The Frenzy : Why does a contemporary painting sell for more than $1 million? What makes this crazy art market tick?

With every crack of the auctioneer’s gavel, the contemporary art market seems to be born anew. Here’s a Richard Diebenkorn for $1.43 million, a David Hockney for $2.2 million, a Franz Kline for $2.86 million, an Andy Warhol for $4.07 million, a Francis Bacon for $6.27 million, a Jackson Pollock for $11.55 million--and these are just six of 42 contemporary artists records set last month in New York.

Where did these prices come from? What’s driving the demand?

Wasn’t it only yesterday that the private $1-million sale of Jasper Johns’ “Three Flags” to three supporters of the Whitney Museum of American Art caused a sensation in the art world?

Well, actually it was 1980--less than a decade ago, but during that time Johns’ work has soared to $17 million. And since 1983, when Willem de Kooning’s “Two Women” sold for $1.21 million and became the first contemporary artwork to reach the million-dollar mark in a public auction, 70 contemporary artworks have sold at auction for more than $1 million apiece. The rise in the last two years is staggering: Only two contemporary works commanded more than $1 million at auction in 1983; there was one in 1984, two in 1985, four in 1986, nine in 1987. Then the total jumped to 29 in 1988 and 23 in the first half of this year.

Those figures pale in comparison to auction prices for Impressionist and modern art--95 Impressionist and modern works brought more than $1 million apiece last month in a three-day round of sales in New York--but the rise of contemporary art is astonishing because the test of time traditionally required to establish value has been dramatically compressed.

Charts of the top 20 art auction prices that used to be the exclusive province of Old Masters, Impressionists and modern artists now list one living artist, Jasper Johns, and Abstract Expressionist Jackson Pollock (who died in 1956), along with Impressionist favorites Van Gogh, Renoir and Monet and the modern giant, Picasso. Until May 31, when the J. Paul Getty Museum bought a Pontormo portrait for $35.2 million, Old Masters had been bumped off the charts.

While baffled observers recognize the smell of money, they are left with basic questions about the market and the forces that are fueling it. A series of interviews with dealers, art consultants, market advisers and auction house officials has produced the following observations and speculations on these queries:

--How big is the contemporary art boom?

It’s impossible to say except in relative terms. Estimates of the entire art market run around a few billion dollars worldwide, but contemporary art’s portion of that has not been established. No agency keeps track of private sales, which account for the lion’s share of the market.

Vastly increased numbers of collectors, galleries, museums and international art fairs indicate explosive growth, however. The best guess of Gilbert S. Edelson, administrative vice president-counsel of the Art Dealers Assn. of America, is that “the number of galleries in Soho has tripled in the last five years and easily doubled along 57th Street” in New York. In Southern California, new communities of galleries have sprung up on La Brea Avenue and more recently in Santa Monica.

Rising prices in public sales are a clear indicator of the boom. A list of records from Sotheby’s May 2 contemporary sale, for example, presents astonishing jumps in price (without accounting for differences in quality) in 27 artists’ work. Claes Oldenburg’s record shot from $203,500 to $495,000; Francis Bacon’s from $1.76 million to $6.27 million; Philip Guston’s from $220,000 to $528,000; Lucas Samaras from $60,500 to $132,000.

While contemporary art hasn’t soared to the extremes of Impressionism--and the $17-million Johns sold last November is seen as something of an aberration--auction house figures indicate that contemporary art has outpaced the market as a whole. In the last four years, Christie’s international sales have increased more than threefold (from $433 million in 1984 to $1.41 billion in 1988) while the firm’s New York contemporary sales have multiplied nearly five times (from $14 million in 1984 to $67.69 million in 1988). This year’s May sale of contemporary art totalled $40.71 million, nearly double the May 1988 total of $22.6 million.

The escalation in contemporary art sales at Sotheby’s is even more dramatic. Like Christie’s, Sotheby’s worldwide sales have tripled in four years (from $586 million in 1984 to $1.82 billion in 1988), but sales of contemporary art have exploded more than nine times (from $13.12 million in 1984 to $124.9 million in 1988). With contemporary sales at Sotheby’s already reaching $108 million in the first half of this year, 1989 promises to bring another massive increase.

--How many artists’ works are affected?

Only a few command the stunning prices that appear in the press, and the immediate benefits of those public sales go to collectors. The 70, $1-million-plus contemporary artworks sold at auction include nine each by Johns, Pollock and Franz Kline, eight by De Kooning, six by Bacon, five each by Marc Rothko and Warhol. Other members of the million-dollar club are Americans Robert Rauschenberg, Barnett Newman, James Rosenquist, David Smith, Roy Lichtenstein, Morris Louis, Frank Stella, Sam Francis, David Hockney, Richard Diebenkorn, French artists Yves Klein and Jean-Paul Riopelle, and Korean Nam June Paik. The 10 most expensive contemporary works to sell at auction are the work of only four artists (Johns, Pollock, Rauschenberg and Bacon); the top 20 list includes only three additional names (Warhol, Kline and De Kooning).

“Great, great works of art in the modern and contemporary field have gone up 10 times in value in the last 10 years” and in the case of Warhol 20 times, but “mediocre ones have stayed about the same,” Jeffrey Deitch said, during an interview in New York. A Manhattan-based art adviser to an international clientele, Deitch has snagged record-setting works including Johns’ “Diver” in 1987 for $4.18 million and Pollock’s “Number 8, 1950” in May for $11.55 million.

Opinions vary about the trickle-down effect of spectacular sales. “The lower end of the market is growing faster than the upper end,” Christopher Burge, president of Christie’s, contended following the auction house’s successful May sale of contemporary art. Burge’s reading is backed up by escalating prices in the five-and six-figure range for artists who haven’t achieved the notice of Johns. A 1986 painting by Ross Bleckner that originally sold for about $30,000, for example, caused a stir last year when it brought $187,000 at auction. The $176,000 sale of Ed Ruscha’s “Falling Chiclets” last November seemed to signal a new level of popularity for the Los Angeles artist. Collectors are reportedly fighting over his new works, and a 1981 canvas called “The Future” brought $209,000 at Sotheby’s in May.

Exhibitions and accompanying publicity can have a big impact on sales. A recent traveling show of Joan Mitchell’s paintings probably helped to boost her record from $198,000 to $462,000 last month. Helen Frankenthaler’s upcoming retrospective at the Museum of Modern Art surely didn’t hurt the May sale of “Cravat” for $220,000, twice its estimate and about double the price of her new works sold in galleries.

As Edelson notes, it’s “the good news” about art sales that gets published, however. The majority of artists still find it difficult to make a living from their work, and some dealers question auction spin-off. “The only things that sell well (in galleries) are the two extremes--blue-chip art and works by emerging artists, which cost nothing,” Los Angeles dealer Marc Richards said. “A mid-career artist is a problem for most galleries.”

--Where does the money come from?

Dealers say that 25 or 30 major American collectors and an equal number of Europeans, such as Charles Saatchi in London, Eli Broad and Douglas Cramer in Los Angeles, and others who typically sit on the boards of major museums, still do much of the buying as they have in the past.

But “new money” from successful American business executives as well as international buyers--noteably the Japanese--has altered the picture.

Of the American collectors, no clear collective profile emerges, but many of these new collectors are said to have done well in business and to have been drawn to the art world out of curiosity, genuine interest in art or a search for prestige and glamour.

They initially have “all kinds of motives,” New York dealer Andre Emmerich said at a recent art market conference in Manhattan. But those motives become irrelevant once they reach a “meaningful threshold” of financial commitment. Then they begin to “look hard, read, go to museums and educate themselves,” and the most dedicated become “quite formidable,” he said.

“Traditionally the typical collector was an intellectual New York psychiatrist or a low-key New York intellectual with a little money from the family,” Deitch said, but now the prototype has changed to “an active entrepreneur, an executive who is a creative person in his own field.” These people travel widely and like to take risks. They put a great deal of time into learning about art--reading, going to lectures, following the international circuit of art fairs and exhibitions. “Some of them know as much about art as critics and curators,” he said.

Privately some dealers complain that many collectors simply follow the pack and form interchangeable collections. Others collectors become enamored with artists who are unlikely to amount to anything, dealers say.

“The contemporary art market is a different world from the other part of the market. It’s a chancy game in a sense because we’re still making judgments about history.” The people involved are those who are “ready and willing to have a go at it, and if it doesn’t work out, tough luck,” Burge said.

Paris dealer Georges Lavrov has a different opinion. “People who collect according to their own taste are adventurous,” he said, during an interview in his gallery near the Georges Pompidou Center. “But the contemporary market is more subject to hype and fashion than any other field.

“To put together a Van Gogh exhibition takes years and millions of dollars, but to promote Jeff Koons only requires 15 friends (in the right places)--a good New York dealer, an art editor and so on. I’m not saying the market is 90% controllable, but it’s 20% controllable and that’s a lot,” Lavrov said.

Foreign money also feeds the American contemporary art market. At big-ticket New York auctions, one hears Japanese, French, German and Italian spoken by active participants, and bidding is recorded on electronic boards in six currencies.

The Japanese, who have had an enormous impact on the Impressionist market, are beginning to buy contemporary art in a big way. Fujii Gallery of Tokyo has paid top prices for works at auction, most recently $4.07 million for Warhol’s “Shot Red Marilyn” and $2.75 million for Kline’s “August Day.” Though the Japanese reputedly buy only name artists, that stereotype is beginning to break down, according to Deitch. “I meet young Japanese dealers and collectors who are very aware and plugged in. The galleries in Soho are full of young Japanese who are really looking,” he said.

Another, somewhat controversial source of cash for contemporary art comes from the auction houses themselves. Sotheby’s Financial Services, Inc. in New York, for example, offers art equity loans, providing one-year financing of up to 70% of the purchase price of items bought at the firm’s New York auctions. Sotheby’s clients also can get cash on consignment of works for sale, art equity loans secured by artworks that are not for sale and trade-in financing for purchase of art at auction.

As Los Angeles dealer Peter Goulds says, “Sotheby’s has introduced a whole new layer of business into auctions.” While some market advisers think the improved liquidity of art has broadened the market in a beneficial way, others fear that inflated prices are the inevitable result of easy money and that such financing invites a crash. B. C. Gardener’s Art & Finance column in the May issue of Art & Auction warns, “I am a bit worried that this may be somewhat like giving growth hormones to a teen-ager. It has always been a concern that the power and magnitude of institutional funding would upset the delicate balance on which so many of the individual art markets rest.”

Skeptical observers in the museum field ask just how liquid a $53.9-million Van Gogh or a $17-million Johns is if a collector needs to cash in on a painting. Such prices always depend on competition between two or more bidders.

“Is the force of the market determined by paddle or real critical values?” Goulds asked. Many dealers ask similar questions, insisting that the auctions simply confuse the market by promoting an artificial layer of prices--the likes of which they can’t possibly charge in their galleries.

--Has the art market changed its personality in the midst of the boom?

Dealers agree that the market is more of a business now. “It has lost its marginal quality and become like real estate, where people put deals together without using their own money. It’s less emotional, more methodical; less private, more public,” Lavrov said.

It’s also more competitive, Los Angeles dealer Daniel Weinberg said. Dealers compete against each other, but so do collectors. A dealer’s responsibility is to place the work well, but “there’s no shortage of good collectors who want the work,” he said.

Another point of resounding agreement is that what was once an essentially American game is now international. Art is shown farther from home than it was a few years ago, contemporary collections have taken on an increasingly international flavor and collectors travel widely and often. “We used to see them once a year. Now it’s four or five times a year,” Lavrov said.

Taking a historical view of the change, Goulds said, “In postwar years through the late ‘50s, European collectors purchased American art, but as American art became more conceptual and theoretically-based, Europeans discovered their own art. In the ‘70s, Europeans started to focus on the work of their own country, to support it and exhibit it.

“American dealers realized that a large portion of their clients were no longer buying the same artists, so they started to show art from Europe. This has created in Europe a real confidence in the ‘80s. Now artists in their thirties and forties are supported by an international audience, and Americans are buying internationally.”

About 40% of Goulds’ business at L.A. Louver comes from outside Southern California and 25% of that is foreign, Goulds said. He estimates that 35% of the exhibitions in his gallery in Venice are from foreign countries. This fall Goulds plans to open a gallery in New York, in part to have a closer connection to Europe.

“The build-up of the market in Europe is very strong. I just came back from London and I saw a change,” said dealer Pat Faure, of Asher/Faure gallery in West Hollywood. “There used to be such an anxiety (on the part of English artists) to show here because they could sell, but now they are more stand-offish. They have more opportunities at home and in Europe.”

Faure attributes much of the change to communication. “The information is so much better now. We get Artscribe (from England) and Flash Art (from Italy) and the Europeans get our stuff,” she said.

Another change--one that is generally greeted with hostility--is the increasingly speculative aspect of the market. Some dealers say they take care to place their artists’ work in good collections, not only for the prestige and to be sure the works are appreciated but so that they won’t be tossed back out into the market.

“I think there should be a moratorium before a work is allowed to come to auction,” Goulds said. “You see things turned over within 18 months. What kind of buyer does that?”

Wildly successful auctions probably have caused a surge in buying for investment, but investment is generally a secondary consideration, according to Emmerich. “People don’t buy art like stocks, bonds or real estate. It’s more like a second home. No one says, ‘Buy me a million-dollar artwork.’ They want to like it.”

--What accounts for the boom?

In addition to new sources of revenue and a trend toward speculation, market observers say that growth is largely the result of contemporary art’s high profile, brought about the auction houses’ aggressive marketing techniques and increased media coverage. Trade magazines publish art criticism, art-world news, occasional investigative reports and profiles of artists. Many newspapers and general interest magazines have launched art and auction coverage or increased it in the past few years, and hot artists are treated like movie stars.

--What’s the attraction of contemporary art?

Though auctions might suggest otherwise, the initial appeal for many collectors is that contemporary art is affordable and available. Old Master dealer Richard Feigen said his problem is not selling art but finding enough of it to sell. Contemporary dealers, on the other hand, compete for the top living artists but they don’t have to worry about a finite supply of art. Those who deal with lesser known figures are inundated with slides and resumes, and new artists pop up by the dozen every season.

“There’s something very interesting about things that are made in your time. They are involved with the ideas we are thinking about and talking about,” Faure said, offering another reason for contemporary art’s popularity.

Deitch agreed that “art itself gets people interested,” then suggested another motivation: “By being involved with art, people like you and me can meet the biggest names in business and, in Europe, the top people in government and politics. The art market is where it all converges.”

The Hottest Properties

These 10 artists have grossed the highest of million-dollar-plus contemporary artworks at auction. The figures indicate the number of the artists’ works that have sold for $1 million or more and the total value of these works sold at auction since 1983, when Willem de Kooning’s “Two Women” brought $1.21 million and became the first contemporary artwork to be auctioned for more than $1 million. --From Sotheby’s, Christie’s auction records

1. JASPER JOHNS: 9 works $45,705,000.

2. JACKSON POLLOCK: 9 works $37,510,000

3. FRANCIS BACON: 6 works $18,700,000

4. FRANZ KLINE: 9 works $17,162,000

5. WILLEM de KOONING: 8 works $16,005,000

6. ANDY WARHOL: 5 works $12,017,500

7. ROBERT RAUSCHENBERG: 3 works $11,825,00

8. MARK ROTHKO: 5 works $9,955,000

9. ROY LICHTENSTEIN: 3 works $4,422,000

10. BARNETT NEWMAN: 2 works $3,245,000