Don’t Read Too Much Into Art Market Statistics

Each year a plethora of reports addressing the “state” of the art market are published by auction houses, private banks, art publishers and fairs. These often impressive looking publications besiege their respective audiences with a broad array of statistics, trends, summaries and occasional recommendations. The biggest and most comprehensive of these reports is The Art Market 2020, an extensive report prepared annually by banking giant UBS in partnership with the leading art fair, Art Basel.

As I glance through reports like UBS’s with their granular detail, fancy charts and seemingly thorough analysis, I wonder about the goal of all this information. More importantly, how were they able to gather such detailed information in a market that is so opaque, idiosyncratic and highly segmented? While this report, along with others, undoubtedly entails a massive amount of work and thought, to what end is this all being done? Given my skepticism on the ability to garner accurate data and hence actionable insights, I believe these reports are more likely designed to convey the expertise and access of the authors and their affiliated organizations. Perhaps they hope the reams of glossy pages, tables of statistics and charts showing favorable trends will impress or inspire confidence in current and potential clients.

My skepticism on the usefulness of this information can be attributed to the uniqueness of the art market at both a macro and micro level. Core to my thinking are two underlying beliefs: First, it is virtually impossible to accurately assess the overall size of the art market and its various segments. Second, it is very difficult, bordering on misleading, to compare different parts of the art market or extrapolate that what occurs in one market is an indication of what might occur in another.

Let’s begin with whether or not it’s realistic or even possible to determine the full size of the marketplace. Of course it is easy to access and summarize reliable data from public auctions, but the polar opposite applies for all transactions that occur privately. Transactions involving galleries and dealers are opaque at best, and often intentionally so. The ability to obtain private sales data is entirely dependent on the parties’, usually galleries’, willingness to disclose proprietary information. I fail to see any material reason why they would share this sensitive information given that adding efficiency and price transparency to a market would typically be to their own disadvantage.

Interestingly, in UBS’ 384 page compendium, the authors present extensive conclusions and trend summaries about the private market and specifically dealer activities in galleries and at art fairs. On closer examination, it is revealed that this information is derived predominantly through a survey of 6,500 dealers worldwide where the response rate was a mere 17%. I seriously doubt the accuracy or representativeness of this relatively small sample size, especially when it is based on voluntary responses as opposed to a carefully selected group statistically designed to be representative of the larger art industry.

The biases inherent in conclusions based on the voluntary disclosure of dealers harkens me back to the hedge fund days of the late ‘90s / early 2000s. During this time, hedge funds represented an intriguing and often compelling investment opportunity for those investors able to navigate and discern this hard-to-uncover universe. In response to demand, numerous purveyors constructed and peddled seemingly elaborate databases and reports to show the risk/return attributes of the asset class and identify top performing individual managers.

Unfortunately, few investors knew and appreciated that many of the best and biggest hedge funds opted out of providing their information to these databases. Drawing a parallel to the art market, how valuable or relevant would a study about the overall market or the dealer segment be if it lacked input from the behemoths like Gagosian, Zwirner, Pace or Hauser and Wirth? Without the participation of an overwhelming percentage of private market participants, there is a reasonable chance you arrive at a GIGO – Garbage In, Garbage Out – situation. Maybe the limited information can generate impressive graphs, but I caution against making material decisions solely on them given the less-than-comprehensive information on which they are based.

Auction market information leads to some interesting conclusions, but they primarily relate to the auction market, not the art market as a whole. For example, a common examination involves the number of works sent to auction that exceed a specific price threshold, such as $10 million USD. Hitting this lofty level is a function of both the supply of impeccable material and the demand from full funded collectors. Consider a scenario where there is a dearth of marquee collections being offered at auction – in other words, it is certainly plausible that a weak figure in this metric is due to lack of available supply and not an accurate reflection of the demand at this lofty price point. A perfect illustration of this reality is the recent decision of the estate of Donald B. Marron – one of the most esteemed contemporary collectors of his generation – to circumvent the auction market entirely and have the collection sold to a small group of the most prominent dealers.

Another common metric promoted in these reports is how works at auction sell relative to their high and low estimates. I would argue this measurement is more of a gauge on the accuracy of auction house estimators than a reflection of the health of the marketplace. As someone who regularly buys and sells in both the auction and private markets, I put little credence in conclusions derived solely from the auction markets. There is no question that auctions provide a valuable clearinghouse, however, one must appreciate there are reasons this avenue is used or avoided relative to private alternatives.

My second basic contention with these reports revolves around the comparison of one market segment to another. I don’t believe it is reasonable to lump contemporary and now ultra contemporary markets with impressionist and old masters. These are often dramatically different constituents with their own supply and demand forces. Even within a defined category such as contemporary art or, even more narrowly, contemporary photography, it is difficult to make sweeping generalizations. Does the conclusion that contemporary photography is a weak market mean that all artists within this genre are weak?

Finally, the last level of segmentation involves looking within the oeuvre of an individual artist. For most artists with a long career there will be ebbs and flows producing wide variations in the quality, importance and scarcity of their works. Rather than lumping everything together, it is important when looking at a particular artist to distinguish between periods of genuine groundbreaking brilliance and ones mired with struggling derivativeness.

Today, I think a great example of this segmentation is illustrated by the artist Cindy Sherman. While contemporary photography in general can be described as weak, there is little debate that Sherman is a historically relevant pioneer and leader in this field. Over the decades the quality and corresponding appeal of her different bodies of work are varied, as are the individual works within these groups. I believe it is inaccurate to consider her critically acclaimed and early Film Stills and Centerfolds in the same league with her more recent Fashion, Socialites or Clowns. Most serious collectors, curators and art historians would consider her Untitled Film Stills to be bona fide art history. The market demand and price actions reflect that reality; however, even within this group of 70 works, there are wide disparities in price based on the perception of quality.

The global art market is too nuanced and idiosyncratic to neatly be categorized, whether it be within a category or particular artist. Moreover, the demand driven by a wide range of collectors, curators and dealers will, rightly or wrongly, vary based on their perceptions at a particular moment. In a robust frothy market, the tide lifts all boats; however, when the market softens, participants are more discerning. In my experience, it is in periods of greater discernment that the differential between the A works and C works widens. The high quality works are more resilient as there seems to be an almost permanent demand from knowledgeable and flush collectors and dealers.

A seminal work from an artist like Jackson Pollock, Gerhard Richter, Jeff Koons or countless others will always be met with strong demand at reasonable prices irrespective of the state of the “art market” or how certain segments have performed in recent times. The industry’s comprehensive “art market” reports typically fail to address these realities. All market segments of art or of a specific artist can’t be easily packaged into a bucket for analysis.

When navigating the art market – whichever category is of interest – I believe it is absolutely essential to do one’s homework. Understanding what movements, artists and specific works within their careers represent quality and true art history are key. To the extent possible, build relationships directly with major players in the private market or use an advisor to get insight as to what is occurring in a major segment. All of this understanding will better serve over the long term than relying on a reported trend extrapolated from limited information. There are no shortcuts if one’s objective is to preserve or increase the value of the art they own.