The estimated size of the global art market in 2024 was $57.5 billion. That represents a decline of about 12 percent from the previous year, with the high end of the market acting as a drag. But art fairs, auctions, and galleries continue to do brisk business, catering to the world’s wealthiest people.
What are the primary and secondary art markets, and which is bigger? What role do free ports play in the global art market? And what determines the value of a piece of artwork in the first place?
Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.
Cameron Abadi: There’s a primary art market, where art is sold for the first time after being made by artists, and then a sizable secondary art market, where it’s sold after that initial purchase. Which of those markets is bigger?
Adam Tooze: The whole thing, just for sake of argument, is around $57 or 60 billion. It’s a little hard to estimate because it’s opaque and multifaceted. Around 45 percent of that total is the so-called primary market. And this is overwhelmingly dominated by galleries and some [other] platforms now where artists sell art, but most effectively within those platforms, artists are represented by galleries.
So, if you go down to any fancy town, there will be a gallery district. And they maybe have 10 or 20 paintings, pictures, sculptures by two or three artists at any given moment. Maybe they’ll have a show. And these are artists that the galleries represent. So galleries talent-spot artists at an early stage in their career, ideally, and adopt them and then sign contracts where the gallery represents the artists worldwide or in a particular geography. And then galleries will join together to represent an artist across many different continents.
And these are the artists who are going to break out onto the main stage. There are a few thousand people who are represented at the very top level by the biggest galleries. The largest galleries of all are the Gagosians, the Paces. They have turnovers of a billion dollars or more a year, in the case of Gagosian. So that’s the gallery side.
Slightly more than half of the market is what folks might conventionally think of as the art market, which is the space of the big auctions. [This] sometimes makes the headlines—like a Picasso goes up for auction, a Cézanne, a van Gogh at Sotheby’s or Christie’s or one of these big global auction houses, [and] hammers for $50 million or whatever.
That element of the market is the so-called secondary market. And it’s done at auction because the things being sold have track record, right? A Warhol is essentially a commodity. There are thousands of them, and you can place a Warhol in a galaxy of other Warhols. And so, when one comes up for auction at Sotheby’s, if it’s a Campbell’s soup can or whatever from Warhol, we know how to value it. The auction element is the most transparent element of this market, and it’s about $12 billion. So, if you do the math on this, the galleries dominate the vast majority of the market, and roughly half of what they do is new business, and then roughly 40 percent or so is reselling through galleries.
And then there is the auctioned element. And for that, since 1989, thanks to an outfit called Artnet, we have fairly good data. And the data has had the effect not necessarily of calming the market down but of almost commodifying the market more starkly—because all of a sudden, like I was saying, for genres of Warhols, you can establish something like a going price.
I cite Warhol because he’s, I think, the most widely traded contemporary artist, so post-1945 artist, whereas a modern artist would be a Picasso or a Braque painting in the early 20th century. And so, in those markets, the auction market has a fair degree of transparency. But transparency by itself doesn’t necessarily calm things down. It actually creates a kind of excitement and a buzz and momentum around these assets.
CA: What role do free ports play in the international art market?
AT: It’s an absolutely fascinating role, but it goes back to the weird role of art as asset. It’s a little bit like with gold bars. If you’re in the business of owning a gold bar, you generally don’t keep the gold bar at home because it’s very hard to insure, you’d worry about it all the time, and what are you going to do with a gold bar at home? So you keep it in a deposit account somewhere. There will be banks in New York and London that will happily hold your gold bar for you.
In this case, the same thing is true for art because when art crosses borders, it incurs various types of tax and customs obligations. And of course, it’s a huge insurance risk as well. If you display it anywhere, you have to come up with exorbitant insurance premiums just to put it on a wall. And so instead, a very large part of the art that’s bought for investment is stored in free ports.
And the largest of all is in Geneva, perhaps unsurprisingly. It’s basically a Swiss tax haven. And it’s believed that the free port in Geneva has a stock of over a million works of art, including 1,000 Picassos valued at $100 billion. And it’s just, by all accounts, this nondescript warehouse facility, perfectly conditioned. It’s also the largest stock of fine wine in the world. Again, in perfect condition. And it all sits in a warehouse in Switzerland, where all of these valuable objects are stored.
It’s a sitting duck, you would think, for crime of various types. And the most serious types of crimes that apparently are conducted through the free port there are various types of thefts of antiquities. So art that was looted from Italy, that was looted from the Middle East, has been sluiced into the free port, where it can then be laundered in various ways through forged certificates of export. That enables it to enter circulation as a legitimate archeological find. So it’s an extraordinary kind of black hole in the global financial and cultural system. A thousand Picassos.
CA: Is value in art markets ultimately determined by a sense of expertise and connoisseurship? Or is it primarily financial speculation that’s playing a role in setting prices on this upper level? And how would we know the difference in the first place?
AT: It’s not easy to do because there’s always a mix of motives, and a classic route into this problem is just simply to ask people who buy art why they do it. Very few of them, roughly 10 percent to 20 percent, will just frankly admit they’re doing it for the money. The vast majority of people insist that there’s some connoisseurship element.
One of the extraordinary things that you see when you go around to show like Art Basel is this weird mixture of overt commercialism with genuine appreciation. It’s very difficult even on the spot at the time to figure out what’s going on. I like going in part because it’s an opportunity to chat with art dealers about the art. Sometimes they’re knowledgeable. Often, they’re shockingly not knowledgeable about the material that they’re trading.
It is interesting to see how long it takes them to tell you, “Oh, this will be a good moment to pick this up. It’s recently been shown here, it’s recently been shown there. We think it’s getting good prices.” It doesn’t come up immediately in most conversations. Maybe I’m not the kind of person that attracts the idea that I’m going to put down a huge amount of money.
But there are ways of testing this. One is fractional ownership. People may have seen this advertised on social media, that there are funds that you can invest in where you buy a slice of a piece of art. So there are hundreds of millions of dollars in this now, where if you’re interested in speculating on the art market—it’s like an ETF [exchange-traded fund] for art, and it will invest in contemporary art. And it would expose you to the upside risk of art increasing in value. You don’t ever get to take the picture home or put it on your wall, but you have some fractional share of its value. So that’s an indication, and those have been growing. They’re a very small part in the total of the market.
What’s even more striking, and this is a stronger quantitative indicator, is the so-called phenomenon of the wet paint option.
It just goes back to your original question about the difference between the primary and the secondary market. So the conceit behind the primary and the second market is that new artists are discovered in the primary market. Over decades, the appreciation of their work develops, and the work matures, and then at some point when they’ve become classic, the work is sold in the secondary auction market. So you go from being the poor and starving Picasso to being the millionaire globe-trotting art hero.
And there’s been a remarkable surge in the last four or five years in what’s called wet paint auctions. So the classic assumption is that by the time works of art get to the auction market, the paint is thoroughly dried. But what we’ve seen in the last couple of years is a surge in the number of artworks that are brought to auction—so move from the primary to the secondary market—within less than two years. So what that’s telling us is that folks are not buying the art and holding it, as you would expect a connoisseur to do, but buying the art and flipping it.
And this is even more pronounced among ultra-contemporary artists, so really people born since the mid-1970s. And the most fashionable of those are people like Banksy, who are graffiti-based artists. So it’s the conjunction of the sudden surge in flipping and the fact that this flipping is concentrated above all in the most contemporary artists and those who are closest to pop culture that suggests a kind of memeification of the art market and a surge in speculative buying above all among the younger investors.
There’s a sort of crossover here between the crypto space, the NFT space, and the more conventional art market, which suggests a surge in more speculative activity. The only classic player that has really participated in this is David Hockney, the incredibly enduring British artist who started in the age of pop—and is still going strong in this new age of much more speculative art investment.
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