Mystery of the rotting shark

Dropped when billionaire Steve Cohen paid US$12 million for Hirst's pickled shark. Photo / AP

In 2000, a work known as Lover Boys, comprising 355lb (161kg) of individually wrapped blue and white candies piled in a triangular shape in the corner of a room, came up for auction at Sotheby's in New York. It was by the "very branded" artist Felix Gonzalez-Torres, who died of Aids in 1996. The intention was that the candy would be eaten by guests - representing Gonzalez-Torrez's lover's body wasting away from Aids. It sold for US$456,000 ($813,216).

This is just one of the extraordinary anecdotes discussed in Don Thompson's book The $12 Million Stuffed Shark. Curiously, Thompson halts his own curiosity about The Curious Economics of Contemporary Art and Auction Houses - the subtitle of the book - at the brink of something that seems like an even more enormous con.

"I'm relaxed about it. It is what it is," says the economist and business school professor after a long pause on the phone from Toronto. "I'm amazed that people pay US$15 million for a Warhol, but they have it and they want it and it's more power to them, I guess."

I have just asked whether the revelations of his book - where art and its value is the product of sophisticated branding and marketing - demonstrate just how ridiculous the free market can get, perhaps signalling the end of civilisation as we know it.

Thompson, who is giving the keynote lecture at the Auckland Art Fair next Friday, is unperturbed about what he's uncovered in his year-long adventure among the art elite. Just why people pay preposterous amounts for contemporary art is an almost impossible question to ask collectors, who will give all sorts of justifications.

In the end, he says, it's the same as asking why someone pays US$6000 for a Louis Vuitton handbag. But, says Thompson, when you pay US$17.3 million for a 1964 silkscreen Orange Marilyn and have it sitting over your mantle, people will say: "Wow, that's an Andy Warhol." Translation: "You are a man, or woman, of cutting-edge taste and money." No matter that Warhol may have had little hand in the making of the object spawned from his famous Factory.

Thompson agrees the contemporary art market is unique. And that it's completely unregulated - second only in size to the illegal drugs market and possibly just as likely to send its users on a journey far from reality.

But it also needs to be seen in another context: that most of us don't understand how rich really rich people are, that the players in this market, known as UHNWs (ultra-high net-worth) collectors, have so much money they don't require good sense.

Take, for example, Steve Cohen, the hedge-fund trader who paid the US$12 million for the said shark in the title of Thompson's book. Worth about US$4 billion and earning US$500 million a year, Cohen's total income is at least US$16 million a week, or about US$90,000 an hour. So the seemingly outrageous price tag for a poorly pickled tiger shark in a glass vitrine by British artist Damien Hirst represents just five days' income for Cohen.

"If you loved a picture, you'd pay five days' income for it," says Thompson. "These are all grown-ups with free will."

But are they? As Thompson says in the book: "... in the world of contemporary art, branding can substitute for critical judgement, and lots of branding was involved here". Which is about as deep as Thompson gets in his analysis. From the artist to the dealer to the art fair and the auction house, art takes a back seat to branding and marketing. That's to help part UHNWs from their millions. Despite their obscene wealth, when it comes to buying art, they're terribly insecure, always need reassurance, and rely almost exclusively on other people's branding.

"So they buy from a branded auction house or branded artist or branded dealer," says Thompson.

"If you bought from Sotheby's no one is going to say, 'You paid what for a pile of candy?' It must be art if Sotheby's name is attached to it."

To get around the problem of someone faking the Gonzalez-Torres sculpture by visiting their local candy store, Sotheby's auction sales catalogue promised a new "certificate of authenticity" would be provided stating the new owner's name.

Sotheby's also legitimised the significance of the sculpture by quoting Nancy Spector, curator of the Guggenheim in New York, who said: "The work's provocation lies in its seeming open-endedness, its refusal to assert a closure of meaning."

Similar nonsense happened with Hirst's shark, which was commissioned by "branded collector" and advertising magnate Charles Saatchi for 50,000 ($131,000). Saatchi has also been described as the greatest art patron of his time, a secondary art dealer disguised as a patron, and a collector credited with creating the "shock art" movement. A measure of his power, says Thompson, is seen in media articles, auction houses and collectors describing works as "collected by Saatchi", "owned by Saatchi" or "coveted by Saatchi" - all of which are likely to drive prices up. Conversely, artists labelled "rejected by Saatchi" or "sold off by Saatchi" will see a decline in their value.

"Hirst is a genius - the smartest marketing person in the art world," says Thompson. "He said the shark represents the interface between life and death - when it's alive it looks dead; when it's dead it looks alive." Hirst called the work The Physical Impossibility of Death in the Mind of Someone Living. Unfortunately, the shark is looking deader than it should. On loan to the Metropolitan Museum of New York, the current shark, pumped full of formaldehyde solution, is visibly deteriorating.

When it happened with the first shark - rotting shark rotting from the inside out - initially, it was skinned and placed over a fibreglass mould. "But it looked awful," says Thompson. "It was still decaying and pieces were falling off. There were actually scales in the bottom of the tank, so they replaced it with a slightly smaller shark. It is now decaying, if anything, faster than the original."

The shark's predicament also raises questions about original artwork, not to mention who exactly is the artist when works are fabricated and refabricated by others. As Thompson points out, if you overpaint a Rembrandt it's no longer a Rembrandt, but replacing a shark is okay - apparently, it's still an original because it's conceptual.

Not everyone agrees. Saatchi, the original buyer, was appalled at the replacing of the shark, says Thompson. "He said the essence of the work was that it decays - that's the purpose of it and to replace it is to deny its original meaning."

Anecdotes such as the rotting shark - stories which appear to expose the industry's monstrous fiction - are the shining light of Thompson's book. Like the story of Australian entrepreneur Alan Bond's purchase of van Gogh's Irises at Sotheby's for US$53.9 million in 1987. The price was so unexpected, rival auction house Christie's challenged Sotheby's to prove there had been a real "underbidder". Bond himself also raised the question of whether the only underbidder had been the famous "Mr Chandelier" - a reference to the practice of accepting bids from the chandelier in the auction room. As it turned out there was a real underbidder, but it was later revealed Sotheby's had loaned Bond half the value of the work and after two extensions had not been repaid.

Once again Thompson is largely unperturbed. "It's just that this industry has grown up with its own set of rules - the auction process is willing buyers and willing sellers." No, he hasn't come up with a new economic theory to explain the art world - although some in economic circles have referred to the book as a case study in branding. If there is any further academic research to be done, Thompson suspects it's in the field of consumer behaviour and motivation rather than economics. He doubts also whether intervening in the art industry process would do any good.

"One proposal has been to regulate auction houses by eliminating guarantees or eliminating secret reserves, but the reality is most people in the room know they are there."

He does, however, highlight a fundamental misconception about the market - it's not true that the work you buy will always go up in value. Two-thirds of the contemporary artists being sold 20 years ago are no longer being offered for sale today at major event auctions. "Buy it if you love it, but don't buy it as an essential part of your pension plan."

If there is a misleading part to the art world, says Thompson, it's that we only read about the successes. "Nobody writes about the 80 per cent of art that resells for less than you paid for it."

As to how the market is faring right now, he says it's hard to tell because so much of it is "opaque and nobody has any incentive to tell you the truth".

However, contemporary art at auction is down 30-35 per cent from a year ago and modern and impressionist is down by about 20-25 per cent. So far it's not as bad as the crash of 1990-94 when art dropped by about 50 per cent and it took 12-15 years to come back to where it was in 1990 - the peak of the bubble. So what's an UHNW collector fallen on hard times to do?

"If you live in the upper east side of New York and you've lost your job in the finance world and you've got an expensive condo, an expensive wife, expensive children and expensive schools, the first thing you sell is the Warhol over your mantle. You go to the auction houses and they say: 'We'd love to handle it, but it may be 18 months'. So you take it to a dealer and you say: 'Sell this for me privately and as far away as you can.'

"That part of the market is entirely opaque and the general sense is that anybody who is buying in the secondary market from dealers is making lowball offers - so it may be down more, but those who know aren't talking."

For those with more money than good sense, perhaps it's a good time to buy.

Top end

Art price records

* Most expensive paintings sold privately

No 5, 1948 (1948): Jackson Pollock, US$140 million, negotiated sale by Sotheby's New York in 2006 to Mexican financier David Martinez.

Women III (1952-3): William de Kooning, US$137.5 million, private sale in 2006 to Steve Cohen.

* Most expensive paintings sold at auction

Garcon a la Pipe (1905): Pablo Picasso, US$104 million, Sotheby's New York, 2004.

Dora Maar au Chat (1941): Picasso, US$95.2 million, Sotheby's New York, 2006.

* Most expensive post-war work sold at auction

White Center (Yellow, Pink and Lavender on Rose, 1950) : Mark Rothko, US$72.8 million, Sotheby's New York, 2007.

Green Car Crash (Burning Car 1, 1964): Andy Warhol, US$71.7 million, Christie's New York, 2007.

* Most expensive sculpture sold privately

Bird in Space (1923): Constantin Brancusi, US$38.5 million, private sale brokered by New York dealer Vivian Horan to a Seattle collector.

* Most expensive sculpture sold at auction

Bird in Space (1923): Brancusi, US$27.5 million, Christie's New York, 2005 (a different version to the one sold privately).