Why is Contemporary Art Worth So Much?

Image Credit: Nurina Iman Nizam

Aakriti Sood delves into the world of the super-rich to understand why Contemporary Art has become one of the ultimate luxury goods

I can’t be the only one who has walked into an art gallery and looked at a piece of work that has left me completely dumbstruck. Contemporary art galleries all over the world have pieces that sell for hundreds of thousands of dollars and leave the masses stunned. It is easy to understand why a Picasso might sell for millions; the simple economics of supply and demand applies, there are only a few pieces available and auctioneers are willing to spend large sums of money for investment and to be added into the historic narrative of the piece. But contemporary art by definition is made by artists who are living among us, so what makes these pieces fetch the skyrocketing prices? Who sets these prices? Who deems a piece worthy of recognition over another? What makes contemporary art worthy of its status?

To understand the present relevance of contemporary art, it is important to understand the evolution from works of Michelangelo to Jackson Pollock to the contemporaries such as Jeff Koons. After centuries of artists aiming to perfect how to capture a moment in time, towards the end of the nineteenth century the availability of cameras became mainstream, and analogue art started to move towards capturing more than what the naked eye could see. This gave rise to impressionism in the latter half of the nineteenth century, the first shift towards modern art. Photography thus became the impetus for the development and mainstream rise of modern art. Here the art, free of the formality to depict the world in its state perfectly, started to become a medium of personal expression. The artist could add their own interpretation of the world or make commentary on the cultural, social and political spheres around them, engaging the audience with the artist’s dialogue. 

The valuation of work shifted in the same way in the modern movement in the twentieth century. For contemporary art, the valuation depends more upon the transformational value, the value of the expression, than the transactional value. People who deal in selling or buying them have to set prices that reflect their significance and so this transformational value will continue to rise as contemporary art continues to defy the traditional art valuation norms. 

But the question still remains of who defines the worth of contemporary art. The value of art can become a minefield to navigate. It is not an action, nor is it functional; rather, it is focused on individual and group judgment. The price of art varies greatly based on patterns and perception. In the last 30 years, the value of contemporary art has skyrocketed by 129%. In 2019 alone, contemporary art value soared by 14%. Records from global auction houses saw contemporary art made over $1.58 billion in one year alone. Numbers don’t lie and thus it is safe to say that the world of contemporary art is a business, the galleries make money with every sale and the high valuation of price allows them to remain profitable.

The galleries need new talent to keep themselves running. In order to break into the market, the artist needs to find a gallery that would represent their work. About 78% of the contemporary artists being represented by big galleries are graduates from art colleges. Emerging artists' works are generally priced based on size and medium. Representation from a well-known gallery would help bump up the price even if the name of the artist is unknown. The artist whose work stands out may be invited to participate in shows elsewhere or even get a solo show at a gallery. For artists, being in the right place at the right time is a key factor in the valuation of work. In fact, about 83% of the total contemporary art auction turnovers are accounted for in just four locations: New York, Beijing, London and Hong Kong. In the era dominated by social media and internet celebrities, the number of collections an artist exhibits, their living status, and even their reputation all influence contemporary art valuation. As a result, contemporary art can be appreciated not only for the content of the work, but also for the star-quality of the artist.

The contemporary art industry is dominated by two main players, big galleries who give the artwork a platform and, the second and probably more significant factor, the individuals who buy work from these galleries and flip the pieces at auction for exorbitant prices. A valuable piece of art is a luxury commodity, an investment, and in some cases, a way for the ultra-rich to avoid paying taxes. Here, the markets would look at quality signals, for example, what an important curator has to say about an artist; whether the artist has exhibitions in museums; and whether prominent collectors are purchasing their work? 

Collectors can take advantage of a tax loophole that allows them to delay capital gains taxes on such transactions if the proceeds were invested in a similar manner. This meant that a collector who purchased a painting for a certain sum of money — say, $1 million — and then sold it for $5 million a few years later would not have to pay capital gains taxes if they used the $4 million profit to buy another piece of art. Donating items from a collection to museums may also result in tax advantages for collectors. This is where buying low and donating high pays off, as the charitable deduction is based on the present value of the job, not the price the collector paid for it originally. In some cases, avid art collectors even set up in their own private galleries which further help them in tax reduction.

In the case of auctions, the artist doesn’t profit, financially at least, and the money and access to art are increasingly concentrated among the super-wealthy. Auctions help to bring the names of artists into the public eye and this helps them to increase the primary prices of their work. Collectors continue to pay higher rates for pieces produced by a limited selection of living artists, leaving new artists and the galleries that represent them competing for the scraps.

This rift in the market needs to be narrowed to make art more accessible and allow artists to sell their work and survive. Affordable art fairs are becoming more popular in recent years for people who want to purchase art but cannot afford to spend millions of dollars on a single piece. Superfine is an example of such an art fair. Developed in 2015, the exhibition, according to co-founders James Miille and Alex Mitow, is a reaction to the inflated values they saw on the top end of the “insular” art industry. 

Art patronage has been around since antiquity, and will not disappear anytime soon but possession and appreciation of art should not be limited to the rich.