The art market has emerged from the recession faster than anyone expected with a dizzying series of record prices. The market barely had time to digest the US$104m paid for Giacometti’s L’homme qui marche in February before a buyer paid US$106.5m for Picasso’s Nude, Green Leaves and Bust in early May. These prices have pulled out masterpieces for the forthcoming June 23^rd Christie’s sale which offers works by Monet, Picasso, Van Gogh and Klimt and a total pre-sale estimate of £160 – 230m.

The buyer of the Giacometti was widely reported in the press to be Lily Safra, the wife of the late Edmond Safra who died in a fire his penthouse (now the home of Chris and Nick Candy) in Monaco in 1999. Lily Safra will be better known to Spears readers for her recent contretemps with Mikhail Prokhorov, who agreed to buy her estate on the Riviera, Villa Leopolda, for €390m, only to ask for his €39m deposit back when the financial crisis hit. Prokhorov’s Onexim group filed a lawsuit in Nice in January alleging Safra had changed the terms of the sale but a French court ruled in May that Onexim should forfeit the deposit.

There were at least eight serious bidders for the Picasso and the group is believed to have included Kenneth Griffin, of Citadel Investment Group of Chicago, Leslie Wexner from Columbus, Ohio, Steven Cohen of SAC Capital Advisors (who already owns another Picasso in this series acquired from Steve Wynn), Roman Abramovich and Joseph Lau, a property developer from Hong Kong. However, what is most interesting about this sale is that the Chinese press are claiming the buyer was from the Chinese mainland and, if true, this marks the first major acquisition of a western artwork by a Chinese person and could herald a new phenomenon and even higher prices. The late owners of the Picasso, Los Angeles based Frances and Sidney Brody, had bought it in 1950 for US$17,000.

The buyer of the Picasso was in a bullish mood because he also set a further record in the same sale by paying US$10.1m for Georges Braque’s 1953–54 window scene of a Marseilles neighbourhood entitled La Treille. Sotheby’s private client representative for China, Xin Li, has become more active at sales, taking bids on the telephone for her clients and she recently underbid a major Matisse Bouquet de Fleurs pour le Quatorze Juillet, 1919, at US$28m.

These high-profile auction results create the publicity and excitement which drive the art market, but the major sales today are increasingly being conducted behind closed doors in private sales, a trend that has accelerated during the recession as sellers did not want to risk their paintings at auction in uncertain times. When a painting fails at auction there is a perception that there must be something wrong with it and it normally means it is unsellable for at least five years, whereas if a private sale does not work, less damage is done to the picture’s reputation.

Until twenty years ago the auction rooms were wholesalers. Debts, divorce and death brought paintings onto the market, which the rooms then auctioned to the dealers, who bought 95 per cent of the works, which they then offered on to private buyers and museums. Go back even further to the post-WWII art market and it is unrecognisable. Catalogues were slim modest soft-back volumes which published brief picture descriptions with no illustration and no estimate. Attributions were often optimistic and dealers were expected to make up their own minds as to a picture’s merit and value.

However, as the 20th century drew to a close the rivalry between the auction houses intensified as they desperately tried to take market share off each other. In the late 1990s Christie’s and Sotheby’s resorted to price fixing to try and maintain their margins and Sotheby’s is still smarting from the public humiliation it suffered when caught. Christie’s managed to come clean to the US authorities just before Sotheby’s tried to do the same thing to them and gained immunity, whereas Sotheby’s chairman, Alfred Taubman, and its chief executive, Diana Brooks, were found guilty of conspiring with Christie’s to fix commissions. Taubman served ten months of a one-year sentence and Brooks was given a $350,000 fine, six months’ house arrest and a thousand hours of community service.

In more recent times, as well as trying to win market share off each other, Christie’s and Sotheby’s have gone after the share controlled by dealers. Clare McAndrew, the founder of Art Economics, calculates the art market’s most recent peak turnover in 2007 as US$65bn, of which around half is controlled by dealers. Before, when clients considered whether to sell at auction or privately, dealers offered the advantage of a discrete private sale. Sellers often have a preference for a quiet sale because of tax or family issues.

In response to this the auction houses have developed specialist teams to deal with private sales so they can now offer clients the option of a private sale or an auction. To develop this business Sotheby’s bought Noortman Master Paintings, a leading dealer in Old Masters, for US$56.5m in 2006, which allowed them a stand at the Maastricht Fine Art Fair. Christie’s bought the Old Master dealers Hall and Knight in 2004 and the contemporary dealer Haunch of Venison in 2007. Figures for private sales are growing rapidly at both auction rooms. In 2007 Christie’s had private sales of US$542m and Sotheby’s US$730m. In 2009 Christie’s private sales activity grew 3 per cent to 12.5 per cent as a percentage of its global turnover and Jussi Pylkkänen, Christie’s European president, expects this figure to grow to 20 per cent in the next three years. Pylkkänen says, “We’re much more than an auction room now.”

This push into private sales has already affected the turnover of the dealers. Christopher Gibbs, Sampson and Horne, Hotspur, and Jeremy have auctioned off their stock, and Heim, Colnaghi, Agnews, Leggatt , Partridge, Segoura and Salvatore Romano are either no more or have restructured, changed ownership or downscaled.

In the past, as well as selling to clients, the dealers also used to teach them about art and this means that today’s art buyers have less knowledge than ever before, which is changing the type of art in demand. It may well be that in the future the auction rooms will regret the day they decided to weaken the dealers, as increasingly it is only the most obvious art that they can sell. This art has to be instantly recognisable from across the room, have no hidden meaning, project an impact that strikes the viewer in the gut and require no previous knowledge or education in art; hence the appeal of 2009’s ten top-selling artists at auction: 1. Picasso (US$121m), 2. Andy Warhol (US$106m), 3. Qi Bashi (US$70m), 4. Henri Matisse (US$69m), 5. Piet Mondrian (US$58m), 6. Albert Giacometti (US$51m), 7. Fernand Leger (US$50m), 8. Edgar Degas (US$43m), 9. Raphael (US$42m), 10. Claude Monet (US$40m).

The auction rooms have now had to employ staff who know how to sell art. An advantage of auctions is that the fixed sale date forces buyers to make up their mind. The auction rooms now often use a combination of the private sale followed by auction. They market an artwork for three months or so and then put it up for auction, forcing potential buyers into a decision. In a soft market such as 2008 and the first half of 2009 dealers had a problem in that buyers did not feel they were going to lose a painting by making low offers or delaying. In the past the auction rooms needed: – auctioneers who knew how to work a room, accountants to do the books, specialists to catalogue and organise the sales and good-looking glossy-haired young aristocrats to man the front desks and tour the yachts, villas and stately homes looking for business. Now they have had to add some salesman to the mix because selling art is a specialist skill.

Nobody needs art and art sellers have to understand the essential difference between normal money and art money. Normal money acquisitions can be quantified against something similar, a car against a similar car or a house against a similar house, but art is unique and to buy great art a buyer has to be brave and suspend all his normal frameworks of value. Many businessmen who made their fortune by tough negotiating find this a hurdle, buy cheaper artworks and end up with second-rate collections. Art money is fun money, outrageous money, showing-off money, keeping the score money, which is why those who do not have it can never understand it and find the prices of major pieces so astonishing.

Art sellers have to try and understand the motivation of a client. As Noel Coward once observed, people normally have two reasons for doing anything, the reason they tell you and the real reason. The late art dealer Ernst Beyeler observed that “Passion, speculation, intuition, or the desire to acquire a status symbol” were the main reasons for buying art and said that his major client, David Thompson, with his “slicked-back hair and Clark Gable-style moustache would try every trick in the book when it came to negotiating: kindness, charm, pretence, bluff, passionate outbursts, gales of laughter, the confidential approach…”

With turnovers in excess of US$500m in private sales, Christie’s and Sotheby’s can now be said to be the largest dealers in the world, a trend that is accelerating and dealers have to learn to adapt to the new reality or face oblivion.

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