The large room is packed to the brim with wealthy individuals, all of whom are dressed to the nine in expensive attire. Many of them are talking to each other in hushed but harried tones, occasionally glancing towards the front of the room, which currently only holds an empty stage and podium. As time passes the air in the room, already buzzing with excitement; begins to feel frenetic as the crowd starts to grow impatient for the event to begin. Suddenly, the room grows quiet; a group of men and women are ascending the stairs to the stage. A man in an immaculate suit steps up to the podium and thanks the audience for attending the event. Several people sit up straighter while others are now whipping out their cellphones and dialing numbers. The art auction has officially begun.
Art auctions have recently started to mimic the atmosphere of casinos and sporting events with record shattering bids happening left and right. However, this has absolutely nothing to do with a newfound appreciation for artists or their work. It has much more to do with showing off one’s vast wealth and making a profit by purchasing a “valuable” piece of art for an obscene price and flipping it and selling it at an even more incredulous price.
On November 12, 2013, Balloon Dog (Orange) by Jeff Koons was sold at $58.4 million at a Christie’s auction in N.Y. That same night, Christie’s broke the record for most expensive piece of art ever sold at auction when it received $142.4 million for the Francis Bacon painting Three Studies of Lucian Freud. This price eclipsed the previous record holder; Edvard Munch’s The Scream, which sold for $119.9 million. The very next day, November 13th, Andy Warhol’s Silver Car Crash (Double Disaster) fetched $105.4 million at a Sotheby’s auction.
Anyone who is surprised at the sums being paid for these pieces of art must not have been following the art market very closely. Disregarding the 2008 recession, the market has been increasing at a near exponential rate. Eleven of the 20 highest prices paid at auction have occurred since 2008. Sotheby’s is up 80% in record art prices. And neither of these is happening because the wealthy developed a sudden appreciation for fine art overnight.
One of the reasons why the art market is booming is because flipping works-formerly frowned upon by art galleries and auction houses-is becoming more common. New York University economist Michael Moses has tracked the sale and resale of major works of art and has determined 19th century art to have an average annual return of 1.6%, impressionist and modern works to have $7.7%, postwar and contemporary to have 12.6% and, traditional Chinese to have 17%. No wonder flipping pieces is so attractive right now.
In addition to flipping, art is also a sound investment. If one was to look at the fall of 2008 to today, anyone who had purchased art at record prices during that time has come out ahead. Art has also been proven to be a recession-proof alternative investment as those who are wealthy enough to purchase million dollar pieces of artwork often aren’t affected in the same way that the masses are affected by a downturn in the economy not to mention that the value of art tends to increase, not decrease, as time goes by.
New billionaires are being churned out every year with the current number at a record high of 1,426, a 210-person increase from the previous year. The average net worth of each billionaire has also increased, up $100 million from 2012. So, as the number and wealth of the elite increase, these individuals must find new ways of showing off their fortune and maintaining or even increasing it.
The world of art has always been a signal of wealth and status. Fine art itself holds especially true to this notion because each piece is unique and can’t be owned by anybody else. By spending $120 million on a piece one is generally showing the world, or even just their peers, that they can afford to blow $120 million on an item whose worth is completely speculative. However, art is also one of the few assets that generally tend to appreciate in value over time so it’s not a worthless purchase either.
Central banks are also helping the rich by pushing up asset prices, ensuring the wealthy feel even better off, while making interest rates on financial holdings unattractive, thus encouraging investment in things like paintings.
The belief that the superrich will continue to grow at a pace that outstrips the rest of us, also fuels their continued investments in the arts. It is a prestigious market that only a few have access to. And, as long as only a small percentage of the population has access to the type of wealth that can purchase expensive works of art then it is a business that will continue to grow thus furthering their fortune.
The art market isn’t just a playing field for those who appreciate art; it’s a business, a means to show off one’s vast fortune, an indicator as to just how skewed the distribution of wealth is. As evidenced by recent sales and data that prove just how profitable flipping and investing really is, art no longer belongs to the public, it has become a means making a profit while making all of your peers jealous that you own the Three Studies of Lucian Freud painting by Francis Bacon.
