Why is Modern & Contemporary Art So Expensive?

Introduction: What Determines the Value of an Artwork?

We’ve seen it before and we’ll see it again. The auctioneer hits the hammer and a modern or contemporary artwork sells for seven, eight, or even nine figures at auction. Shortly after, public outrage arises because the artwork in question was a seemingly simple abstract painting – of which many believe ‘a seven year old could have painted it’ – for instance Mark Rothko‘s ‘No 7’ (1951) which was sold for $82.5 million last year at Sotheby’s in New York (see image below). Or worse, the artwork was a ready made sculpture, such as Marcel Broodthaers’ Mussels White Sauce, a daily object being glorified to a million dollar masterpiece.

“Scandal!”, “Money laundering!”, “Fraud!”, “A prank” and much worse are the usual reactions, illustrating the public’s opinion and frustration when it comes to the economical aspect of art. How in the world can blubs of paint smeared onto a canvas be worth millions of dollars? How can a pot of mussels with some spilled white sauce be an artwork in the first place, let alone be a very valuable contemporary masterpiece? Who or what determines the value of these artworks, and why are they so expensive?

The economical value of modern and contemporary art is determined by the art-historical importance of the artist and the artwork in question, followed by the law of supply and demand and its potential return on investment.

It is fair to say the aforementioned conclusions are ‘a bit’ precipitated and strongly lacking any nuance. When stating a Mark Rothko is just ‘smearing paint on a canvas’, one is as wrong as stating Lionel Messi or Cristiano Ronaldo earn millions for simply ‘kicking a ball’, or Paulo Coelho for simply writing imagined stories. A life of hard work, dedication, and a tremendous amount of talent precedes, with only a few gifted individuals making it to the top.

With relevant modern and contemporary art, the economic value is much more than the sum of its materials. It is charged with an imbued value, making it so much more than just paint and canvas, in the same way a handwritten letter of a long lost lover is much more valuable than just ink and paper.

Doing so, with visual art we distinguish three different sorts of value:

• Material Value: the sum of the used materials
• Decorative Value: competitive prices for wall decoration / used materials + working hours
• Artistic/Art-Historical Value: the value of the artwork as cultural heritage and a collectible object

Material Value < Decorative Value < Artistic/Art-Historical Value

Art begins where decoration is transcended. Arguably, anyone can buy a canvas and paint and create an abstract painting which could be fine as home decoration. The value of these works would probably sit between $200 and $2.000, depending on the size, material costs or working hours.

However, distinguishing yourself as an artist and making a name in the art world by manner of producing original, relevant and contemporary artworks is an entirely different challenge. Anyone can do the first, but only a few will succeed doing the latter (we highly recommend our article How To Succeed as a Painter/Artist in case you are curious how to increase your chances as an artist).

The value of these contemporary artworks will start at just $1.000, up to $500.000 in the primary market (cf. infra), and up to $300 million on the secondary market (cf. infra). Which brings us to our next crucial chapter in order to understand why modern and contemporary art can be so expensive: the art market.

Understanding the Art World & Market: Primary Market versus Secondary Market

The art world and art market consists of various forms, markets and niches. So, where do those big sales happen? First and foremost, there is a crucial distinction between the primary market and the secondary market.

The primary market is the market where the artwork gets sold for the very first time. In this case, the artist and/or the artist’s gallery are in direct contact with the collector, whom is the first owner of the artwork. The collector buys the artwork, and the artist and the artist’s gallery earn money on the sale. As stated in our previous chapter, the value of these contemporary artworks on the primary market start around approximately $1.000 up to circa $500.000. Multi-million dollar sales are extremely rare within this market.

At the bottom of this spectrum, we have works by emerging artists, which would start around $1.000 up to approximately $10.000. Emerging artists are artists whose careers are still in the early stages, exhibiting at some galleries, but not yet making a mark on the art world by being featured in renowned collections, publications, or institutional exhibitions.

When this does happen, we enter the spectrum of the so-called mid-career artists, entering a price range of $10.000 up to $50.000. The terminology mid-career might be confusing by times, as it suggests the artist is halfway through his career, however, many artists will never achieve becoming a mid-career artist, and many will remain a mid-career artist their entire career. It simply refers to the status of the artist in terms of how valuable or established the artist is.

The top spectrum are of course the established artists. These artists are being collected by multiple major institutions, and have a very steady demand and selling history. As a result, the price range sits between $50.000 up to $500.000, depending on the supply, size, and medium of the artworks in question.

These prices are very predictable, hence only the right price leads to good sales. As a result, depending on the artist’s career and market status, there is a very strong consensus when it comes to the pricing of these artworks. However, the value can often surpass these prices due to trends on the secondary market, at auction houses in particular.

Thus, the secondary market is where almost all the record-breaking sales take place. The secondary market consists of sales after the first sale of the artist. In other words, the artist does not make any money when his work was sold for millions on the secondary market. Art dealers, collectors, or galleries specialized in the secondary market, are the owners of a modern or contemporary artwork, before selling them again, aiming and hoping to achieve a better price in order to make profit.

Besides art dealers, a major part of the secondary market are off course the auction houses, think of Sotheby’s, Christie’s, or Phillips, the holy trinity of the auction houses. Contemporary art at auction is a booming industry, with the art market gaining $20 billion in the past 20 years.[1]

Whereas there are certain rules or conventions creating a general consensus when it comes to the pricing/value of the artworks on the primary market, with auction houses, the price or value is determined by the highest bidder. Meaning, the artwork is worth whatever the buyer is willing to pay. Doing so, prices can swing up to astronomical heights.

So why would anyone want to buy art at the secondary market, if the primary market is much less expensive? First of all, the top sales at auction are most often once in a lifetime opportunities to acquire a specific artwork, whereas on the primary market, there is an ongoing offer works. Moreover, in the top tiers of the art world, one isn’t always allowed to buy an artwork by a particular artist on the primary market, because artists and art galleries prefer to sell to renowned private and public collections, such as institutions, museums or city collections. Or in some cases, there are enormous waiting lists making it almost impossible to acquire an artwork from a specific artist.

As a result, the secondary market becomes the perfect opportunity to skip the queue and to buy work from the artist you want. However, doing so the prices will rise, and you’ll have to compete and outbid everyone else who is trying to do the same thing.

There are two reasons why it is often so difficult to buy top artists on the secondary market. First and foremost, selling to important (public) collections is much better for the artist’s career on the long run. Further more, these collections will make the works visible, document them, and make them accessible to the public. They purchase the artwork for educational purposes, and for its art-historical value as cultural heritage.

Whereas opportunistic buyers might buy the artwork for economical purposes. In this case, the art world gets sold at prices the gallery cannot control, which can be harmful for the value of the artist’s career if there would appear to be downwards trend at auction, a mechanism which can not be controlled. Further, the collector would have millions of profit, whereas the artist and galleries only earned a fraction of the new realized price on the first sale. Also, after the sale, the artwork will seemingly disappear into the private collection, as it will no longer be accessible for others.

It is clear to say these ludicrous prices are just a fraction of the art world. In other words, the so-called 80-20 rule – also known as the Pareto Principle – is applicable when it comes to the art world in terms of the distribution of income. The bulk of all artists, the 80%, are responsible for just 20% of the market, whereas the top 20% is responsible for 80% of the market. Studies of ArtPrice have confirmed this notion, indicating the average price of a sold contemporary artwork currently sits around $27.500, whereas the median sits at just $1.500-$2.000.[2]

Who Buys Expensive Modern & Contemporary Art and Why? – Art as an Investment

Another way to approach the question why modern and contemporary art is so expensive, is by identifying who buys it, and what the motive is.

A first category are of course the aforementioned public collections who aim to acquire the best artworks possible for educational purpose and the value of art as cultural heritage. It brings a great deal of prestige when your city or museum acquires an important artist. It elevates the level, value and recognition of the institution or entity in question. The motive is in this case primarily the art-historical value of the artwork. As these institutions are aiming to buy the most influential artists, they often have to make great financial efforts, especially when they are forced to buy on the secondary market.

Doing so, public collections are responsible for many big sales, but you will very rarely see a museum buy a an artwork for millions of dollars. Further more, these art institutions have good relations with art galleries and even personal relations with artists. As a result, there is often a mutually benefical agreement in which the institution is able to buy the artwork directly on the primary market, sometimes even at reduced prices, supporting the artist’s career on the long run.

Up next we have private collectors, the art enthusiasts. The art collector is passionated by art, but is also aware of the opportunities of art as an investment. They buy art with the heart, but also with the mind. It’s a hobby of many to stay posted on the latest developments in the art world, and visit art galleries and art fairs on a regular basis in search for the most exciting prospects.

Most of these collectors will start to collect art by purchasing works by emerging artists on the primary market, approximately within a price category starting at $1.000 up to $25.000. Besides these artworks still being very affordable, one can make the most profit in relative numbers within this category. We have seen it many times, with works we’ve collected and with artists we represent, that prices will double, triple, and even more within five to ten years time (for collecting advise, feel free to view our services for collectors).

However, when it comes to making a lot of money, investing in established artists is much more likely to have a positive return on investment in comparison to collecting emerging artists, as there already is a consistent demand and sales history, and the artist is already nested in the canon of contemporary art history, resulting in a much higher art-historical value which is more likely to continue to increase as the years go by. A 20% rise in value (e.g.: $200.000 > $240.000 = +$40.000) of an established artist can be much more lucrative than a 300% rise in value of an emerging artist (e.g.: $2.000 > $6.000 = +$4.000). Or even more, when a collector buys an artwork by an established artist on the primary market, and selling it the next day at auction adding a few zeros to the realized price (e.g.: €200.000 > €2.000.000 = +$1.800.000).

Doing so, we arrive at the third category, which are the private and corporate investors. Art is a great way to invest your financial resources, when done correctly of course. In fact, investing in the most important modern and contemporary artists can often be more safe and lucrative than investing in stocks. Think of multinationals, banks, highly established brands and other major corporations consistently buying art as a longterm investment.

There are other motives as well. Think of the social status of the collector for instance, which is applicable for the art enthusiasts buying emerging artists, as well as for the Sheikh buying a Picasso for a record-breaking price at auction.

This economical element of art as an investment is of course crucial when it comes to answering the question why contemporary art is so expensive. Just as with rare Pokémon cards, diamonds, signed shirts of football players, rare books, NFT’s, Rolex watches, wines, special limited edition sneakers, or exclusive Gucci handbags, there is a collectible character connected to a potential return on investment, making it an interesting asset for investors, pushing the market to new heights.

The Controversial Character of the Economical Value of Art

One might wonder, why is the public opinion fine with a Gucci handbag being sold for hundreds of thousands of dollars, but not when art enters those economical realms? The answers lies in the troubled relationship and controversial character of art and money.

A handbag is a commercial good. As a result, we are absolutely fine with its commercial character. However, with art, it seems as if the artist is selling his soul – even though it is not the artist who sells his work for those tremendous amounts of money. As a result, we jump to the conclusion it’s not about the art anymore, but all about money. Galleries are opportunist money grubbers and the successful artists are frauds. However, with almost all successful art galleries and artists, the main goal is artistic, not commercial. If one pursues a commercial objective, they are less likely to succeed on the longterm.

Pecunia non olet. “Money doesn’t stink.” But it seems as if it does when it’s about art. And not only the public opinion questions the role of dollars, euros, pounds and yen in the art world, the artist’s themselves do the same thing. For instance, the pioneers of Conceptual Art in the early 1960s were questioning the art establishment strongly. They criticized the institutions and the ongoing commercialization of art as decoration for the wealthy. Doing so, they distanced themselves from this commercial character by producing unaesthetic artworks, criticizing the art world or by dematerializing art so there is no art object left.

A great example is Piero Manzoni’s infamous Merda d’Artista, better known as Artist’s Shit. He defecated, tinned his excrements, and sold them as a limited edition series of artworks. He sold them at the day-price of gold, ridiculing the economical value of what the artist ‘produces’, implying the artist actually ‘shits gold’. Ironically, due to lack of understanding, the public opinion blames Manzoni of being a commercial fraud, even though he is exactly achieving the opposite, being a protagonist for non-commercial art.

Conclusion: Why is Modern & Contemporary Art So Expensive?

To conclude, the art market is one of the biggest markets in the world. If you think about it, artworks are the most expensive objects in the world. They are more expensive than gold, cars, diamonds, and so on. Only exclusive property is able to surpass those canvases with blubs of paint. However, the art world is much more nuanced than those record-breaking auction sales resulting in catchy headlines in the newspapers – intentionally evoking sensation and public outrage – with multi-million dollar sales being just the top fraction of the art world.

Art can be so expensive because of its art-historical value, it’s importance as a piece of cultural heritage and how it shaped the world as we know it today. Art can be so expensive due to its collectible character, its scarcity, the ubiquitous law of supply and demand, and its potential return on investment. Art can be so expensive due to the privilege and social status to own such a masterpiece.

But above all, its value is rooted in the age old tradition of producing something which excels above anything else. Producing the spectacular, the bold, the silent, the critical, the humor, triggering the mind and soul. Time and time again, it convinces us, and enforces its value once more.

Notes:

[1] ArtPrice, The Contemporary Art Rush at https://www.artprice.com/artprice-reports/the-contemporary-art-market-report-2020/the-contemporary-art-rush consulted 11/02/2022.
[2] ArtPrice, Renewed Growth at https://www.artprice.com/artprice-reports/the-contemporary-art-market-report-2017/renewed-growth consulted 11/02/2022.

Last Updated on July 12, 2024