Thursday, February 28, 2019

The Hot Artist, Overheated Market and Next Day’s Hangover

What do we mean by a ‘Hot’ Artist?

First, let me be clear.  A hot artist, with an overheated market in our world, is not good.  It is reminiscent, of the high-flying markets in the late ’90s, of ‘hot’ internet stocks and the get-rich-quick atmosphere.  Frenzied ‘Investors’ snatched up dotcoms without any sense of their financials.  These same ‘Investors’ seemed assured that said stocks would skyrocket in the near future, and they would be on the next episode of Lifestyles of the Rich and Famous (RIP Robin Leach). 

Yet, in the prophetic words of Blood, Sweat and Tears, “What goes up must come down.” And so, many stocks did come down, often quickly and with a vengeance.  Suddenly, you had a new roommate – poor great aunt Beatrice, entranced by a can’t miss success story done by a crack journalist on the Channel 5 Evening News for whom financial statements are a foreign language, who put her life savings firmly in the now-defunct   

A few times a year, this same phenomenon usually plays itself out with an artist (note, history repeating itself is not a new concept, tracing back to at least Polybius circa 150 BC; yet people continue to ignore it).  Yes, artists do not have “financial statements” that frenzied amateur art collectors can ignore, but having to own the next big thing is a powerful emotion.  The market gets excited over this next Picasso.  What buyer hasn’t wished to tell friends about a work by some unknown artist way back bought at a near steal that is now worth tens of millions?  You look like a genius and it makes you feel so good.

These next virtuosos are not hard to spot.  They tend to be emerging artists – artists who are usually between their late twenties and forty, and who have been carefully cultivated by the right gallery.  Before you know it, something inexplicable happens– a single lot sells way above estimates, the artist is having a show at the right gallery, an art market maker says something positive about the artist – and, as though a switch was flipped, suddenly everyone must have a work by the artist. 

What does an Overheated Market look like?

Beyond the glowing press, what do we see with a hot artist’s performance at auction?

  • Sales of the artist’s lots go way above the pre-sale estimates.
  • The number of lots offered at auction jumps.  
  • Most, if not all, of the lots are sold, certainly above the percentage of lots sold for other artists at auction.
  • The artist out-performs similar artists by genre and most other artists offered at auction. 

As a result, the market value of a hot artist tends to at least double in value from the previous auction cycle (An auction cycle is defined as either the first half or second half of a calendar year)
However, once the hype recedes …

  • The artist’s prices at auction will be more in line with pre-sale estimates.
  • The number of lots offered will decrease to levels before this euphoria.
  • Lots will start going unsold, sometimes at a higher rate than the auction.    

…and the artist’s market value will settle below where it was before the hype.

What does the ‘Next Day’s Hangover’ look like? 

Figure 1.0 provides an example of the change in market value for the artist Adrian Ghenie.  Fueled in February 2016 by the sale of his ‘Sunflowers in 1937,’ his market began to soar in the 1st half of 2016.  Ghenie’s sales prices crushed pre-sale estimates, the number of lots offered jumped and they sold.  For example, 100% of his artworks sold at auction, 17 lots in total, well-above estimates.  His market remained hot in the second half of 2016, though not to the degree of the previous six months; it did see the sale of ‘Nickelodeon’ in October, his most expensive artwork, sold at auction in a coveted evening slot.  Despite this, 2017 saw Ghenie’s market value eventually stabilize at a level lower than it was before the spike.

Figure 1.0

By the way, I’m not showing you this as some kind of indictment on the artist; I would personally love to own a Ghenie as in my humble opinion his work is brilliant, though I tend to like the expressive over the conceptual.  Instead, it shows what can happen when a market for an artist becomes irrational.  Even artists have commented that these spikes are often detrimental in the long run: 

“I think that every young or mid-career artist is a case open to debate (from an artistic point of view). They are judged as work-in-progress artistic phenomena, and as long as their prices are low the conversation around them can be well-balanced. But when an artist like that scores millions at auction, a balanced debate is compromised. People start to be hysterical, over-confident or hyper-skeptical, highly subjective, jealous, etc. This is my case entirely. If you ask me what I wish for the future, I would say that I would like to go back to a sort of normality, but it is hard to define that normality… I don’t really have many colleagues of my age to ask ‘how did you survive this tsunami?’” – Adrian Ghenie (from: The Art Newspaper, June 22, 2018: )

Why is this important?

 Before we move forward, I’m going to use the word “transact.”  We apply to any of the following: insuring an artwork, lending against an artwork, advising a buyer on an artwork, or buying or selling an artwork. 

So, in the real world where art is an asset, you need to be able to identify a hot market for an artist.  Qualitatively, be wary when you see a cavalcade of publicity that says said artist is the next Picasso or Warhol, or the artist suddenly has works prominently displayed in a major museum; or, when this artist launches to the top of a list of ‘hottest selling artists’ in an arbitrary category in a glossy magazine -- people love lists, even if how said list came into being is a big black hole.     

More quantitatively, you need to know if you are transacting on an artworks value at a peak; if so, you must understand that most certainly, this value will decrease.

So how much time do you have? 

  • A hot market for an artist will last for approximately two auction cycles or one year.  So, it is relatively brief. 

So how bad will the correction be? 

  • That depends.  In most cases it will decrease significantly.  You hope it stops where the artist’s value is outperforming the market at a realistic and sustainable clip.  But, just as likely, the correction can be severe where the artist’s market value settles below the market value prior to the sudden increase.  There are plenty of artists who experience the nightmare of being a has-been, for no sin of their own except that for a brief point in time everyone wanted to own a piece of their art.  

If you are in a transaction involving a hot artist beware.  Make sure you understand and account for value decreasing, sometimes significantly, very quickly.  Be particularly skeptical of optimistic prognostications and in-the-moment media statements on the artist.  Have checks in place to monitor the value so you are not left with a so over-valued transaction that you will not be able to explain when the CFO calls.

Art Auction Analytics’ data allows you to track market values to identify overheated artists.  If you come across an overheated artist in your insurance or lending portfolio, it may be time to re-evaluate. The underlying data and key performance metrics (demand, volatility, confidence, correlation, etc.) can be used to further analyze the market values. 

The content in this report is provided for information purposes only and is not intended for investment purposes.  A reference to Artist Performance, Artist Market Value, Key Performance Metrics, predictive modeling, additional (and future) analytics or any observation concerning an Artist provided in this report is not a recommendation to buy, sell, or hold such Artist or make any other investment decisions and does not address the suitability of any investment in an Artist.  The Content should not be relied on and is not a substitute for the skill, judgment and your experience or the experience of your advisors and/or clients in making investment and other business decisions.  Art Auction Analytics does not act nor shall be deemed to be acting as a fiduciary in providing the site or the services. 

Sunday, February 10, 2019

Let the 2019 Auction Season Begin - Kind Of


Since the beginning of the new year, I admit I’ve been missing auctions -- entering data and making sense of it is my version of happiness.  Well, auctions are back, kind of.  On January 24th, Phillips teased us with its Evening & Day Editions that featured Post-War and Contemporary art.  Sadly, this was only a single event in a drought of auctions which will last until late February. 

The works were mainly multiples-- works on paper, screenprints, lithographs, etc. with pre-sale estimates largely of a few thousand dollars.  So, we were not necessarily talking about high rolling works that can make an auction season.  Still the range of artists was impressive from Picasso at the top of the art pyramid through to some emerging artists. 

Let me be clear, until some oils on canvas and sculptures get slung around between buyers and sellers, I'm going to mostly reserve judgement.  We will not get a good gauge until the London auctions kick off in late February through early March.  Still I'm going to throw a bit of caution to the wind.  We can use this as an early indicator of what we might see in the art market this year.  

Key Takeaways

  • A down year?  Slightly more lots were offered at the same auction last year.  
  • More dark portents? In 2019, the unsold rate was approximately 7.5%, over twice the 3.5% from the same auction in 2018.
  • Can I pile it on?  The percentage of lots that sold below the estimated high jumped to about 25% from 22 ½% the year before. 
  • Perhaps a silver lining?  This is still well below the approximate 20% of total artworks that went unsold in the second half of 2018.


  • Demand for Alexander Calder works on paper and Yayoi Kusama screenprints continue to be strong.  Sale prices routinely routed pre-sale estimates.
  • The market really knows Roy as Roy Lichtenstein’s ratio of sale price to pre-sale estimates for all of his works sold were about the same.
  • A cold winter for Eduardo Chillida, one lot sold at estimate, two other lots sold just under pre-sale estimates, but three other lots all sold well below pre-sale estimates.  Hopefully in spring he warms up.