This post originally appeared on ArtMarketMonitor.com:

The ever clever Felix Salmon would like you to think he’s an art world sophisticate. Here’s how he closes his recent post on the Gagosian lawsuit over the Lichtenstein, Girl with a Mirror:

I’ve heard a few stories, over the years, of what happens when collectors who own art try to sell that art through a gallery. In the first instance, the gallery is always very bullish, and promises to sell it for a high price at a modest commission. But then it somehow never sells, and the consignor becomes increasingly desperate, and eventually accepts a sum of money from the gallery which is a mere fraction of the amount originally mooted. It’s a standard m.o. in the gallery world: never sell anything too quickly, and wait instead for the seller’s need for cash to be as urgent as possible. That minimizes the amount the gallery needs to pay the seller, and therefore maximizes the amount the gallery can keep for itself.

As conspiracy theories go, Salmon’s is a little James Bond-villain-ish which probably suits the public persona of Larry Gagosian but hardly fits the facts in the case. Salmon claims to have read the exhibits. (You can read the emails too here.) If he did, he’s working very hard to fit those facts into his “standard m.o.” where all sellers are desperate and all dealers let those desperate sellers twist in the wind until their valuable works of art can be plucked for a pittance.

The emails show us that Gagosian sent Lichtenstein’s Girl with a Mirror to London in October of 2008. A pro forma invoice values the work of art at $4.5m for the purposes of customs.  In December, Gagosian receives a condition report that describes the work as stable but also points to a number of places where previous conservation has left discoloration and conceal unknown damage. The report does not suggest the work is bad condition but it is also clearly not pristine.

Also in December, John Good, one of Gagosian’s associates, offers the work to Sam Wylde who has purchased the Tansey that also came from the Cowles family. In November, Good had sent an email to another client whose name is redacted offering that collector the work as well.

In January, Deborah Mcleod, who works for Gagosian in LA, sends an email to Tom Dean telling him she just had lunch with Gagosian who mentioned Girl with a Mirror. McLeod clarifies for Dean that the price is $3.5m, not $3.6m. It is the same price that the complaint says Gagosian has named as the sum he will try to get for Cowles. Tom Dean expresses interest in the work but cautions “in this market we have to get creative/attractive on terms and price.” The bargaining has begun.

Remember that this is January of 2009. The world is in the depths of the credit crisis. The bubble has burst and the entire financial class is bracing for what might be a near collapse. Credit markets remain frozen and equity markets are approaching a bottom. All asset classes have correlated and are falling sharply. This may be the most important point about the entire saga. The art market’s spectacular recovery is still unforeseeable.

With this in mind, John Good contacts Sam Wylde again in February. He cites the $4m auction price in 2007 for a work from this edition as a reference point. But he recognizes the “correction” from the market’s peak and suggests that living artists have seen a 50% fall and dead artists of strong reputation only a 25% drop. Therefore, Good reasons, even though the asking price is $3.5m, a reasonable price for the work would be a 25% discount from $4m or $3m.

Now it becomes clear that Gagosian is driving his staff hard on the Lichtenstein. He wants to see it sell. Deborah McLeod puts pressure on Tom Dean to make a decision. He cites “liquidity” problems and says he might consider the work in February. This is clearly optimistic on his part.

On March 23rd, there is a flurry of email. Tom Dean is still interested in the Lichtenstein but he clearly has some concerns about the condition of the work. McLeod has done some legwork. Here’s her report to the collector:

Hi Tom—I discussed the Lichtenstein with Dana Cramer. While she is the go-to gal for Roy’s work in general, these rare baked enamels are out of her immediate area. She directed me to Kenneth Elliot in Maryland who worked for Don Saaf, who back in the 60s fabricated the original enamels for Roy! He is confident that he can improve the surface—he had not seen it yet in person, but says he worked on a big enamel belonging to Sonnabend and improved it immensely. He sounds like our it-guy for this particular work. He would not guess as to the cost, but just for a point of reference, Dana Crammer made a wild guess of $20,000.

Larry does not want to start in on the conservation of someone else’s property, and the owner thinks it looks just fine! I think you could probably make a low offer citing the condition, and assume the risk of the un-do and re-do conservation.

We can see in McLeod’s email that Gagosian is losing patience. She lowers the bar for Dean. He says he’ll think about it on his flight to London. Later in the email chain, Gagosian himself drops the hammer: “I would like a decision . . . tomorrow.”

But even Larry Gagosian can’t make a buyer open his wallet in March of 2009. Next there is a flurry of emails around Art Basel in June where most of the information is redacted by Tom Dean is definitely stopping by the Gagosian booth for a visit. Still no sale.

On July 15th, McLeod makes another run at Tom Dean. This is the now famous “cruel and offensive offer” email. Even then, Dean doesn’t swallow the hook. He argues for loose payment terms citing the prospective sale of a company in six months which he expects to yield $50m directly to him.

Gagosian isn’t satisfied and instructs McLeod to “get a number out of him.” Apparently, it was $2m.

None of this sounds very much like Felix Salmon’s “standard m.o.,” a pantomime meant to defraud the seller. Six months hard work has barely budged Dean. So Gagosian offers to finance the work on Dean’s terms. Gagosian tries to make it look like he’s doing his client a service but we know from the court papers that he’s bought the work for $1m from Cowles and is selling it to Dean for $2m, though he won’t see the money until 2010.

A few days later McLeod writes a congratulatory note that suggests Dean was the underbidder when the Girl with a Mirror sold for $4m in 2007. He’s got the work for half off which closely matches the decline in art prices from 2oo7 to 2009.

There is a document adduced that says Charles Cowles will receive no less than $2.5m from a sale of the Girl with a Mirror. But in the dark days of 2009 when an already desperate Cowles was surely motivated to sell anything for any price—a decision being made again and again all around the world as people puked up assets to raise cash—it’s not hard to see him agreeing to Gagosian’s offer of $1m.

Far from skullduggery, the emails show a high pressure sales organization working hard to make a deal. Though Gagosian made a $1m on the sale himself, I doubt he rubbed his hands with glee. No one in 2009 was confident they would be able to cover their overhead. The emails show that Gagosian, with galleries around the world, was not complacent about meeting his.

Annals of art world skullduggery, Larry Gagosian edition (Reuters)

Category: Investing, Markets

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5 Responses to “How Larry Gagosian Sells Art, A Case Study”

  1. ottnott says:

    He would have paid $3 million if the painting matched his drapes.

  2. kms says:

    Ummm, as over confident as Felix can sound on occasion, I think the skulduggery point was that Mister Larry sold a piece of art without verifying ownership and still skinned just about everybody. The buyer got stolen goods, the owner got nothing… The misappropriator got 50% knocked off of the sale price and the dealer received double the price he paid for the work. Everyone but Larry has an argument that they were screwed. However, the ne’er-do-well knew or should have known that fences take an alarming cut because moving goods of unspecified provenance is a legally risky activity that demands additional compensation.

    If, on the other hand, Gagosian was naive enough to take the sale on face value, it’s almost worse than if he acted knowingly. It shows a lack on attention to detail and an unworldiness that no one can afford have listed among their business partner’s qualities. It’s like when lenders took away underwriting standards in order to inflate loans who acted as if borrowers had suddenly developed a propensity to lie about their ability to repay. You can tell us that’s what you think, and if it’s a lie you’re a cunning cheat. But if it’s the truth, you’re an idiot. In his business, it’s not like the million dollars was worth all this trouble.

  3. jaymaster says:

    A better title, “Pissy One Percenters: A Case Study”

  4. san_fran_sam says:

    Somehow, i just can’t get worked up over the problems of the rich and infamous. Guess i’ll just have to go look at my Van Gogh… poster.

  5. DSS10 says:

    I will never understand valuations based on what some one else will pay. Although these are unique objects, so are snow flakes and seashells and they do not trade for millions of dollars. Totally tulip bulbs.