Resale royalties exist to try to fix a structural problem—namely, that artists have historically been excluded from the financial upside when their work is resold in the secondary market. According to our research, letting artists participate in this upside can be better achieved through a mechanism that would give them fractional equity
in their own work, rather than today’s resale rights regimes.
In recent Artsy
editorials, Christopher Sprigman
and Guy Rub
, law professors at New York University and Ohio State, respectively, argue against resale royalties
, while Mark Waugh
, director of business development for the Design and Artists Copyright Society
(DACS), the British rights clearance agency, argues for the resale right
. While we understand the positive impact resale royalty payments have had on artists in the U.K., we fundamentally disagree with Sprigman and Rub’s argument that artists do not deserve or need this seeming handout. We approach this issue from a new perspective, that of property rights.
Our system follows from the logic of property rights, which—as we have written previously (Whitaker 2014
, Whitaker 2018
, Whitaker and Kräussl 2018
)—rebuts Sprigman and Rub’s critique (and Rub’s 2014 Yale Law Journal Forum
essay arguing that resale royalties are undue subsidies to artists). Resale royalties may continue to exist, especially in Europe as part of the moral rights of the artists, but the U.S. copyright system is based on the economic incentive to innovate. Especially in the U.S., but also more broadly, fractional equity is a better system. And today, it is enabled by new technologies such as blockchain.
We respond to the Artsy editorials first, and then explain why fractional equity is a better system. Our work structures artists not as recipients of charity, but as autonomous, risk-taking investors in their own work—to our public benefit, as well as their private benefit. We do not ask the question of whether artists should get rich. A better question is: What value is being created here, and how can collaborative value creation be collectively owned? (It is worth noting that a system of fractional equity for art extends to better structures of compensation for creative labor in any field.)
Sprigman and Rub argue that resale royalties are only for the “rich, and, in particular, for the rich and dead.” They argue that these artists don’t really need the money. They also argue that resale royalties will depress art markets because buyers are sensitive to price. We disagree with this view of art markets.
First, no one knows the expected value of a work of art. It has no cash flows. Any “expected value” in the probabilistic sense (multiplying a future cash flow by the likelihood of receiving it) is a guess, however coincidentally right the guess proves to be.
Second, prices for art are fungible. Primary market dealers already commonly offer 10% discounts to art advisors. To say the resale royalty functions as a lien that discourages collectors from investing presumes too much about the price elasticity of demand for the purchase of art, and gives too much credit to anyone’s ability to crystal-ball gaze into the art market’s future. In our research
, we see early
works sell for a few hundred dollars in 1960, and $3 million at auction decades later. It is hard to believe that a collector who would have paid $300 would not have paid $330. In addition, our work models artists as forgoing revenue in exchange for equity; thus, the collector would have paid $270. This is a fair trade of cash now for risk-taking and equity later.
The fact that the art market is concentrated at the very top
is not artists’ fault. This concentration is a marker of art’s function as an alternative currency. It is easier to buy into a known artist’s work. This concentration is collector-driven. Making art is hard, and making art in the context of a society structured as a market economy is harder. A recent study
by Kickstarter’s The Creative Independent
found that most artists make under $30,000 per year. As art becomes financialized, refusing to invite artists to participate is structurally incorrect.
Sprigman and Rub cite the Andy Warhol Foundation
’s $350 million in assets and ask how the heirs or the foundation could use more money. This is not our decision any more than it is our decision whether Dmitry Rybolovlev
could profit from the sale
of ’s Salvator Mundi
(ca. 1500) or Jeff Bezos from shares of Amazon
. These are matters of public debate over the morality and optimal social outcomes of markets, but it is not an invitation to top out the scale for artists as a class of people.
In fact, it is notable that many artists’ foundations—the Warhol Foundation
, the Robert Rauschenberg Foundation
, and the Joan Mitchell Foundation
as notable examples—are significant funders of artists’ programs. According to the Warhol Foundation’s 2017 tax filings, the foundation has distributed an average of 4.88% of its endowment annually over the past five years. That is in keeping with the 5% foundation dispersal rate. One can have an opinion about whether and how other people give to charity, but one cannot specify that artists should be exempt from financial instruments, in this case resale royalties, that correctly encapsulate value they helped to create.
In the “other side” argument to Sprigman and Rub’s piece, Mark Waugh of DACS argues for the importance of resale royalties. DACS has distributed money to artists on the scale of a government agency. This funding of the arts is generative, in the way that successful entrepreneurs plough proceeds from one project into investment in the next. This is commendable. In the decade since the Artist’s Resale Right (ARR) was introduced in the United Kingdom in 2006, DACS has distributed over £65 million, including £10 million to 1,800 artists in 2017 alone. By that same token, Waugh observes no provable impact on art markets. DACS distributes sums of money that are deeply enabling to artists while also only constituting 0.64% of the U.K. art market. It is hard to see how anyone purchasing art notices the 0.64%.
As enabling as DACS’s distribution of resale royalties has been, our research has proposed a third path, that of privately retained equity. We model resale royalties and “retained equity” as property rights that can be traded anytime. (In practice, the European Union’s resale royalties legislation is structured as a surcharge rather than a property right
, and a property right is a more flexible and accurate tool. Fractional equity better represents the risks undertaken by artists and the value created by the work. At the same time, the perfect should not be the enemy of the good where support of the arts is concerned.)
It seems unlikely
that federal resale royalties legislation will pass in the United States. And, as Whitaker has previously written, the U.S. proposals have been flawed, and the European system suffers from a “cascade effect
,” in which the royalty is charged without a cost basis, meaning it can be charged over and over to different intermediaries in succession.
A privately managed system is more flexible. It appropriately allows for artist’s autonomy. It suits the American (and broader Anglo-Saxon) copyright system because it is based on economic incentives, not moral rights of the artist. From first principle, we believe that a lens of ownership—retained equity, property rights, artists’ autonomy—allows artists to structure their financial lives in ways that are generative, enabling, and respectful of the dignity and vulnerability of creative work.