The impact of COVID-19 in the U.S. has had a deleterious effect on the economy, with record high levels of unemployment, loss of businesses, and the high cost of healthcare related to fighting the pandemic. The harsh economic consequences of COVID has permeated all industries in the entertainment business, most notably the art market. Indeed, COVID’s widespread economic impact has even reached seemingly “loftier” economic players, such as art galleries and auction houses. The 2020 pandemic has occasioned unprecedented challenges to the art market. As an industry once dependent on in-person interactions, COVID has changed the landscape, requiring art galleries to shut their doors, art fairs to be cancelled, and auction houses to move to online bidding. In the first half of 2020, the art industry experienced the permanent closure of many galleries, mergers, and take overs by larger entities.1 As a consequence of the restrictions on travel, many more people are also spending most of their time in at home. Some collectors used COVID and its resulting restrictions to update their collections and to improve the walls of their home.2 While others were forced to sell their once-prized possessions. Ultimately, the art market has tried to adapt to this new unchartered territory. However, the art market has still been severely impacted by the economic fallout of the COVID-19 pandemic.
May 12, 2021 Feature
Art Law 201: Painting the Picture of Sales of Art During a Global Pandemic
By Emily Behzadi
Last year, global sales of art and antiques were estimated to have reached $64.1 billion.3 While in 2020, the art world continues to witness global sales, it is clear that the global art market will not reach that high turnover this year. Dr. Clare McAndrew,4 founder of Art Economics, conducted an independent and objective study for Art Basel and UBS entitled The Art Market.5 In this study, McAndrew conducted a global art market analysis and looked at changing patterns of global wealth and art collecting in different segments of the global art market, including the galleries, auction houses, art fairs, and online sales venues.6 The report surveyed 795 galleries and 360 high-net worth art collectors around the globe. This is the first major survey of how the pandemic has impacted the art market and it yielded some interesting results.
A. Galleries are the most impacted by the COVID-19 Crisis
Galleries7 have been one of the hardest hit sectors in the art industry, with smaller galleries taking the brunt of the hits. According to McAndrew’s report, in the first six months of 2020, galleries reported that the value of their sales fell by thirty-six percent on average (with a median decline of forty-three percent).8 Smaller galleries, with turnover of less than $500,000, reported the largest declines in sales, with a drop of forty-seven percent of sales value, while galleries with turnover of less than $250,000 experienced a thirty-nine percent decline in sales.9 Larger galleries with more resources, locations, and larger-named represented artists were able to offset some of these losses. Smaller galleries, representing emerging artists and with vastly fewer resources, are undoubtedly struggling to remain in business. Many smaller galleries have had to shut their doors indefinitely.10 Of course, these dramatic drops in sales continue to further the power divide between larger and smaller galleries. Most galleries do not appear optimistic about the rest of 2020 and the beginning of 2021, with respect to sales of fine art and antiques. A majority of the galleries surveyed expected sales to continue to decrease and less than half of the galleries surveyed believed sales are expected to increase in 2021.11
However, the individuals most impacted by the downward trend in sales are those behind the scenes of galleries and their blockbuster exhibitions. In response to the economic downturn caused by COVID-19, many galleries have had to furlough or permanently lay off staff.12 McAndrew’s report indicated that galleries with revenues between $250,000 and $500,000 reported a large downsizing of at least thirty-eight percent.13 Even high-end galleries like Pace Gallery—that furloughed a quarter of its New York staff in early April and David Zwirner Gallery14 —that reportedly laid off almost forty employees – have seen a dramatic drop in their workforce. 15
Those significantly impacted by the economic crisis are contractors, freelance workers, and collaborators – personnel who are vital to in-person exhibitions. As a result of cancelled exhibitions and a move towards online sales, brick and mortar locations are, for the moment, obsolete. As a result, those who hang shows, conduct lighting, and prepare soirees for openings, etc. are without work. The Art Dealers Association of America (ADAA), a leading organization of art dealers and gallerists in the United States, released a similar report on their website, surveying the status of art galleries as a result of the pandemic.16 The ADAA Report showed that as many as seventy-four percent of independent contractors regularly working before March 13th, 2020 are no longer employed.17 Travel restrictions, quarantine and COVID concerns, the cancellation of exhibitions, and most notably, the significant drop in sales played a key role in these substantial furloughs and terminations.18
B. Online Sales are Booming: But is it Sustainable?
Lockdowns and social distancing measures across the globe have essentially ceased the traditional in-person methods of acquiring art. For this reason, it is not surprising that overall online sales have risen during the pandemic. Before COVID, the existence of online art auctions allowed collectors to bid virtually on artworks.19 Auction houses had similarly attempted to create an online presence, allowing some collectors to preview works online.20 While the continued move toward online sales over the past years has signaled a new sector of the art market ready for capitalization, the pandemic and the requirement that sellers and buyers alike stay at home, has accelerated the art market’s transition to this digital environment. According to The Art Market, the share of online gallery sales rose from a mere ten percent of total sales in 2019 to thirty-seven percent in only the first half of 2020.21 Because many individuals still remain at home due to COVID-19, it is estimated that online sales will continue to raise in the last quarter of 2020 and likely far into 2021. Notwithstanding this emerging trend, collectors do not necessarily prefer the digital method of art acquisition. Understandably, only thirty percent of collectors prefer to use online viewing rooms or platforms to make art purchases.22
Even with the downward trend of overall sales in the primary and secondary markets,23 restricted movement has not altogether diminished the interests of collectors to buy art. These restrictions have forced many collectors to stay home, allowing them to reexamine their collections. McAndrew’s report revealed that, of the 360 high-net-worth collectors surveyed, ninety-two percent had already purchased at least one artwork in the first half of 2020.24 A majority of those surveyed further indicated that they had already spent more than $100,000 on art this year, while sixteen percent said they had spent over $1 million.25 However, many of those sales are for already sought-after artists, such as George Condo and Banksy.26 Other works, such as those of indigenous artists, are seeing a sharp decrease in sales.27
C. Art Fairs & Auction Houses Adapt to the “New Normal”
Pre-COVID-19, members of the art industry, including high-net worth buyers and sellers, readily traveled around the world to attend numerous art fairs. Art fairs have become a popular forum to exhibit art, and simultaneously, have become a significant market for galleries and dealers of artworks of all movements and genres.28 From Frieze New York to Art Basel Hong Kong, art fairs play a large part of not only high-end art sales, but also of important networking opportunities in the art industry. Art galleries, in particular make use of art fairs as a means to effectuate sales and to establish key industry contacts with high-net-worth collectors. Sales at certain art fairs also serve as a benchmark of the strength of the art markets.29 While many major international art fairs, such as Frieze New York and Art Basel in Switzerland, moved to an online-only digital format, sales deriving from these virtual events did not meet the volume of prior years. Consequently, the cancellation of art fairs had the consequence of radically reducing galleries’ sales via this channel during the first half of 2020.30 Ninety-one percent of the galleries surveyed predicted that art fair sales would not improve in the second half of 2020, and only one third believed that there would be an increase in 2021.31
Auction houses have fared better, but not by much. According to The Art Market, the number of lots sold at auction fell by twenty one percent from the previous year.32 A more astonishing drop, is in auction turnover, which elicited a drop of forty-nine percent in the first quarter of 2020.33 Some auction houses are taking a hybrid approach, mixing brick and mortar with online sales. Sotheby’s, in particular, has seen success with this hybrid approach, seeing a $1.5 billion turnover thus far in 2020. On the other hand, Christie’s saw only $1.03 billion.34 The larger auction houses, such as Christie’s, Phillips, and Sotheby’s, have unsurprisingly garnered more online-only sales in 2020 than they did in all of 2019.35 However, according to a report by Pi-eX, a London art market analytics firm, the top three public auction houses saw a seventy-nine percent year-over-year drop in revenue during the second quarter of 2020, going from $4.4 billion in 2019 during the second quarter to only $0.9 billion during the same period.36 The problem still remains, that many potential bidders cannot view the works in person at auction houses prior to the sale. The viability of this new form of virtual live auctions is questionable in a post-COVID world. The theatrics and momentum of public auction sales cannot easily be captured in a virtual environment.
D. Where do Attorneys Fit in?
These widespread economic effects of COVID-19 on the art market will certainly bring a number of legal issues to the forefront. As an industry heavily reliant on human interactions, the COVID-19 pandemic invariably is replete with issues in both the primary and secondary markets. Whatever price and market variations result from COVID, artworks unlike other investments, are excluded from federal and state securities and commodities laws.37 The gallery industry itself is unregulated, and numerous issues arise from this lack of regulation.38 Given the unique state the art industry finds itself in today, it is important for attorneys to advise their clients to exercise reasonable vigilance and to conduct careful investigation into the sources and chains of possession of the works they are acquiring.39 This may prove exceedingly difficult due to this emerging digital environment. In that regard, the added challenges of the COVID-19 crisis now requires art law attorneys to adapt to the evolving disputes that have arisen in relation to the sale of artwork. Some of these issues include disputes over cancelled exhibitions, pricing, donations,40 authenticity, intellectual property infringements, shipping and storaging, and bankruptcies.
As the art industry has evolved over time, merchants and buyers have also had to evolve. The outbreak of COVID-19 and its resulting economic uncertainties is no different. Key players in the art industry must now adjust to this new arena and reshape traditional practices in art-related transactions. The complexities involved in the sale and acquisition of art are already ubiquitous and attorneys must keep pace within this legal minefield.
Emily Behzadi is an Assistant Professor of Law at California Western School of Law. She is the Chair of the ABA Young Lawyer’s Division Entertainment and Sports Committee and the Vice Chair of the International Division for the ABA’s Forum on Entertainment and Sports. Professor Behzadi wishes to thank Alexandra Darraby for her valuable contributions to this article.
Endnotes
1. For example, gallerist Gavin Brown, owner of Gavin Brown’s Enterprise, joined Barbara Gladstone’s Gallery after 26 years in business. Jason Farago, Gavin Brown Closes His Gallery and Joins Forces With Barbara Gladstone, The New York Times (July 20, 2020) https://www.nytimes.com/2020/07/20/arts/gavin-brown-barbara-gladstone-gallery.htmllast accessed Nov. 1, 2020).
2. See e.g., Maximiliano Duron, When the Pandemic Forced the Art World Online, Some People Began Collecting—Or Returned to It, Art News (Oct. 12, 2020), https://www.artnews.com/art-news/market/online-art-collecting-coronavirus-pandemic-1234573318/ (last accessed Nov. 1, 2020).
3. Scott Reyburn, Pandemic Has Cut Modern and Contemporary Gallery Sales 36%, Report Says, The New York Times (Sept. 9, 2020), https://www.nytimes.com/2020/09/09/arts/design/gallery-sales-art-market-virus.html (last accessed Nov. 1, 2020).
4. Dr. Clare McAndrew is a cultural economist who specializes in the arts, antiques and collectibles markets.
5. Dr. Clare McAndrew, The Impact of COVID-19 on the Gallery Sector, The Art Market, https://theartmarket.foleon.com/2020/artbasel/a-2020-mid-year-survey/ (last accessed Nov. 1, 2020) [hereinafter “The Art Market”].
6. The Impact of COVID-19 on the Gallery Sector, Art Basel, https://www.artbasel.com/about/initiatives/the-art-market (last accessed Nov. 1, 2020).
7. A “gallery” is a generic term for a place where artwork is exhibited. A gallery may be used commercially or non-commercially. Alexandra Darraby, Art, Artifact, Architecture & Museum Law § 2:13 (2017). For purposes of this article, the author references only commercial galleries.
8. The Art Market, supra note 5.
9. Benjamin Sutton, Gallery Sales Dropped 36% as Art Market Reeled from Pandemic, Artsy (Sept. 18, 2020), https://www.artsy.net/article/artsy-editorial-gallery-sales-dropped-36-art-market-reeled-pandemic (last accessed Nov. 1, 2020).
10. See e.g. Hakim Bishara, NYC’s Lesley Heller Gallery Will Close Permanently, Hyperallergic (April 21, 2020), https://hyperallergic.com/557545/nyc-lesley-heller-gallery/ (last accessed Nov. 1, 2020) (Lesley Heller Gallery had been in business since 1994 and exhibited such influential artists as Sol LeWitt, Elisabeth Condon, and Deborah Brown, among others).
11. The Art Market, supra note 5.
12. Id.
13. Id.
14. Pace Gallery, Others Continue Lay Offs Amidst Covid-19, The Art Insider (July 27, 2020), https://www.art-insider.com/pace-gallery-others-continue-lay-offs-amidst-covid-19/1574 (last accessed Nov. 1, 2020).
15. Zachary Small, Projecting 30 Percent Sales Drop, David Zwirner Lays Off Nearly 40 Employees, Art News (July 3, 2020), https://www.artnews.com/art-news/news/david-zwirner-layoffs-coronavirus-1202693378/ (last accessed Nov. 1, 2020).
16. U.S. Art Galleries Project 73% Loss in Second Quarter Revenue Due to COVID-19 Developments, Art Dealers Association of America (May 19, 2020) https://www.artdealers.org/sites/default/files/COVID-19%20Impact%20Survey%20of%20U.S.%20Art%20Galleries%20-%20FINAL_1.pdf (last visited Nov. 1, 2020).
17. Elena Martinique, COVID-19’s Impact on US Galleries is Significant, Reports ADAA, Wide Walls, (May 21, 2020) https://www.widewalls.ch/magazine/adaa-covid-19-report-us-art-galleries (last accessed Nov. 1, 2020).
18. Pace Gallery, Others Continue Lay Offs Amidst Covid-19, The Art Insider (July 27, 2020), https://www.art-insider.com/pace-gallery-others-continue-lay-offs-amidst-covid-19/1574 (last accessed Nov. 1, 2020).
19. Darraby, supra note 7 at 2:9.
20. Id.
21. The Art Market, supra note 5.
22. The Impact of COVID-19 on the Gallery Sector: 7 Key Findings on Collecting, UBS Contemporary Art, https://www.ubs.com/global/en/our-firm/art/2020/gallery-sector.html (last accessed Nov. 1, 2020).
23. Art is typically traded in primary and secondary markets. The primary market is one where the art is derived directly from the artist, producer, or publisher. On the other hand, the secondary market is where art is procured through a variety of sources, including, but not limited to estates, auctions, other dealers, foreclosures, bankruptcies, museums, and other collections. Darraby, supra note 7 at §2:3.
24. Id.
25. Id.
26. Barbie Latza Nadeau, Online Art Sales See a Wild West Boom With Auction Houses Shut by COVID, The Daily Beast, (Sept. 27, 2020) https://www.thedailybeast.com/sothebys-and-christies-online-art-sales-see-a-wild-west-boom-with-auction-houses-shut-by-covid-19 (last accessed Nov. 1, 2020).
27. Linda Morris, After years of growth, Indigenous art sales have been hit hard by COVID-19, The Sydney Herald, (Sept. 2, 2020), https://www.smh.com.au/culture/art-and-design/after-years-of-growth-indigenous-art-sales-have-been-hit-hard-by-covid-19-20200820-p55nma.html (last accessed Nov. 1, 2020).
28. Darraby, supra note 7 at §2:20
29. Id.
30. The Art Market, supra note 5.
31. Id.
32. Artprice presents five Covid-proof artists, Art Price.com, (Sept. 15, 2020) https://www.prnewswire.com/news-releases/artprice-presents-five-covid-proof-artists-301130532.html (last accessed Nov. 1, 2020).
33. Id.
34. Id.
35. Sutton, supra note 9.
36. Angelica Villa, Top Three Houses See 79 Percent Year-Over-Year Drop in Second Quarter of 2020: Report Art Market Monitor, (Aug. 5, 2020) https://www.artmarketmonitor.com/2020/08/05/top-three-houses-see-79-percent-year-over-year-drop-in-second-quarter-of-2020-report/ (Nov. 1, 2020).
37. Darraby supra note 7 at 2:8.
38. Darraby supra note 7 at 2:26 (“Art dealers [galleries] are not regulated as a class of sellers.”)
39. Id.
40. The recent Coronavirus Aid, Relief, and Economic Security Act (CARES ACT) allows taxpayers to make cash donations to nonprofits (like museums) and to receive certain deductions.