Why is some art so expensive? The $63 billion art market, explained.

Last week, a 1986 sculpture by Jeff Koons sold for $91.1 million at Christie’s, setting a new record for the most expensive work sold by a living artist. The sculpture, a large, silver reflective rabbit, was purchased by gallerist Robert Mnuchin, a former Goldman Sachs partner, founder of the Mnuchin Gallery in Manhattan, and father of Treasury Secretary Steve Mnuchin, on behalf of an anonymous client.

The Koons sale may have set a new record, but bids in the tens — or hundreds — of millions aren’t uncommon in the art world. Sotheby’s Hong Kong sold a pair of paintings by the late Chinese French painter Zao Wou-Ki for $65.1 million and $11.5 million in September. In 2017, “Salvator Mundi,” a long-lost painting thought to be by Leonardo da Vinci that later became the subject of a fringe conspiracy theory, sold at Christie’s for $450 million, making it the most expensive work of art ever sold. The global art market — which includes gallery, art fair, and auction sales — saw $67.4 billion in sales in 2018, a 6 percent increase from the previous year, according to Art Basel and UBS’s annual report on the global art market.

The sales that make headlines, like that of Koons’s latest record-breaking sculpture, are both increasingly commonplace and, at the same time, an art world anomaly. These sales are driven by a small group of wealthy collectors who 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, most living artists’ work will never sell in the six- or seven-figure range, and the galleries that represent them are increasingly being left behind.

The short answer is that most art isn’t.

A few living artists — Koons, Damien Hirst, and Yayoi Kusama, to name a few — are rich and famous, but most are not and never will be. To break into the market, an artist first needs 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 fresh young talent to represent. “These shoes are the first arena, the first entry point for a lot of young artists,” he said.

MFAs don’t come cheap — in 2014, tuitions at the 10 most influential MFA programs cost an average of $38,000 per year, meaning an art student would have to spend around $100,000 to complete their degree — so some gallerists attempt to diversify their representation by looking beyond the art school crowd. But the art world remains far from diverse, especially at the upper echelons. A 2014 study by the artists collective BFAMFAPhD found that 77.6 percent of artists who manage to make a living by selling their work are white, as are 80 percent of all art school graduates.

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 then get a solo exhibition at a gallery. If that show does well, that’s when their career really takes off.

Emerging artists’ works are generally priced based on size and medium, Neuendorf said. A larger painting 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, the dealer’s prestige can give works a decent price bump, even if the artist is relatively unknown. Regardless of an artist’s or a gallery’s prestige, dealers usually take a 50 percent cut of artists’ sales.

But the shuttering of small galleries is making it harder for emerging artists — not to mention the dealers who represent them — to make a living. More galleries closed than opened in 2017, according to last year’s UBS and Art Basel report. Meanwhile, large galleries are opening new locations to cater to an increasingly global market, and dealers from around the world are increasingly expected to make appearances at international art fairs like the Armory Show and, yes, Art Basel.

Olav Velthuis, a professor at the University of Amsterdam who studies sociology in the arts, attributes the shuttering of small galleries to this rise in art fairs. In a 2018 column for the New York Times, Velthuis wrote that these fairs, which often charge galleries 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, galleries have no choice but to participate.

Smaller galleries tend to represent emerging artists, putting both dealers and the artists they represent at yet another disadvantage. “The issue is that demand for art is not evenly distributed 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.”

“The art market functions as a big consensus marketing machine,” Velthuis continued. “so what people do is look at quality signals. Those signals can be for instance what an important curator is saying about an artist; if [the artist] 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 [on] who are the most desirable artists.”

In other words, the reason some artists’ work sells for millions of dollars is because there’s a consensus in the art world that those works should sell for millions of dollars. And since art is “a market for unique objects,” Velthuis adds, there’s also a sense of scarcity — even though artists like Jeff Koons and Damien Hirst pump out works at an industrial scale.

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-plus billion in art sales in 2017 came from works that sold for more than $10 million. An analysis conducted by Artnet that year found that just 25 percent of 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 the profits at the top trickle down to the middle and bottom.”

Who buys art? The superrich

The 2017 sale of “Salvator Mundi” reignited discussions about the role of money in the art world — and even spawned a #Resistance-y conspiracy theory about dark money and the 2016p residential election. In a 2017 interview with the Financial Times, 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 see in their lifetimes. “Very rich people, these days, have an astonishing amount of money,” Adam said. A gallerist interviewed in her book explained it this way: if a couple has a net worth of $10 billion and decides to invest 10 percent of that in art, that gives them $1 billion with which to buy all the paintings and sculptures their heart desires.

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 economies, including China’s, India’s, and those of several countries in Eastern Europe, led to an art collection boom outside the US and Western Europe. The Gulf states are also a hotspot for collectors. 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 good: it’s an investment, or at least it can be. If investors invest wisely, the works they buy can be worth much more later on. The most famous example of an art collector/investor is Robert Scull, a New York City taxi tycoon who auctioned off pieces from his extensive collection in 1973, most of which sold for many times what Scull had purchased them for. One painting, by Robert Rauschenberg, had originally cost Scull $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 2018, 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 wealthy collectors who gobbled up works that were put up for auction by their suddenly cash-poor acquaintances. The billionaire business executive Mitchell Rales and his wife, Emily, added “about 50 works” to their collection in 2009, many of which they purchased at absurdly low prices, Bloomberg reported in 2016. The Rales family 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.”

Artists don’t necessarily benefit when their art sells at auction — at least not financially. Jeff Koons won’t see any money from the record-breaking sale of one of his sculptures at the Christie’s auction, but the work’s previous owner will, as will the gallery. As New York Times art critic Roberta Smith pointed out, the hammer price for the Koons sculpture — the final bid amount — was actually $80 million. The $11.1 million on top of that was the auction house’s cut, which is why the sculpture was reported as selling for $91.1 million.

Just six months before the Koons sale, David Hockney’s “Portrait of an Artist (Pool With Two Figures)” sold for $90.3 million, which at that point was the highest price ever paid for a work by a living artist. But like the Koons sculpture, the hammer price for the Hockney painting was actually $80 million — according to the Times, the price difference between the two works is the result of Christie’s increasing its buyer fees in February.

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.)

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,” she 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,” she 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.”

Taken together, 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.

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.

Sign up for The Goods newsletter. Twice a week, we’ll send you the best Goods stories exploring what we buy, why we buy it, and why it matters.