Art Market
Charting the Art Adviser’s Rise in the Art World
By Don Thompson
Apr 17, 2017 8:12 pm
Portrait of Amy Cappellazzo and Allan Schwartzman of Art Agency, Partners, courtesy of Art Agency, Partners. Photo by Roe Etheridge.

Portrait of Amy Cappellazzo and Allan Schwartzman of Art Agency, Partners, courtesy of Art Agency, Partners. Photo by Roe Etheridge.

The following is an excerpt from Chapter 10 of  The Orange Balloon Dog: Bubbles, Turmoil and Avarice in the Contemporary Art Market, the latest book from economist and art market commentator Don Thompson, out now in Canada from Douglas & McIntyre and available in the U.S.on September 9th.

Amy Cappellazzo was for thirteen years Christie’s co-head of postwar and contemporary art, and a top dealmaker. In 2014 she left the auction house to become an art adviser. She thought it worthwhile to step back from the pinnacle of the art world for an undefined profession already populated with more people offering consulting services than the market seemed able or willing to support.

She wanted to be more than an adviser. “Auction houses can never fully represent a collector’s interests,” Cappellazzo was quoted in Vogue as saying. She continued, “What I want to do is build the best possible full-service business—not just one that makes the most money but one that can look after you the way Bessemer Trust or Guaranty Trust looked after your family.”

Cappellazzo wanted to perform some of the same functions as a sports agent: negotiate contracts and product endorsements, place art, market the artist and create a client brand. She would help manage public relations, including websites and Twitter accounts; arrange finances and retirement planning; and file taxes in the multiple jurisdictions in which artists work. Perhaps most important, she would communicate and negotiate issues of importance with dealers, collectors and museums, as sports agents do with team owners, managers and coaches.

The professional sports agent analogy is apt. Think about artists rather than of athletes in any description of the role of the sports agent and ask, “Would this model find acceptance in the art world, at least with artists?” It would accomplish one thing it does for athletes: free them to focus on what they do best. But if an agent could arrange shows and art fair appearances and negotiate private deals, would an established artist need a dealer? Could Cappellazzo persuade artists to try a new arrangement, to change the structure of the art market?

High-profile advisers lever their connections with other collectors, dealers and auction houses to locate work coming to market—or not on the market at all.

She graduated from New York University in 1989 and did graduate work in architecture at Pratt Institute. In 1995 she moved to Miami to work as a curator at Miami Dade College Museum of Art + Design. She wrote art criticism, then briefly became a traditional art adviser. She worked with Don and Mera Rubell in setting up their art foundation, then had a role in starting the Art Basel in Miami Beach.

In the late 1990s, Marc Porter of Christie’s made her an offer she couldn’t refuse. From 2001 she and Brett Gorvy ran the Postwar and Contemporary Art Department at the auction house. She became the public face of Christie’s contemporary art. Her high-profile clients included Daniel Loeb, Dakis Joannou and Marc Jacobs. In a 2006 interview she offered the notorious “town bully” observation about her work at Christie’s: “We’re the big-box retailer putting the mom-and-pops out of business.” In a later interview she said she worked directly with 666 clients. To some that sequence of sixes would seem ominous, but if she included herself (she is a collector), the figure would be 667.

In 2011 she withdrew from co-managing the department with Gorvy to focus on finding new sources of revenue. She negotiated Christie’s 2012 partnering with the Andy Warhol Foundation for the Visual Arts to sell the foundation’s remaining inventory of Warhol art. “We basically said, ‘We’re now representing artists’ estates.’” Christie’s then offered most of the Warhols online.

After resigning from Christie’s in 2014 she joined adviser Allan Schwartzman in Art Agency, Partners. Schwartzman was responsible for Bernardo Paz’s Brazilian art park Inhotim, where he serves as creative director. He also assembled major collections for Howard Rachofsky, Nicolas Berggruen and Penny Pritzker. This chapter could as readily have begun with Schwartzman’s role as an agent—except that the vision of a dramatically different model was first articulated by Cappellazzo.

Cappellazzo on occasion sounds like an investment banker. She cited Robert Rauschenberg as a profit possibility: “In the business world, you’d say Rauschenberg is an arbitrage buy right now, because [his] prices are so much lower than the potential value. His record at auction is about $14.5 million. Isn’t that scandalous?”

Cappellazzo wanted to perform some of the same functions as a sports agent.

Many advisers have more traditional practices. One is Annelien Bruins at Tang Art Advisory in New York, Miami, London and Hong Kong. She consults on transactions and manages collections. “We save our clients time and money by doing the legwork for them,” she has said, adding, “We keep up to date with artists, we source works for our clients, we perform price research and due diligence, we negotiate the transactions, and we have the works installed in our clients’ homes.” That is a pretty good description of what most art advisers do now. Tang’s fee structure is fairly traditional; for mid-level transactions, the firm charges a commission rate of 10 percent. For asset management there is a negotiated fee.

Another traditional adviser is Sandy Heller of Sanford Heller Art Advisory in New York. He is known for his work with Steven Cohen, Roman Abramovich and David Ganek. In 2006 he advised Cohen to purchase (from David Geffen) Willem de Kooning’s Woman III (1952–53), for the then-astonishing sum of $137.5 million. Heller called it “the most important postwar painting that is not in a museum.” He also negotiated Cohen’s 2007 loan to the Metropolitan Museum of Damien Hirst’s stuffed shark, The Physical Impossibility of Death in the Mind of Someone Living (1991).

Several other high-profile auction personnel have started advisory firms that might alter the traditional model. In 2012, Simon de Pury left Phillips New York auction house, where he was an auctioneer and part-owner, to form de Pury de Pury, an advisory and curating consultancy. (The second de Pury is his wife, Michaela.) In Germany, Matthias Arndt founded Arndt Art Agency in 2015 to manage artists’ careers and advise collectors and museums. Two others who founded firms offering private dealing and advisory services were Thomas Seydoux, who had managed Christie’s Impressionist and modern art department, and Stephane Connery, who had headed Sotheby’s private sales group.

High-profile advisers lever their connections with other collectors, dealers and auction houses to locate work coming to market—or not on the market at all. “Very sophisticated advisers will find you a [Jasper] Johns, they will find you a [Cy] Twombly … They’re very quickly turning into dealers,” collector Donald Marron has said. They also have the clout to do more in verifying authenticity. A seller may reveal the identity of past owners of a work to an adviser who agrees to keep the information confidential.

Some galleries attempt to “place” work with collectors they trust not to immediately flip the work at auction. Many galleries say they will refuse to deal with and will blackball buyers who acquire a work and then flip it at auction for a profit; this harms the careers of the artists involved. There are two exceptions to “blackball for flipping.” One is branded collectors too important to ignore. The second is important art advisers. The gallery is not willing to risk the future business they bring.

Advisers exploit another aspect of collector (and consumer) behaviour. When we are asked to choose among too many options for a product, we are sometimes overwhelmed and walk away. Collectors often face a “too much choice” situation at an auction preview or an art fair opening. Advisers say they never offer a collector more than three options for artwork at a time. “Sometimes less than three, never more.” We are prepared to choose among three, but have a hard time with twenty.

The richest 1 percent of Sotheby’s art customers purchase as much as the remaining 99 percent.

There are many new advisers who carry a lower industry profile than those listed above; they were wonderfully described in The Art Newspaper as young girls with Louboutins and a Gmail account. The influx is driven by the needs of two client groups. The first are those from the financial world and start-ups who are wealthy but super-busy and use intermediaries to do their search and negotiation. The second are the Russian oligarchs, Chinese industrialists and Emirati collectors who treat art as an investment or at least as an asset class. They are perceived to require the same professional advice on this opaque market as they would on a stock or real estate investment.

Advisers (including dealers) are perhaps best understood as helping collectors deal with the problem of information asymmetry. This is best illustrated with an example. Assume there are “great” Basquiat paintings that sell for $10 million (a huge underestimate, actually) and “ordinary” Basquiats that sell for $5 million (because even if ordinary, they are after all by Basquiat). If a collector can tell great from ordinary, no problem. If she cannot tell the difference, and the seller can, there is information asymmetry, and a problem. The collector might think she can hedge her potential loss by offering $7.5 million, but the seller will never sell at that price if the painting is great, only if it is ordinary. The seller will happily sell either a great or an ordinary for a $10-million bid.

So the collector finds it worth the cost of an adviser to reassure her about great and ordinary status; the adviser’s fee is less than the almost-certain loss. There is also huge potential for an intermediary to purchase an “ordinary” for $5 million, if the intermediary can persuade a potential purchaser that it is really a “great.” Or that there is potential for an über dealer or an auction house to brand the painting “great” based on personal or house reputation.

Some advisers are paid a flat fee, others are on retainer at an hourly rate, but most work on commission. Art writer Kenny Schachter says commissions on work above $20 million to $30 million are typically 2 to 4 percent of the purchase price. One higher agent fee became public as a consequence of the Bernie Madoff fraud trial. Ben Heller, who acted as an adviser to financier and collector J. Ezra Merkin (who had invested with Madoff), earned a $26.5-million fee in 2009 for negotiating the sale of the Merkin collection of Mark Rothko paintings to Qatar Museums. This represented about 8.5 percent of the reported acquisition price. With prices in the tens of millions of dollars for trophy art, any of these percentages can produce an exponential increase in income for former Christie’s or Sotheby’s specialists.

Another agent fee became public in court documents involving the sale in 2015 of Picasso’s Buste de Femme (Marie-Thérèse) (1931). There was controversy over ownership of the sculpture; one reported sale for €38 million ($42 million) was to Sheik Jassim bin Abdulaziz al-Thani, husband of Sheika al Mayassa bint Hamad bin Khalifa al-Thani of Qatar. The commission on that, paid to the now-dissolved art agency partnership Connery, Pissarro, Seydoux, was €4.5 million ($5.5 million), or 11.8 percent.

In this crowded field, Cappellazzo envisioned a full-service model for artists and dealers, museums and galleries, collectors and speculators, unlike anything that then existed. I describe her vision in the past tense, because as mentioned above, in a January 2016 move that surprised the auction world, Sotheby’s announced it had acquired her Art Agency, Partners as a wholly owned subsidiary of the auction house. There were tie-up contracts for Cappellazzo, Schwartzman and third partner Adam Chinn. Chinn is not from the art world; he is a co-founder of the investment bank Centerview Partners and a former partner at the law firm Wachtell, Lipton, Rosen & Katz.

The purchase amount was $85 million—with $50 million paid upfront, essentially as a signing and retention bonus. There are additional payments up to $35 million if financial targets are met over a five-year period. The shock aspect of the announcement involved the amount. Sotheby’s had just completed a round of buyouts in which about eighty people left the auction house. It was hard to understand how the house could make money on the purchase, given the huge upfront payment.

In a conference call with analysts and investors, Sotheby’s CEO Tad Smith was joined by Cappellazzo and Schwartzman. They said the acquisition was part of a strategy to increase Sotheby’s presence and revenue in advisory services, to expand its services in art consulting, private purchases, art-related estate planning, and art investment.

This was a bold approach, motivated by an art world where the richest 1 percent of Sotheby’s art customers purchase as much as the remaining 99 percent. It wasn’t clear how such fees would be received by a 1 percent that previously received services free from the auction house. How valuable the advice would be coming from advisers who are seen as biased toward transactions through Sotheby’s auctions and private dealing was also not obvious. Finally, Sotheby’s has upward of three hundred employees; the idea that the auction house did not already have the in-house skills to perform these functions well is telling.

There are two exceptions to “blackball for flipping.” One is branded collectors too important to ignore. The second is important art advisers.

AAP’s investment fund, which had raised $125 million and invested just over half that in artworks, was achieved in less than two years, and probably had made AAP the second-largest art investment fund in the world—an indication of Cappellazzo and Schwartzman’s connections and clout.

Although AAP would no longer offer full-service advising as an independent agency, other agencies were certain to try to fill the gap, particularly given the favourable response to Sotheby’s acquisition and because Art Agency is now out of the artist-representation field.

Dealers were understandably unenthused about Cappellazzo or anyone else taking on the role of advising their artists (or their collectors) on how to achieve career goals, and would be less happy if an auction house tried to. If a super-agent can provide these services to Jeff Koons, or even to established, mid-level artists, what remains for the traditional dealer? The über dealers—Gagosian or Pace or Zwirner or Hauser & Wirth—can all afford to lose an artist without threat to their individual galleries’ future.

The threat is greater when a mainstream dealer loses a mid-level successful artist. The profit model for the mainstream dealer is that for every ten new artists she represents, on average four will not be well received by collectors and will leave the gallery after one or two shows.

Three will show for a few years before dropping out. Two will have long, moderately profitable careers. At best, one will be well received. The one well-received artist has to generate enough profit to justify the dealer’s investment in the other nine. If that one artist moves to an adviser (or is poached by an über dealer), the mainstream gallery’s profit model is threatened.

The concern most often floated about advisers, and especially about the new model, is that they will also act as private dealers, recommend the work of artists that they represent, or sell work from their own inventory. When advisers also act as dealers (or in Cappellazzo’s case as an employee of an auction house), they transgress one of the rules of the Association of Professional Art Advisors. That involves avoiding the perception of possible conflict of interest.

The agent-who-is-also-a-dealer problem was the subject of one of the most talked-about art disputes of 2015, one that at the time of writing was being shopped as a movie. The case involved Yves Bouvier, a Swiss freeport warehouse owner and art adviser/dealer, and Dmitry Rybolovlev, a businessman from the Urals region of Russia and one of that country’s wealthiest persons.

Rybolovlev is almost a caricature of the popular image of a Russian oligarch living in the West—one reason why this saga might make a good movie. In recent years he purchased Donald Trump’s Palm Beach mansion through a limited liability company for $95 million, Sanford Weill’s Manhattan condo for $88 million, and then the Greek island of Skorpios from the Onassis family for an undisclosed amount. The latter two transactions were via a trust owned by his daughter Ekaterina. In 2016 he had the 61,000-square-foot Trump French provincial Palm Beach home—which he had never occupied—torn down. Over the same period, Rybolovlev’s former wife Elena was awarded a reported $4.5 billion after a seven-year divorce battle.

Using offshore companies, Rybolovlev spent $2 billion over an eight-year period to purchase almost forty works of art through Bouvier—by Picasso, Modigliani, Rothko, Leonardo da Vinci, Gauguin, Matisse, and Rodin. The Rybolovlev–Bouvier feud that ensued has several components. One

is the accusation by the Rybolovlev’s family trust that Bouvier, as part of assisting in the acquisition of art, overcharged by just over $1 billion for the purchases. Read that again and be awed: a collector sued because he was overcharged $1 billion on $2 billion of art purchases.

Rybolovlev says he believed Bouvier was acting as an agent in the transactions, negotiating the best price and charging a 2-percent fee. Bouvier claimed it should have been clear he was functioning as a private dealer, purchasing art and reselling to Rybolovlev for whatever he could negotiate.

Another allegation is that Bouvier misled Rybolovlev about the acquisition cost of a Modigliani painting for which Rybolovlev was charged $118 million. Rybolovlev said that he encountered art adviser Sandy Heller over lunch during a Caribbean vacation. He asked Heller the normal opening question in such an encounter, “What was the last lot you sold?” Heller mentioned the Modigliani. Rybolovlev asked the selling price, and after checking for permission with his principal, Steve Cohen, Heller responded that it was $93.5 million. This implied that Bouvier had taken the difference, $24 million, as an undisclosed profit. In January 2015, Rybolovlev filed a criminal complaint in Monaco, asserting fraud and other misdeeds; the case was ongoing as this was written.

“I don’t think you can eliminate conflicts in the art world, all you can do is to be transparent.”

Less dramatic than fraud is the concern that an adviser might take two fees on arranging a sale, one from the client and another from the seller. Dealers reveal that agents previously unknown to them call asking for assurance that a fee will be paid if they introduce a client. Unspoken is the outcome: no prior fee arrangement, no client. Some galleries agree in the hope of reaching new collectors. Nicholas Logsdail takes an extreme position. He requires any agents requesting fees to sign an undertaking that they have informed their clients of the fees and the amount.

If advisers don’t disclose a third-party fee to clients—with or without a written undertaking to do so—they may have breached their fiduciary duty to reveal a possible conflict of interest. Fiduciary duty requires the dealer to act solely in the other party’s interests. Auction houses and galleries are fiduciaries to their consignors (but not to buyers). Primary dealers are fiduciaries to their artists. Museum directors and trustees are fiduciaries to their institutions.

Annelien Bruins says of her approach, “[We] never get remunerated by both parties of one transaction … We don’t operate on two sides of one transaction.” If both parties to a transaction were clients, “We would ensure that one of our clients is referred to a colleague art advisor and/or an art lawyer, and we would be completely open to both of our clients about the situation.”

Amy Cappellazzo was not a member of the art advisers’ association; she said she disagreed with the concern about owning art for resale. She insists one can both advise and own. “I don’t think you can eliminate conflicts in the art world, all you can do is to be transparent.” Presumably this is the position she is taking at Sotheby’s. [...]


Don Thompson is an economist, art market commentator, and author of “The Orange Balloon Dog,” “The Supermodel and the Brillo Box,” and “The $12 Million Stuffed Shark.”