Is the Old Master market dead? (ctd.)

December 21 2015

Image of Is the Old Master market dead? (ctd.)

Picture: Sotheby's

So, another article by Scott Reyburn in the New York Times about the apparent decline of the Old Master market. It follows his last one in July, here, which quoted veteran Old Master dealer Edmondo di Robilant saying “People don’t go to galleries any more, and they don’t buy Old Masters. They’re not part of the overall mood of today’s taste.” 

Back in July, I wrote that di Robilant was wrong, and that his remarks reflected not a decline in the wider appetite for Old Masters, but in the way the market now works. To recap, the old retail model of many art dealers has finished, thanks to a number of factors including the transparency of prices (ie, the internet), the transformation of auction houses from wholesale to retail operations, and the decline of the traditional art fair. For those old fashioned dealers who can’t keep up with the new market it’s easier to say ‘nobody wants Old Masters’ than to admit failure (or for that matter to accept the greatly reduced margins we must all get used to in this more efficient age).

Nevertheless, there still seems to be no shortage of dealers prepared to make statements like di Robilant’s, which feed into the narratives of observers like Scott in the New York Times. But quoting these old school dealers is a bit like, in the age of Amazon, talking only to high street retailers and concluding that nobody's shopping anymore. People are shopping - just in a different way. The same goes for the Old Master market. For example, few seem to believe Sotheby’s impressive statistic that this year 46% of bidders in their Old Master sales were new to the field (and I’ve certainly not seen it quoted anywhere). 

I don’t think it’s an exaggeration to say that Scott Reyburn thinks the Old Master market is dying, or indeed very nearly dead. Nor, as we’ve seen, is he the only observer to think that. Here’s his main theme in the New York Times:

[In the 1970s]  Rembrandt was the gold standard. But the Dutchman and his fellow old masters have fallen out of fashion and are no longer as coveted by collectors and investors.

As a measure of that fall, 10 works have sold at auction for more than $100 million since 2004, and all of them were made by modern or contemporary artists in the past 120 years. Older paintings have seen their value, in relative terms, level off or decline. The trend was plain to see in recent weeks, as London’s auction houses tried to find buyers for their latest tranche of old masters. As has been the case in recent years, there were few works by major names.

Leaving aside the fact that ‘recent years’ have seen a £30m Turner and a £29.7m Raphael sold at Sotheby’s alone (and the fact that one of the few Rembrandts to appear at auction was bought by a new Chinese collector), let’s first deal with the main point here - comparing Old Masters with the ballooning modern and contemporary sector. 

So pervasive is the idea that art must go up and up in value, as (for the moment) it seems to in the modern market, that the steady ticking along of Old Master values is somehow seen as disastrous. But of course the Old Master market has always just ticked along. That’s part of its virtue. It doesn’t go roaring up, and nor does it go roaring down. Furthermore, in the Old Master market we’re dealing with artists who are long dead, whose reputations are long established, and where there is little chance of certain artists or genres ever becoming ‘hot’ in the way that fuels speculation in the modern market. It baffles me that this comes as a surprise to some people. I don’t think the fact that no Old Master painting has made more than $100m at auction is relevant - and making the comparison to a different art market is simply wrong. (Incidentally, one Old Master painting did sell for more than $100m in the last two years - Leonardo’s Salvator Mundi).

Then we must look more closely at the figures Scott deploys in his article. First, there’s no denying that the December 2015 Old Master sales in London were disappointing in their overall totals. As I’ve written in the latest print edition of The Art Newspaper, Christie’s £6.4m evening sale was their worst since 2007. But do one year’s figures make a trend?

If used selectively, they would appear to do so, yes. For example, Scott mentioned one painting - by Francesco Fontebasso - which made a loss for its consignor:

[…] Christie’s was offering the mid-18th-century canvas “Rebecca and Eliezer at the Well” by the Venetian artist Francesco Fontebasso at a low estimate of £120,000. The pleasant piece of rococo decoration had been bought at auction in 1990 for $286,000, according to Artnet. At the Dec. 8 sale it fell to a single telephone bid of £115,000, about $170,000, before fees. Investors do not expect to incur a loss of about 40 percent a quarter century after buying a Warhol or a Basquiat.

First, I’d really like to be around in a quarter of a century when someone who bought a Warhol this year tries to get a handsome profit on their ‘investment’. Second, it’s not entirely fair to compare the price of something with buyer’s premium and taxes on the one hand, but without it on the other. And yet, there’s no denying that the values of pictures by the likes of Fontebasso has indeed suffered as a result of changes in taste. That kind of mid-18th Century Venetian picture is not as exciting to buyers these days as slightly earlier works. Unless they’re by a Tiepolo, such pictures can be seen as too flighty and bright. Nor is the Old Testament any longer on everyone’s wish-list. Indeed, another Fontebasso offered at Christie’s this December, The Continence of Scipio, sold for just £30,000 when it had been bought in 1974 for £12,600. That’s a hefty loss adjusting for inflation (the 1974 purchase price would be the equivalent of about £118,000 in today’s money).

However, any decline in Fontebasso’s prices cannot be uniformly applied to suggest a decline across the entire Old Master market - for there are complex changes in taste within the Old Master category itself. As Colin Gleadell highlighted last week in the Telegraph, 15th Century ‘gold ground’ pictures seem to be ‘fast becoming a fashion accessory’ (though they’re not my cup of tea). One could also point to the rise in values of Tudor historical portraiture as evidence of a similar trend; in the 1990s Tudor portraits were not generally that valuable, but today even pedestrian portraits of Elizabeth I make good money. There’s something about their two-dimensional naivety and colouring that fits well with contemporary taste - and the same goes for gold ground paintings. Such pictures go better in a contemporary apartment than a mid-18th Century Venetian picture by poor old Fontebasso. But maybe Fontebasso's time will come again, who knows.

Of course, changes in taste are nothing new in the art world. Van Gogh only sold two pictures while he was alive, while the works of the artist who was setting records in Van Gogh’s day, Jozef Israels, can now be bought in cash terms for about the same as they cost in the late 19th Century. The point is, if we pick out individual pictures, as Scott did with the Fontebasso, we can find figures to suit any argument.

For example, we could quite easily construct a narrative of booming Old Master prices from other individual sales in the December Old Master auctions. A Holy Family by Sebastiano Ricci sold last week for £389,000 inc. premium, but ten years ago it sold for £187,000 - more than doubling in ten years. A picture by Francesco Ubertini bought in 1965 for £16,000 (or £276,712 in today’s money) sold at Sotheby’s for £365,000, handsomely outstripping inflation. Perhaps the most successful ‘investment’ of the sale was the Joseph Wright of Derby Grotto (above), which sold for £665,000 - that picture had been bought directly from the artist in 1780 for £105, a sum which, if invested inline with inflation, would be worth just £16,833 today. So individual picture prices can be misleading. 

We need to look instead at a broader indicator of value. In the New York Times, Scott Reyburn compared this December’s sale totals with those of five years ago:

As a point of comparison, the combined £29.1 million total from those old master sales was 34 percent less than the £44.2 million Christie’s and Sotheby’s took in at equivalent events five years ago, in December 2011.

This is correct; the £29.1m total for this December’s Old Master sales was indeed 34% less than the £44.2m both auction houses took in December 2011. But if you go back to December 2014, you’ll see that month’s total of £67.87m was 53% more than both auction houses took in December 2011. And I don’t recall many pundits declaring a boom in Old Masters then. As the old Fleet Street adage goes, ‘good news is no news’. 

So, it again seems that taking one or two figures can be made to fit any argument. In fact, taking two sale totals just four or five years apart only really demonstrates how dependent Old Master sales are on one or two big picture consignments. This is, after all, a small market catering to a small wealthy elite, fuelled by a finite supply. It makes a difference if a £30m Turner is on the block. This year there has not been a single major picture at auction in both London and New York for either Christie’s or Sotheby’s over £10m. That’s really unusual, and helps account for this year's low sale totals. Next January, however, we’ll see Sotheby’s in New York sell an Orazio Gentileschi for at least $25m.

Let’s look then at the wider sale totals over the last decade. I started with Sotheby’s, because their website is easier to use, and their press office is more efficient than Christie's. Below is my chart showing Sotheby’s combined sale totals from both London and New York, for all Old Master sales (including ‘Day sales’) from 2005 to the end of this year. I decided to combine both London and New York, because it gives a more consistent figure, since, as I mentioned, overall totals can fluctuate significantly if a Turner or a Stubbs is up for sale. I also converted the prices into GBP, for which I used a historic GBP/USD exchange rate for the beginning of each year in question. 

As you can see, in cash terms the overall trend is up. 

Then I adjusted the Sotheby's figures for inflation (above), using the Bank of England’s inflation calculator. Again, the trend is up.* 

The sale totals for Christie’s (below) present a slightly different picture. My maths may not be as consistent when it comes to Christie’s, for they’ve had a tendency to move sales around a bit, or hold one-off sales such as ‘the Art of France’, which would ordinarily go into an Old Master sale. In some years I’ve had to go into the sale results and subtract sculpture sales. In cash terms, Christie’s overall trend is up over the last ten years, but only just. Their London sale total trend rose steadily until 2012, but has then been gently falling (and this year, crashing). This pattern, I’m sad to say, fits Christie’s tendency to lag Sotheby’s in the Old Master market recently. Why this has happened is worth a post in itself (and bad luck has played a part, as in the Beit Collection fiasco), but suffice to say momentum can shift very quickly in a duopoly - and I'm afraid Christie's needs to undergo some radical changes. 

Nonetheless, if we add Christie’s overall sales total to that of Sotheby’s, then we might be said to be looking at a broadly representative snapshot of the global Old Master spend over the last ten years. (Obviously, I’m afraid this excludes private treaty sales by the auction houses, as well as other strong centres of Old Master sales, such as Dorotheum in Vienna, not to mention salerooms in Paris and Germany.) As you can see below, in cash terms, the trend is broadly up. It’s also interesting to see that there wasn’t the massive dip in Old Master sale totals around the time of the 2008/9 recession, as happened in other sectors of the art market. By way of comparison, if you’d put all your money into the FTSE100 in 2005 (and not reinvested dividends) you’d only be marginally better off in 2015, and the intervenind decade would have been quite a scary ride. And of course it was only this year that the FTSE100 surpassed the level it reached back in late 1999.

Anyway, if we then adjust the overall sale total figure for inflation (again, only on the Bank of England’s inflation data) then the trend is... pretty much flat. 

And that, I’m afraid, is the boring truth about Old Master prices. They have always tended to remain static and frankly, the sooner we stop talking about art as an ‘asset class’ the better. People don’t, and shouldn’t, enter the Old Master market for investment purposes. As far as investments go, Old Masters have only ever been a medium to long term store of value. Art in any case is an illiquid asset, and the margins to get in and out are sizeable. The profitable ‘flipping’ we see in the modern and contemporary sector is a relatively new phenomenon. Most people buy Old Masters because they like them, and that’s as it should be. 

I’m aware that only ten years worth of data is not enough to draw long term conclusions, and that flatlining sale totals are hardly news. We can also see perhaps begin to discern increasing volatility over the last few years (which I suspect is linked to the major dealers no longer bidding as much as they used to). But the point is that for about ten years now we’ve also been told consistently that ‘taste’ has changed, and that Old Masters are a shrinking sector. Well, even if my maths is a little out, the numbers just don’t confirm that thesis. In fact, if we accept that this year’s sale totals are unusually low because of the lack of any major consignments over £10m, then the data actually shows Old Master prices rising strongly above inflation.

Finally, we come onto the fundamental question of whether we can be sure that people still actually ‘like’ Old Masters? Is there ‘depth’ in the Old Master market, even without a floor of dealers to underpin prices (as you get in most other auction markets)? I think so. Both Sotheby’s and Christie’s ‘Day sale’ totals in December were quite healthy, as, to be fair, Scott Reyburn points out in his latest article. Sadly, I have no hard data to prove whether people in general do or don’t like Old Masters any more or less than they used to. But I did notice people queuing to get into ‘Late Rembrandt’ at the National Gallery in London last year. I was amazed at the public response to the National Portrait Gallery’s appeal to buy Van Dyck’s ‘Self-Portrait’. And I still see visitor numbers at ‘old art’ galleries like the Frick in New York and the National Gallery in London rising healthily. I may simply be an art loving an optimist - and yes, one with a vested interest**- but I’m not giving up on Old Masters yet. And I wish others would stop claiming to see any writing on the wall before it's actually appeared.

Update - an economist writes;

First it is absurd to speak of the Old Masters market as being homogeneous. It is like speaking of the Jewelry market where brooches are now less fashionable and colored diamonds are more fashionable with fluctuations in natural pearls. The same true of books and porcelains and furniture. 

Within the broad Old Masters market there are fluctuations in fashion. Vermeer was only rediscovered more than a century after his demise and some contemporary price leaders will be forgotten after their demise. Some changes in fashion occur as a result of scholarship and exhibitions and more because taste leaders decide to buy something that was unpopular and good value. American Hudson River School paintings were popular when painted then became were very inexpensive for nearly a century and then prices rose sharply especially during the past twenty years   Chinese and Indian art are rising in price because of newly wealthy collectors in those countries.      

There is a steady demand for Old Masters of quality and variations in demand based on subject matter and artist. Unsurprisingly, flower portraits were popular in the seventeenth century with the Tulip Bulb Bubble. Religious paintings of less than top quality are unlikely to become popular again for a long while unless the Second Coming occurs.

Aggregate auction results are misleading and only reflect that which is currently for sale. The data don't include private sale increasingly arranged by what were just auction firms.

The supply of top price Old Masters in the market in any auction is small and unpredictable as increasingly they are donated or sold privately to museums.   And unlike contemporary sales, an auction firm can't call an investor/collector and suggest a great deal with guarantees and negative fees if he sells a couple of pieces that he bought in the soft market six years ago. Owners of Old Masters tend to be long term collectors as is evident from reading the provenance of important works. They are owned for decades or across generations.

In all Old Masters collecting isn't a field that can provide an immediate supply of works to a new insatiable collector but, like a good marriage, can provide great satisfaction to a long term participant.

Update II - Michael Savage, who is head of Traded Credit Policy at RBS, but online writes as The Grumpy Art Historian, has weighed in to disagree with AHN, as he often does. I don't think he quite understands how the art market works; but it doesn't stop him from declaring the Old Master market 'dead'.

The thing is, he does so without actually disagreeing with the evidence presented above. Instead, his point is that the Old Master market must be dead, because when compared to the Modern and Contemporary market, sale totals rising with inflation are not good enough. He says, for example:

The important question is what you're comparing against. The value of money itself changes, so you have to adjust for inflation. But over time economies tend to grow, so any sector simply keeping up with inflation isn't doing so well. Sectors wax and wane, of course. But if the auto industry is booming and Ford's sales are increasing in double digits, it's not enough for General Motors to say they're doing great because their sales are in line with the overall economy. Bendor's charts show old masters just about keeping up with inflation at a time when the potential market is booming because there are far more very rich people in the world, with far more disposable income. It's just that they're spending that income on modern and contemporary art, which is booming. That can't be explained away as a speculative bubble, because it's supported by strong market demand that's boosting all kinds of luxury products—except old master paintings.

He concludes this section of his post by saying that because asset growth these days is sluggish people are diverting their rising disposable income to consumption like art; 

So it makes sense for the elite to divert resources towards consumption—which, again, is exactly what we've seen in the luxury good industry, and in every sector of the art market except old master paintings. Old masters really are the anomaly.

First, let's just deal with the comparison to the car industry. Yes, General Motors and Ford can be compared as indicators of the modern car industry. But to stretch that argument to the world of Old Master Paintings and contemporary art is plain wrong. It's like saying the classic car market must be compared to modern car sales. Both markets may deal in the same product - cars - but they're very different beasts. It still surprises me that so many observers see 'the art market' as something homogeneous, to be compared with from century to century.

Here's why it isn't. The Old Master market covers five centuries of art. The Modern and contemporary market covers one at the most. As I tried to explain in my post above, changes in taste and fashion exist within the Old Master market (e.g. gold-ground paintings and Tudor portraits). It's just that because they get subsumed within the wider Old Master category, in which some areas have fallen (such as 18th Century Italian religious art) they're harder to notice. If Christie's and Sotheby's had a dedicated sale every year for 15th Century gold ground paintings, people would doubtless say 'Aha, the Really Old Master market is booming'.

Then there's the fact that the modern and contemporary market are fuelled by some people who bid not just because they like the pictures, but for speculation and investment purposes. It's impossible to deny this, although somewhat naively the GAH thinks everyone only buys contemporary art for consumption, like a luxury good. When of course it's partly because the returns on modern and contemporary art have outstripped other asset classes like stocks and shares ovedr the last few years that we have the sort of booming modern market that we've seen over the last seven or eight years. We also have dealers bidding for the work of artists they represent, because auction prices are seen as good benchmarks of 'value'.

None of this happens in the Old Master market. There are far fewer vested insterests. Remember, in an auction-led market, it can only take a handful of extra bidders to set prices on an upward trend. And as I have tried to explain, the Old Master market is also affected by the decline of the old-fashioned retail dealer model (for example, dependence on more private buyers has led to increasing volatility).

In other words, one end of the art market (the contemporary and modern sector) is a quasi-financial asset market. The other, Old Masters, is not. Inevitably, this has a bearing on prices and trends. So the fact that Old Master sale totals tick along roughly in line with inflation cannot be seen as a sign that the market is 'dead'. If it was a dead market, nobody would be bidding. And trust me, I would love to buy a Titian for peanuts. In any case, how can we really be sure that the modern and contemporary sectors won't have a more significant correction over the next decade? It's too early to tell.

To recap, I am not for one moment trying to say that taste has not changed, and that many people these days are buying contemporary art and not 'old' art. All I am trying to argue is that the Old Master market is not in its death throes, as some people say it is.

A few other points. The GAH somewhat betrays his ignorance of the complexities of the Old Master market when he writes this non-sequitur:

And there are still plenty of dealers buying at auction and then selling retail in Mayfair or at Maastricht. I think the bigger story is that old master dealers are being squeezed in a declining market, not that their old business model has suddenly failed.

He can't have it both ways. Either there are still plenty of dealers buying retail for Maastricht (who are they? I don't know them, and neither do the auction houses. Discoveries are the life-blood of the trade at the moment). Or they're getting pinched by a declining market.

The GAH also adds this point;

[...] the only element [of my figures and price comparisons, above] I really object to is comparing performance with the FTSE without reinvesting dividends, which is meaningless (do we assume the dividends were just eaten?).

Why is it meaningless? Art pays no financial dividend, so we cannot compare one asset class as growing with compound returns, but not another. And of course many people do spend their dividends.

Update III - an art dealing reader writes:

Thanks for your insightful analysis of current the OM art market. There is one thing, in my view, that also should be taken into account and that concerns whether or not a picture is fresh to the market. If a picture is sold at auction, in dirty state and with a horrible frame, and is offered again in a rather sort span of time, this time cleaned and with a nice appropriate frame, it is in a way difficult to compare. The difference is the appeal of something fresh to the market versus something with an aura that it has been around in the trade recently. Moreover, dirty pictures often have the promise that they will clean beautifully, which is of course not always the case.

For example, the small Hobbema that failed to sell at Sotheby’s this month. The picture was sold in 1990 at Christie’s for 550k sterling hammer and subsequently offered by Noortman. It failed to sell at Christie’s NY in 2004 and at the time the auctioneer said to me technically it is private property for years. Two weeks ago it was bought in at Sotheby’s at 290k sterling, which is (inflation take into account) about a third of the amount it was sold for in 1990. It appears that the picture was purchased in 1990 by an investor who gave it in consignment to Noortman (who asked fl 2.4 million for it but never sold it). It seems to me that the fact that it failed to sell this month has much to do with the circumstance that it has been available since 1990. If so, it proves how important it is that paintings are truly fresh to the market. Therefore it is difficult to compare results of pictures at public sales since paintings are another type of commodity than oil or diamonds.

Yes, this is all correct, and one reason why it's so difficult to take single pictures and use them as overall indicators of a market. When the Hobbema was first sold, there were so many other factors affecting its desirability, to both the trade and private buyers. And again, so many of these factors do not affect the modern and contemporary market. 

Update IV - an economist makes the point more succinctly and better than me:

The relevant point, and the only relevant point, that the distinguished RBS banker makes is that the Old Masters market, such as it is, has a declining share of total art sold. How it is sold whether at auction or by dealers in galleries or at fairs is of importance only to the sellers.  To compare total volume of sales of a luxury good with declining supply to goods which are currently manufactured, namely Ford cars and contemporary art, is unrealistic. A realistic measure of the Old Masters market would be a price index or price indices for each major artist. Total volume keeping up with inflation with declining units available for sale indicates that there is some real growth per unit in inflation adjusted prices. Old Masters isn't booming like contemporary which is art, an asset class for investors, filling new museums, and decorating contemporary residences. It is more than holding its own.  

I wouldn't suggest becoming an Old Masters dealer because supply is declining, Old Masters can't supply enough art for new collectors needs, much of the subject matter is undesirable to non Western collectors, it doesn't provide the lively social life that contemporary events provide, and it isn't a growth business.  But if you love the art there is enough around and there are enough buyers for an individual dealer to have a reasonable business. Just watch your inventory, keep you overheads and leverage low, and buy well     

As an asset class art in general [it] holds its own while individual names and sectors have each had their era.  Few do well across centuries and these become the next “Old Masters.”

Update V - a collector writes:

[...] the more OM are slagged off the more confident I become.

Update VI - a reader writes:

Here are a few more arguments in support of your valiant defence :

1.     Old Masters market is not dead, just quiet. Contemporary art market is on a high, just as it was at the end of the 19th century (Jules Breton, Ernest Meissonier… Do you remember them ?) and for the same reasons (new, uncultivated billionaires in a time of shifting economics and easy money).

2.     Contemporary Art market “indexes” or “trends” do not take into account the “centrifugal effect”, almost undiscernible in the Old Masters market, by which artists disappear from the market, without a trace.

3.     Of course art pays a dividend, an aesthetic one. For collectors, not speculators, this is the one and only reason they do collect.

* The trend lines are automatically made by Excel, not me and my optimistic ruler.

** Although the meagre handful of pictures (I'm sorry to report) that I might sell a year is neither here nor there.

Notice to "Internet Explorer" Users

You are seeing this notice because you are using Internet Explorer 6.0 (or older version). IE6 is now a deprecated browser which this website no longer supports. To view the Art History News website, you can easily do so by downloading one of the following, freely available browsers:

Once you have upgraded your browser, you can return to this page using the new application, whereupon this notice will have been replaced by the full website and its content.