Some Speculative Thoughts Concerning Collectors
Overview
The sector of the market that the gallery should consider is the one comprising people with at least £10K in disposable income. This sector is fairly small in percentage terms, perhaps only a few percent of the UK population. In absolute numbers, this sector may contain about 30,000 individuals because the average disposable income in the UK is only £2K per annum.
The rough calculation is that about 33 million people in the UK are in employment and so about 300K of these people may have a disposable income of at least £10K. Of these, perhaps 10% might be persuaded to enter the art market on their own terms (without having to suffer the disdain of the “cognoscenti”).
Some collectors will buy art for cultural reasons but the majority will be interested in its investment potential. Thus the objective of the gallery should be to promote both the civilizing potential of art as well as its capacity to store value if a few simple principles are followed.
A Strategy for Collecting
The deciding factor for most collectors is obviously financial. Established galleries typically have a list of wealthy collectors whom they cultivate and guide to some extent. There then exists a symbiotic relationship between the art dealer, artist and collector.
If an artist achieves fame or notoriety by some independent means then agents, art dealers and collectors will be keen to associate with that artist. Equally, if a wealthy collector acquires the work of an otherwise unknown artist then that artist is elevated in the eyes of galleries and art dealers (as well as the general public). Both of these aspects of the art market depend on patronage by people who have managed to place themselves in positions of influence.
The measure of value in modern art is, of course, the price tag and so scarcity must be created, that is, the supply and demand must be controlled. The art market has been very successful in achieving this by restricting (according to fame and wealth) the class of persons eligible to acquire art. This obviously leaves the majority of artists and potential collectors out in the cold.
The task at hand for Gallery Renaissance is to engage with the pool of excluded collectors and neglected artists.
As far as the collector is concerned, the primary attraction must be the ease with which they can assemble a collection. Thus it is imperative that a pricing mechanism must be available which will allow them to enter the art market with a minimum of fuss.
In order to allow a collector with £10K to enter the market with confidence, it is necessary to ensure that not all the resources of the collector are exhausted in one or two purchases. With £10K, the collector should be able to put together a representative collection in order to arrive at considered judgment of where that collector’s maturer tastes lie.
To aid in this development of the collector’s engagement with art, the gallery should provide facilities for buying and selling smart (long-dated) options on works of art. This must, of course, be done with the full consent of artists.
For instance, assume that a piece of art is priced at £1K on a particular day and that the annualized interest rate is 5%. At the expiration of one year, the fair value of the same piece is £1.05K. With the agreement of the artist, a possible options contract would require the payment of £300 (25% of the price plus £50 representing future value). Then the purchaser of this contact will be required to pay £700 in a year’s time to acquire title to the piece. Alternatively, the purchaser may sell on the contract if the piece increases in value or let the contract expire if the collector loses interest in it.
In order to profit from the options contract, the collector (with the help of the artist and the gallery) must promote the piece via social media. Thus the collector should display images and organize social events centred on the art works that he or she wishes to promote.
If the piece of art in question is by a graduate of a recognized art school then it automatically has some intrinsic value by virtue of the official stamp of approval represented by the degree. Other artists do not enjoy the same advantage and different strategies have to be adopted.
Thus, having bought an option, the collector and gallery should invite the artist in question to speak about the creative process, the philosophy underlying the piece, etc. All these efforts should be available on social media and the aim will be to gather a community of like-minded collectors. Further, the members of this community should be attractive enough to induce others to join and participate in the art market.
With enough publicity, it should be possible to create greater demand for the collector’s options purchases (before expiration). Under these circumstances, it is possible that the price of the art work increases and at this point, the collector may choose to sell on the options contract. On the other hand, the perceived increase in value could lead the collector to take up the option and acquire the piece for his or her own collection.
The gallery should provide the exchange on which these options contracts are traded. All these contracts must be tokenized and recorded on a blockchain. The remaining problem is how to make smart contracts flexible enough in order to tokenize derivative investments like options.