took from a Moscow collector with $2m to spend on an "optimistic" Chagall oil, "not too feminine" and no more than a metre in height. "We put out the word and immediately received several offers from our offices in London, Geneva and New York," says Mikhail Kamensky, th e firm's head of cis business.
In 2007 private deals accounted for 8.7% of Christie's business, Mr Pylkkanen expects that figure to go up to 20% of its revenue within three years. That should put the wind up private dealers,
CONTEMPORARY art is bought in two Vj main ways that appeal to quite different kinds of temperament, The primary market offers the work that emerges from artists' studios and is often displayed in carefully curated gallery shows. The sec:, ondary market involves the resale of art objects, either through private dealers or via auction houses. Except for charity auctions and the one-off Damien Hirst "Beautiful Inside My Head Forever" sale, which featured paintings and sculptures straight out of the artist's studio, primary auctions are almost unheard of. Twenty years ago
the recent work of living artists was rarely resold, but tor the past decade contempo-rary art has accounted for a growing proportion of the auction houses' sales volume. In 2007, at the height of the boom, total auction sales of post-war and contemporary art exc^edgd those of Impressionist and modern. ^Koa /
Over the same period the number of primary dealers also rose rapidly, Many galleries greatly expanded their exhibition space and took to running several solo shows side by side. Some galleries opened up in foreign cities. For example, the Gago-
siari Gallery added new showrooms in Rome and Athens to its existing ones in New York, London and Los Angeles. " Primary-market collectors often like to meet the artists as well as look at their work. For them, studio visits or post-ver-nissage "artist's dinners" (a well-known art-world ritual) are not only part of the pleasure.of collecting, they are an essential aspect of researching and developing their collections.
In the primary, market the, ffllWfnr who offers the most mnnev is not necessarily the one who wins the work. Galle-»
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Prists will have a circle of collectors to whom they extend special privileges. This was more important during the boom, when many collectors might be chasing a single painting by a coveted artist, but in generalít still holds true.
When primary collectors "buy in dej3ď^meaning that they acquire a lot o? work by a singlearust, they can become in7 legSTtoan artist's career. The glllerisTwnT often give such supporters first pick of new pieces or evenletthemreserve works well in advance of a show. Collectors who "Hip" work at auction may have their privileges withdrawn or find themselves excluňed from the gallerist's coterie. That may hurt: many of them greatly value the opportunity to acquire a potential masterpiece.
Picking winners
Primary prices are usually lower than secondary ones, but the collectors who shop in this market are not so much bargain-hunters as risk-takers. In a few years' time their purchase may be worth ten times what they paid for ft; conversely, they mayL not be able to sell it at all. Itall depends on the stature of the artis t in question. If he or she is "emergent"—which usually means young, but can also refer to older artists who have only recently signed up with a well-known gallery-the risk is greater, but so is thepotentia] return.
Apar t from exhibitions in private galleries, the primary market revolves around art fairs. The upper floor at Art Base! in Switzerland, most of the stands at ArtBasel Miami Beach in Florida and the entire Frieze Art Fair in London (not to mention many second-tier regional fairs in cities such as New York, Turin, Berlin, Shanghai and Buenos Aires) are important meeting places for the primary market. These fairs proliferated during the boom and still seem to be doing reasonably well iri the re-
cession. Collectors who may have stopped making regular gallery rounds still like to go to the fairs for an update on the latest work and, having taken the trouble to attend, do not want to return empty-handed.
Collectors who buy most of their art on the secondary market are different beasts. "Thev tend to see th"e primary market as murky, time-consuming and Hierarchical. \ ' They prefer the "democracy'' of the auc-^
tion and the buzz of "Being in the sale-room-or perhaps the convenience of bidding on the phone from the comfort of home. They feel reassured by the auction houses' sophisticated, marketing, global networks and glossy catalogues, and by the presence of an underbidder who is willing topay a similarprice.
Artists often resent the huge profits that collectors can make by reselling their work at auction. Outsiders watching art being auctioned off for a lot of money tend to assume that the artists benefit, but in many countries, including America, they get nothing at all when their Work is resold,
and in Europe they receive only a tiny "droit de suite". Nor is the relationship between secondary and primary prices straightforward, For example, an artist such as David Hockney can find that his work from the 1960s commands higher prices than his more recent output.
Frimarv dealers usually like to keep quiet about their asking prices. They try to nudge th em up gendy s 0 as not to choke off demand. By contrast, secondary-market dealers, and particularly the auction houses, have no vested interest in the career of any particular artist and simplyJry_
to achieve the high est price possible. If a re-cord price turns out to be a fluke or if the work fails to sell-both of which can damage the perception of an artist's worth— they move ontopromotingsomeone else.
Increasingly dealers are working in both markets, either by developing a secondary-market practice in the backrooms of their galleries or by establishing a relationship with a living artist that gives them access to work fresh from the studio. These dealers are particularly active in the auction room, both "supporting" their artists by bidding on behalf of clients and buying work for their stock if it is going for less than expected. And although the interests of the two markets sometimes clash, they arguably need each other. These days the resale of contemporary art helps to inject cash into the primary market. Many more people buy art, and at higher prices, because they know they can sell it on, ■
Eye on Art Basel
«/^REAT ait stands the test of time," vJ goes the adage. But how exactly is the work tested? Put another way, in a world where anything can he art and where concept Is king, how do works by living artists accrue value? The answer lies beyond the art market, in the broader terrain of the art world where artists and their oeuvres undergo a complex filtering process that insiders callt^aMajjJjP)
Validation Is not straightforward. If you are pursuing a career in accountancy, you are confronted with a series of hurdles; clear them all, and you have arrived. Fdi artists, life is much more complicated. In a social setting where the official rule is rule-breaking, the artist who crawls under the first hurdle, knocks over the second and does a strange scissor kick over the third may ultimately win the greatest recognition. Almost by definition, a competent artist is an insignificant one.
Still, there are moments when artists gather endorsement from the disparate factions of the art world. Most of those under 50 now have a fine-arts degree. Attend-ing the right ait school—usualiyrBut not always, in or near a city with a lively art scene-is not only a means of acquiring knowledge, but also of establishing a peer group and a network of contacts.
After graduation, the biggest hurdle is finding a good dealer, to represent you. 5 Validation is at the core of our business," explains Iwan Wirth, a dealer with galleries in London, Zurich and New York. "It is our expertise. Credibility is what an artist needs in the long run." When recruiting new artists, the quality of their work is most important, but with young artists a dealer may have only a few years of work to consider. "So you do a risk-assessment based on their character," says Mr Wirth.
Reputation management A gallery's credibility rests on its stable of ' ardsts. The location, scale and aesthetics of a gallery's exhibition space inspire confidence, and strong curatorial connections and monied clients make a difference. B ut what matters most is a cluster of artistic reputations. When recruiting, dealers often act on the recommendations of artists who are already on their roster. It helps lend coherence to the gallery's programme and acknowledges that other artists are important arbitrators.
Established artists lend gravitas to the younger artists in the gallery's stable, whereas the young provide the frisson of the new. Hauser and Wirth, for example, represents Louise Bourgeois, a French
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Unmistakably Bourgeois
sculptress aged 97i but has also just exhibit-ed work bflSubodh Guptaj45, arisinglndi-an post-modernist, Matthew Marks Gallery in New York represents Jasper Johns, an American master aged 79, and has just signed Paul Sietsema, a 41-year-old Los Angeles-bom artist and film-maker.
Emerging art galleries often need the approval of prestigious art fairs to he taken" seriously. The four leading fairs, in Basel, London, Miami and Paris, are oversubscribed and turn away many applicants. They rely on rigorous selection committees to impose quality control and do their best to avoid any hint of cronyism. According to Amanda Sharp, co-owner of the Frieze Art Fair, "Frieze's number one unique selling point is integrity. We try to make decisions in as balanced and informed a way as p ossible."
The most powerful validators have a reputation for independence, Paul Schim-mel, chief curator of the Museum of Contemporary Art in Los Angeles, says that "institutions validate by doing rigorously researched shows that put aside politics. We maintain our credibility by working with a real variety of artists and curators that reveals many points of view." Mr Schimmel prefers the term "illuminate" to ■"validate", explaining that "my job as a curator is to make the art matter."
Artworks are among the few commodities whose status is affected by their owners, so dealers take ereat_care in "placing" theworks, The (d^ealbuyerjs ajHjbUcjru^-seum of modern art, butin recent years "collectors with private foundations, such as Glenn Fuhrman in New York and Don and Mera Rubell in Miami, have made a big impact on the pri mar y market. In countries where the state shows little interest in contemporary art, the financial support of collectors is vital. In Italy, for example, the intelligent curating that accompanies the philanthropic efforts of fashion houses such as Prada and Trussardi and private individuals such as Patrizia Sandretto re Re-baudengo, a collector in Tturin, turns their foundations into important trial grounds foryoung artists.
CfllkctOH ™hn Sfll nff their works ton 'quickly riskbeine seen as collector-dealers or investor-speculators, which detracts»
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