Artist resale royalties are back in the news
. In July, a U.S. court ruled that the California Resale Royalties Act
, which grants visual artists 5% of the proceeds on the resale of their works, is (with minor exceptions) legally unenforceable
. The decision
might provoke renewed effort in Congress to enact a similar scheme on the national level. We hope it will not.
Some have suggested
that resale royalties laws benefit artists by making rich dealers, resellers, and big auction houses pay their fair share. We suspect that view is wrong. There are a lot of problems with resale royalties schemes, and we have addressed some of them at length elsewhere
. Here, we focus on one overriding difficulty: Resale royalties take real money from the entire art world, including young and struggling artists, and transfer most of it to a tiny group of famous and rich super-artists—the artistic one-percenters
. New data we have collected shows this clearly.
To see how, it’s necessary to distinguish between the primary market, in which artworks are first sold, and the secondary market, in which they are re-sold. Many buyers—especially wealthy people who purchase, in part, as speculative investment—will take into account the expected value of the work in the secondary market in determining what they are willing to pay in the primary market. For all of these buyers who are thinking ahead, resale royalties reduce the initial value of the work because the buyer will eventually be required, upon resale, to turn over to the artist some percentage of the resale price. As a consequence, sale prices in the primary market are likely to fall on average and over time.
We expect that if resale royalties become the law, art dealers will also act in a way that reflects this new reality. Dealers are paid to understand the market; if resale royalties are the law, dealers will realize that buyers’ willingness to pay will drop, and they will be forced to lower prices in the primary art market.
Who loses? The sellers in the primary market, a.k.a. practically all artists—both young and old, newcomers and the well-established, and everyone in between. That is bad news for artists. And the situation will get worse if the United States passes a resale royalties law while other countries, especially China (by some measures the second largest
contemporary art market in the world), do not. In that case, some—maybe many—high-priced art auctions will move from the U.S. to those other countries. The internet will make that move easy.
But maybe the costs are justified? Maybe artists would collect enough resale royalties to justify the harm in the primary market for their works? Our data (as well as common sense) suggests that they will not. The data shows that the likely beneficiaries in the resale market will be, almost exclusively, the super-stars of the art world. The other 99% of artists will be left out in the cold.
We collected data representing all sales at public auctions conducted by Sotheby’s and Christie’s during March and April 2018. We examined how resale royalties from those sales would have been distributed if the so-called ART Act
, the last bill attempting to enact resale royalties on a national level, was in place. The results are telling.
If the ART Act had been law, 683 transactions by Sotheby’s and Christie’s in those two months might have been subject to resale royalties payments. Those sales were worth $56.8 million and would have generated royalty payments totaling over $2.3 million. A nice sum, but for whom?
For the rich, and, in particular, for the rich and dead. Most of the royalties (57%) would have been paid to the estates of deceased artists, typically very famous ones. That list is dominated by some of the most prominent artists of the 20th century: artists who, on top of being critical and popular favorites, were wealthy in their lifetimes and left fortunes to their heirs.
The biggest earner (by far) in our data is
—or, more accurately, his heir, the Andy Warhol Foundation. Sotheby’s and Christie’s sold 56 Warhol works during the two-month period; those sales would have generated $308,369 in royalties to the Foundation had the ART Act been in place. That is more than 13% of all royalties generated—and a pretty nice haul for two months’ work (if you can call it that).
It’s not like Warhol’s heirs need the money: When the artist died in 1987, he left his heirs more than $200 million
, and the Warhol Foundation is currently sitting on assets worth more than $350 million
. Other top royalty-earners, such as the heirs of
, fall into the same category. All would have collected fat checks that they don’t really need. The living artists on the list are similarly well-known and very rich: The highest-earning would have been the 88-year-old
, who would have added $86,075 to a net worth already estimated at $300 million
So it’s clear that top-tier artists and their heirs make out like bandits under a resale royalty scheme. It’s also clear who doesn’t: young artists. There is not a single living artist in his or her twenties in our data who receives a resale payout. Total royalties for living artists in their thirties is only $6,813, or 0.29% of all royalties. Even artists in their forties are largely shut out. The top earner under the age of 50, the 49-year-old
, would have made just $5,125. In fact, all artists under 50, together, would have made only $52,906 in those two months, which is just 2.28% of all royalties, and about one-sixth of what the Andy Warhol Foundation alone would have reaped.
To be sure, the auction market represents around half of the overall art market; 53% of transactions in 2017 took place in the private dealer market
, according to UBS and Art Basel’s The Art Market | 2018 report. However, even if the ART Act was the law, resale royalties would have been paid only for resales at public auctions.
So here’s the upshot: in a resale royalties scheme, 99% of artists will likely lose, so that the top 1% can win. This reverse-Robin Hood story is not some bug in the system -- it is its main feature. One can come up with a mechanism
that would transfer money from relatively rich resellers to poor and struggling artists, but this is not what resale royalties schemes are designed to do. Resale royalties schemes are a regressive tax: they take from the poor and give to the rich. It’s no surprise that rich artists and their lawyers, agents, and heirs favor resale royalties laws. But the rest of the art world should not have to pay the price for it.