Why is art so expensive?

A visitor takes a photo of the painting “Salvator Mundi” by Leonardo da Vinci at Christie’s New York auction house. The painting sold for more than $450 million in November 2017.

Christie’s, the famed auction house, recently sold an AI-generated painting for $432,500. The piece, titled “Portrait of Edmond Belamy,” was made by Obvious, a French art collective, and sold for roughly 45 times its estimated worth.

The sale was controversial, though not entirely because of the painting’s steep price tag. Paying $450,000 for a buzzy work of art — especially one that may sell well later on — isn’t unheard of in the art world. The most coveted works sell for many times that. Sotheby’s Hong Kong sold a Picasso for $7.79 million in September; a pair of paintings by the late Chinese-French painter Zao Wou-Ki sold for $65.1 million and $11.5 million, respectively, at that same sale. Leonardo da Vinci’s “Salvator Mundi” sold at Christie’s last year for $450 million, making it the most expensive work of art ever sold.

According to a joint report by UBS and Art Basel released in March, the global art market saw $63.7 billion in total sales last year. But that doesn’t mean that most artists see even a small fraction of that money, since the highest-value sales usually involve one wealthy collector putting a highly sought-after work up for auction.

The money generated from that sale, then, goes to the work’s previous owner, not to the artist who made it. (Artists profit off their own work when it’s sold on what’s known as the “primary market,” i.e., directly from a gallery or from the artist herself. When art is sold on the “secondary market,” however — meaning that it’s sold by a collector to another collector, either privately or at an auction — only the seller and, if applicable, the auction house profits.)

Aside from a handful of celebrity artists — Jeff Koons, Damien Hirst, and Yayoi Kusama, to name a few — most living artists’ works will never sell in the six- or seven-figure range. The result of all of this is that a small group of collectors pay astronomical prices for works made by an even smaller group of artists, who are in turn represented by a small number of high-profile galleries. Meanwhile, lesser-known artists and smaller galleries are increasingly being left behind.

Why is art so expensive?

The short answer is that most art isn’t. Pieces sold for six and seven figures tend to make headlines, but most living artists’ works will never sell for that much.

To understand why a few artists are rich and famous, first you need to realize that most of them aren’t and will never be. To break into the art market, an artist first has to find a gallery to represent them, which is harder than it sounds. Henri Neuendorf, an associate editor at Artnet News, told me gallerists often visit art schools’ MFA graduate shows to find young talent to represent. “These shows are the first arena, the first entry point for a lot of young artists,” Neuendorf said.

Some gallerists also look outside the art school crowd, presumably to diversify their representation, since MFAs don’t come cheap. (In 2014, tuitions at the 10 most influential MFA programs cost an average $38,000 per year, meaning a student would have to spend around $100,000 to complete their degree.) That said, the art world remains far from diverse. A 2014 study by the artists collective BFAMFAPhD found that 77.6 percent of artists who actually make a living by selling art are white, as are 80 percent of all art school graduates.

Christie’s sold its first piece of computer generated art, “Portrait of Edmond Belamy,” for $432,500.

Artists who stand out in a graduate show or another setting may go on to have their work displayed in group shows with other emerging artists; if their work sells well, they may get a solo exhibition at a gallery. If their solo exhibition does well, that’s when their career really begins to take off.

Emerging artists’ works are generally priced based on size and medium, Neuendorf said. A larger painting, for example, will usually be priced between $10,000 and $15,000. Works on canvas are priced higher than works on paper, which are priced higher than prints. If an artist is represented by a well-known gallery like David Zwirner or Hauser & Wirth, however, the dealer’s prestige is enough to raise the artist’s sale prices, even if the artist is relatively unknown. In most cases, galleries take a 50 percent cut of the artist’s sales.

This process is becoming increasingly difficult thanks to the shuttering of small galleries around the world. The UBS and Art Basel report found that more galleries closed than opened in 2017. Meanwhile, large galleries are opening new locations to cater to an increasingly global market.

Olav Velthuis, a professor at the University of Amsterdam who studies sociology in the arts, attributes the shuttering of small galleries to the rise of art fairs like Frieze and Art Basel. In a column for the New York Times, Velthuis wrote that these fairs, which often charge gallerists between $50,000 and $100,000 for booth space, make it incredibly difficult for smaller gallerists to come home with a profit. But since fairs are becoming the preferred way for wealthy collectors to buy art — they can browse art from hundreds of galleries in a single location, all while hobnobbing with other collectors — galleries have no choice but to participate.

Smaller galleries tend to represent emerging artists, putting both the dealer and artist at yet another disadvantage. “The issue is that demand for art is not distributed evenly among all living artists,” Velthuis told me in an email. “Instead, many people are going after a small number of artists. That’s what’s driving up prices.”

Given the subjective nature part in general and contemporary art in particular, it’s hard for collectors to discern whether an artist is truly good. “The art market functions as a big consensus marketing machine,” said Velthuis. “So what people do is look at quality signals. Those signals can for instance be what an important curator is saying about an artist; if she has exhibitions in museums; if influential collectors are buying his work. Because everybody is, to some extent at the least, looking at the same signals, at one point they start agreeing who are the most desirable artists.”

In other words, some artists’ works are expensive because there’s a consensus in the art world that their works should be expensive. And, Velthuis adds, art “is a market for unique objects,” which adds a sense of scarcity into the mix. There are only a few known da Vinci paintings in existence, some of which belong to museums and are therefore permanently off the market. (It’s a “big taboo” for museums to sell works from their collection, Velthuis told me.) It only makes sense that when a da Vinci is up for auction, someone with the means to pay hundreds of millions of dollars for it will do just that.

Just 0.2 percent of artists have work that sells for more than $10 million, according to the UBS and Art Basel report. But 32 percent of the $63.7 billion in total sales made that year came from works that sold for more than $10 million. An analysis conducted by Artnet last year similarly found that just 25 artists accounted for nearly half of all contemporary auction sales in the first six months of 2017. Only three of those artists were women.

“It definitely is a good example of a winner-take-all market, where revenues and profits are distributed in a highly unequal way,” Velthuis said. “[On] principle, it is not a problem in itself. However, galleries in the middle segment of the market are having a hard time surviving, and if many of them close their doors, that is bad for the ecology of the art world. We should think of ways to let profits at the top trickle down to the middle and bottom.”

Who buys art? The superrich

The 2017 sale of da Vinci’s “Salvator Mundi” reignited discussions about the role of money in the art world. Georgina Adam, an art market expert and author of Dark Side of the Boom: The Excesses of the Art Market in the 21st Century, explained how it’s possible that a single painting could cost more money than most people would ever see in their lifetimes.

“Very rich people, these days, have an astonishing amount of money,” art expert Georgina Adam told the Financial Times. A gallerist interviewed in her book, The Dark Side of the Boom: The Excesses of the Art Market in the 21st Century, explained it this way: If a couple has a net worth of $10 billion and decides to invest 10 percent of that in art, they can buy $1 billion worth of paintings and sculptures.

There are more collectors now than ever before, and those collectors are wealthier than they have ever been. According to Adam’s book, the liberalization of certain countries’ economies — including China, India, and Eastern European countries — led to an art collection boom outside of the US and Western Europe. (The art market is also booming in the Gulf states.) As a result, the market has exploded into what writer Rachel Wetzler described as “a global industry bound up with luxury, fashion, and celebrity, attracting an expanded range of ultra-wealthy buyers who aggressively compete for works by brand-name artists.”

Art isn’t just a luxury commodity; it’s an investment. If collectors invest wisely, the works they buy can be worth much more later on. Perhaps the most famous example of this is Robert Scull, a New York City taxi tycoon who auctioned off pieces from his collection in 1973. One of the works was a painting by Robert Rauschenberg that Scull had bought for just $900 in 1958. It sold for $85,000.

The Price of Everything, a documentary about the role of money in the art world released in October, delves into the Scull auction drama and its aftermath. Art historian Barbara Rose, whose report on the auction for New York magazine was titled “Profit Without Honor,” called that auction a “pivotal moment” in the art world.

“The idea that art was being put on the auction block like a piece of meat, it was extraordinary to me,” Rose said in the film. “I remember that Rauschenberg was there and he was really incensed, because the artists got nothing out of this. … Suddenly there was the realization — because of the prices — that you could make money by buying low and selling high.”

More recently, the 2008 financial crisis was a boon for a few wealthy collectors who gobbled up works that were being sold by their suddenly cash-poor art world acquaintances. For example, billionaire business executive Mitchell Rales and his wife, Emily, added “about 50 works” to their collection in 2009, many of which they purchased at low prices, according to a 2016 Bloomberg report. The Rales family’s collection is now worth more than $1 billion.

“People who were active [buyers] at the time are very happy today,” art adviser Sandy Heller told Bloomberg. “Those opportunities would not have presented themselves without the financial crisis.”

A highly valued work of art is a luxury good, an investment, and, in some cases, a vehicle through which the ultra-wealthy can avoid paying taxes. Until very recently, collectors were able to exploit a loophole in the tax code known as the “like-kind exchange,” which allowed them to defer capital gains taxes on certain sales if the profits generated from those sales were put into a similar investment.

In the case of art sales, that meant that a collector who bought a painting for a certain amount of money — let’s say $1 million — and then sold it for $5 million a few years later didn’t have to pay capital gains taxes if they transferred that $4 million gain into the purchase of another work of art. (The Republican tax bill eliminated this benefit for art collectors, though it continues to benefit real estate developers.)

A gallery assistant views a painting by Turkish artist Fahrelnissa Zeid, titled Towards a Sky, which sold for £992,750 at Sotheby’s Middle Eastern Art Week in London in April 2017.

Collectors can also receive tax benefits by donating pieces from their collection to museums. (Here’s where buying low and donating high is really beneficial, since the charitable deduction would take the current value of the work into account, not the amount the collector originally paid for it.)

Jennifer Blei Stockman, the former president of the Guggenheim and one of the producers of The Price of Everything, told me that galleries often require collectors who purchase new work by prominent artists to eventually make that work available to the public.

“Many galleries are now insisting that they will not sell a work to a private collector unless they either buy a second work and give it to a museum, or promise that the artwork will eventually be given to a museum,” Stockman said. These agreements aren’t legally enforceable, but collectors who want to remain in good standing with galleries tend to keep their word.

Artists’ works don’t necessarily have to end up in publicly-owned museums in order to be seen by the public. Over the past decade, a growing number of ultra-wealthy art collectors have opened private museums in order to show off the works they’ve acquired. Unlike public museums, which are hindered by relatively limited acquisitions budgets — the Louvre’s 2016 budget, for example, was €7.3 million — collectors can purchase just about any work they want for their private museums, provided they have the money. And since these museums are ostensibly open to the public, they come with a slew of tax benefits.

“The rich buy art,” arts writer Julie Baumgardner declared in an Artsy editorial. “And the super-rich, well, they make museums.”

When works sell for millions of dollars, do artists benefit?

Materially speaking, artists only benefit from sales when their works are sold on the primary market, meaning a collector purchased the work from a gallery or, less frequently, from the artist himself. When a work sells at auction, the artist doesn’t benefit at all.

For decades, artists have attempted to correct this by fighting to receive royalties from works sold on the secondary market. Most writers, for example, receive royalties from book sales in perpetuity. But once an artist sells a work to a collector, the collector — and the auction house, if applicable — is the only one who benefits from selling that work at a later date.

In 2011, a coalition of artists, including Chuck Close and Laddie John Dill, filed class-action lawsuits against Sotheby’s, Christie’s, and eBay. Citing the California Resale Royalties Act — which entitled California residents who sold work anywhere in the country, as well as any visual artist selling their work in California, to 5 percent of the price of any resale of their work more than $1,000 — the artists claimed that the eBay and the auction houses had broken state law. But in July, a federal appeals court sided with the sellers, not the artists.

Even if artists don’t make any money from these sales, Stockman told me, they can occasionally benefit in other ways. “Artists do benefit when their pieces sell well at auction, because primary prices are then increased,” Stockman said. “However, when a piece sells at auction or in the secondary market, the artist does not [financially] benefit at all, and that, I know, is very scary and upsetting to many artists.”

Art for everyone else

Taken together, all of these factors paint a troubling picture: Access to art seems to be increasingly concentrated among the superrich. As the rich get richer, collectors are paying increasingly higher prices for works made by a handful of living artists, leaving emerging artists and the galleries that represent them behind. Then there’s the question of who even gets to be an artist. Art school is expensive, and an MFA doesn’t automatically translate to financial success in such a competitive industry.

Jeff Koons’s “Popeye” was purchased for $28 million by billionaire casino tycoon Steve Wynn in 2014.

There is some pushback to this concentration of the market at the very top — or even to the idea that art is inaccessible to the average person. Emily Kaplan, the vice president of postwar and contemporary sales at Christie’s, told me that the auction house’s day sales are open to the public and often feature works that cost much less than headlines would lead you to believe.

“Christie’s can be seen as an intimidating name for a lot of people, but most of the sales that we do are much lower prices than what gets reported in the news,” said Kaplan. “We have a lot of sales that happen throughout the calendar year in multiple locations, especially postwar and contemporary art. … Works can sell for a couple hundred dollars, one, two, three thousand dollars. It’s a much lower range than people expect.”

Affordable art fairs, which usually sell art for a few thousand dollars, are another alternative for people who want to buy art but can’t spend millions on a single sculpture. Superfine, an art fair founded in 2015, describes itself as a way of bringing art to the people. Co-founders James Miille and Alex Mitow say the fair is a reaction to the inflated prices they saw on the high end of the “insular” art market.

“We saw a rift in the art market between artists and galleries with amazing work who need to sell it to survive, and people who love art and can afford it but weren’t feeling like a part of the game,” Mitow told me in an email. “Most transactions in the art market actually occur at the under $5,000 level, and that’s what we’re publicizing: the movement of real art by real living artists who build a sustainable career, not necessarily outlier superstar artists with sales records that are unattainable for the average — if equally qualified — artist.”

In addition to hosting fairs in New York City, Los Angeles, Miami, and Washington, DC, Superfine sells works through its “e-fair.” In the same vein as more traditional art fairs like Art Basel, Superfine charges artists or gallerists a flat fee for exhibition space, though Superfine’s rates are much lower.

In spite of these efforts to democratize art, though, the overall market is still privileged towards, well, the very privileged. Art patronage has always been a hobby for the very rich, and that’s not going to change any time soon — but the ability to look at beautiful things shouldn’t be limited to those who can afford to buy them.