For the very rich, collecting art isn’t for love but for money. (Blog 2/20/17) In today’s world, investors are looking for guarantees. (Blog, 6/20/17) They want a fixed price for a famous work they put up for sale. Otherwise, they risk lowering its value if bidders fail to meet the base price. Until recently, dealers like Sotheby’s or Charities offered those guarantees, but at their peril.
Take, for example, what happened to Christies when it accepted II Duce by Jean-Michel Basquiat. They guaranteed the price for $25million. When no bidder came forward, the auction house had to pay the owner the agreed amount. Currently, the auction house has the painting stored in their warehouse. (“Guaranteed Sales…” by Katya Kazaina, Bloomberg Businessweek, Dec. 2017, pgs. 30-31)
A business that buys its own wares won’t last long, naturally. So Sotheby’s and Christies are bypassing risk with “third-party guarantors.” Guarantors are rich folks who pledge to buy a work at its base price if it doesn’t sell at auction. If does, the guarantor collects a percentage of the sale. If it doesn’t, the guarantor collects a “financing fee” for having guaranteed the price, and that fee is deducted from the cost of the art. In other words, the financier buys the work at a discount and waits, or hopes, it will eventually regain its value.
On the upside, the third-party guarantor for Salvator Mundi, the recently discovered painting by Leonardo da Vinci, took home a pretty penny. The artifact had a guarantee of $100million. It sold for $450million. As long as insanity and art coexist, there’s money to be made if you already have it.