Rising Art Investing Start-Up Masterworks Beset by Internal Rifts

A Pressure Cooker Culture, and a ‘Madhouse’ of Commission Models

Masterworks’ success depends on converting users—people who have registered on the platform — to investors who have bought shares in artworks.

By this past June, the company had seen eight months of registered account growth to 400,00-500,000 —“The peak just kept growing,” a former senior-level employee overseeing sales told ARTnews of user growth. But only about 5 percent of users, or around 25,000 have so far invested, according to a former employee with direct knowledge of user growth  (in June, a Masterworks executive told the Art Law Podcast this figure was 40,000). Lynn’s ambitious goal for 2022 was to double that figure.

As the company set about reaching that goal this year, internal fault lines emerged, according to ex-employees across the sales and marketing teams.

Because Masterworks straddles different industries, its culture is, by necessity, a hybrid: art world experts privy to the auction industry; younger finance types with the stamina to spend full days cold calling potential investors; and startup veterans who’ve cut their teeth at rapidly pivoting Fintech enterprises. But this mix has created major disconnects between the sales, marketing, and art acquisitions departments, multiple former employees told ARTnews.

The company’s ivory tower is a group of staffers close to Lynn, who deal with purchasing artworks from dealers and collectors and are tasked with valuing the works. They can talk with ease about Joan Mitchell’s Paris years and Picasso’s muses, but this wellspring of art-speak, according to one source in the marketing department, is an “untapped” resource siloed from the company’s younger sales and marketing employees who, despite lacking art knowledge, are tasked with convincing regular people why they should buy in with disposable funds.

But it is many of those younger employees, who make up the sales team, that are the engine of Masterworks. In the last year, sales has been made up of between 30 to 50 employees — primarily white male twenty-to-thirty somethings with Series 7 licenses issued by FINRA that allow them to trade securities. Some newly licensed recent grads and others poached from finance jobs came to the company for its promise of high commissions. Their days were filled with constant cold calls to investors coming in through online contacts. Propelling account executives’ performances was the lure of big payouts and a collective testosterone typical of a college fraternity. According to multiple current and former employees on the team, the sales floor gained a reputation for vulgarity and often resembled raucous scenes from The Wolf of Wall Street.

(In response to descriptions of the sales team’s tactics, Masterworks emphasized that investors consent to calls in the sign-up process and says calls to investors are not unsolicited. It further noted that the company has conducted over 200,000 “investor onboarding calls” and received only four complaints, “all regarding a single employee who was subsequently terminated.” Internal sources cited to ARTnews two employees who received complaints from investors.)

A lack of human resources exacerbated tensions between various teams. When asked about the dynamics, one former senior sales staffer recalls of the company’s most junior staffers, known as sales development representatives, who were typically recent college graduates paid minimum wage: “We treated them like fucking furniture.” Another former employee said that, by this September, Lynn had directed a payroll manager to take on human resources responsibilities in an unofficial capacity and conduct exit interviews with departing employees. In one exit interview reviewed by ARTnews, the former employee stated that they left the company due to its “de-emphasis on art” and its lack of a formal HR team.

Despite sales’ apparent success, management has continually adjusted how the team was compensated. Over the previous year, the company shifted brokers’ compensation monthly, reducing commissions gradually in a move that caused rifts on the sales team, employees said, and created confusion about who would be paid how much and when. Between 2020 and 2022, the commission structure went through several drops: from 5 percent to 3 percent to 2.5 and eventually 1 percent.

“Everyone was upset. It was a madhouse,” a former employee on the sales team said. “It just got lower and lower.”

Morale sunk to a new low in February 2022 when a manager overseeing the sales team, Gabriel Zinn, delivered news that commissions were being eliminated entirely. In a series of meetings, according to three former sales staffers, Zinn gave contradictory reasonings for the change, telling staff at first that it was necessary due to the pace of sales and advertising initiatives, before later suggesting that it was because they were adopting a new brokerage model that required them to act more like financial advisors. For some sales reps, the switch to purely salaried compensation meant their earnings were cut by as much as 30 percent and, by May, several top account executives left the company over the move, multiple employees told ARTnews. (A Masterworks representatives said that base salaries were increased to account for the move away from a commission-based model.)

 “The metric just started changing pretty arbitrarily,” one said. 

In October, Masterworks began hiring for a chief compliance officer to oversee a potential shift from a broker-dealer model to a registered investment advisor model “in the near future.”  But the larger issue appears to be that brokers, in chasing commissions, were routinely outperforming their goals by focusing on household names like Basquiat, Picasso, and Warhol that were easier to sell, according to former account executives. Paintings under $1 million by such brand names would often sell out in as little as 15 minutes, former sales agents said. Paintings by those artists with less name recognition, however, were a struggle to sell. Eliminating commissions could eliminate the disincentive to selling those less popular works.

(In January, after the publication of this article, Masterworks said that the company had completed the transition from a broker-dealer model to a registered investment advisor model in December. The company disputes allegations that suitability screenings weren’t enforced and says each potential client is run through a standard know-your-customer check process and that its advisors adhere to “best interest” practices required by law.)

Shares in some paintings were harder to sell than in others. In 2021, Masterworks jointly acquired Joan Mitchell’s 1960 canvas 12 Hawks at 3 O’Clock – a painting that made headlines when it sold for $14 million at Christie’s in 2018. On calls, brokers mimicked the marketing of auction houses that had recently pushed feminist reassessments of long-marginalized women artists to drive up their market value. But, according to two former employees, sales representatives had trouble translating this reappraisal, Mitchell’s institutional value, or the painting’s heralded provenance (it was at one time in the lauded collection of Barney Ebsworth) to prospective investors. The painting languished on the platform from July 2021 to this past February. 

“You don’t tell a client when you hop on the phone that you’re having trouble selling this painting,” one ex sales rep said.

When paintings took months to “close,” as with the Mitchell painting and another by Gerhard Richter, according to two ex-employees on the sales team, brokers were left in flux, as commissions weren’t paid until the paintings were fully “subscribed.” Management framed the shift in compensation to base salaries as a remedy to the issue.

To mitigate sales’ issues selling lesser-known artists, Masterworks sometimes purchased paintings with a 25 percent deposit and then secured six-month contracts that allowed them to pay sellers in tranches (and therefore to have more time to sell shares to investors). Another solution was a new product introduced late last year: a diversified art portfolio targeted at accredited investors with a higher net worth. By buying in at $100,000, investors could have stakes in a range of paintings that the company owned. Management viewed the product as a way to “close out” artworks, like the Mitchell and other less commercial works like ones by Yoshitomo Nara, that brokers were struggling to sell out, former sales reps said.

Under FINRA’s system, brokers are required to act in an investor’s best interest. At Masterworks, multiple ex-sales reps said that management’s continuous push for them to sell shares in select paintings that were seeing little interest from its base of users introduced risk. Brokers said that stance often placed the company’s prerogatives above those of investors, describing it as an apparent violation of their fiduciary duties. Management similarly viewed approaches to international clients as a loophole to sales’ more aggressive goals, citing to staffers that dealings with foreign clients fell outside of the purview of U.S. financial regulations, according to two former sales representatives.

“You were always encouraged to fill an order. It wasn’t really what was best for the client,” said one.

This past spring, it was becoming increasingly clear that a focus on institutional investors was “where the business is going,” according to a former client advisor. Lynn surrounded himself with his finance team and spearheaded pitches to banks and wealth managers. Meanwhile, a sales-wide push around the diversified product — promising to serve as a kind of catch-all of the contemporary art market —was heightening.

And yet, several months into the product launch, a group of salespeople dedicated to selling the new product still hadn’t been paid their commission, one ex-employee on the sales team said.