It’s not easy to blend into the background at an exhibition of minimalist art, but Damien Hirst is somehow succeeding. On a rainy night back in January, a fashionable throng circulates through the chilly Gagosian Gallery in Manhattan, glancing at the walls—hung with an array of Hirst’s “spot” paintings, patterned with grids of colorful dots—while scanning the cavernous space for a glimpse of the artist. One guy waves around a book of the star’s work, showing off a just-bestowed autograph. When a security guard is asked where he last saw Hirst, he says: “Check the gift shop.”
It’s a suitable destination for an artist whose great subject is the commercialization of his own genius. Hirst once said that it “makes me feel alive” when people buy his spot-themed wallpaper. There’s some in the store, as well as a skateboard deck ($735), coffee mug ($28), and credit-card holder ($8). “I think becoming a brand name,” Hirst told the Independent in 2000, “is a really important part of life.”
Now 47, Hirst persuaded buyers to pay dearly for his provocations: art made out of cigarette butts and vivisected animals, even a human skull cast in platinum and adorned with diamonds. His most famous piece, The Physical Impossibility of Death in the Mind of Someone Living—a tiger shark suspended in formaldehyde—sold to billionaire hedge fund manager Steve Cohen for a reported $12 million. During the 2000s, his work found particular favor with art investors who prized it as much for its appreciating value as its aesthetics.
Hirst’s work was in such demand, he relied on teams of assistants to produce it, working with varied product lines in the manner of a fashion designer. The runway items, like the shark, enhanced the value of the more mass-produced items, like the spot paintings. Hirst’s devotees credit him with clever, Warhol-esque subversion. But Andy Warhol never received more than $50,000 for a painting during his lifetime, while Hirst has profited handsomely from his artistic statements. London’s Sunday Times estimates his fortune at around $350 million, making him the richest artist in the world.
The January opening, billed as “The Complete Spot Paintings,” is the work of Larry Gagosian, Hirst’s powerful art dealer, who’s staging the exhibition simultaneously at his 11 galleries around the world. Hirst finally resurfaces at another of Gagosian’s New York locations. An impish man, he wears a black suit, an untucked shirt, and many skull rings, and is gamely posing for pictures with a swarm of admirers. An attractive young woman walks up, hands over her camera, and scurries toward Hirst. He grins and shouts, in his yobbish accent, “Who are these people?”
For all his celebrity, Hirst’s stock in the art market has experienced a stunning deflation. According to data compiled by the firm Artnet, Hirst works acquired during his commercial peak, between 2005 and 2008, have since resold at an average loss of 30 percent. And that probably understates the decline—judging from the dropoff in sales volume, collectors aren’t bringing their big-ticket Hirsts to market. A third of the more than 1,700 Hirst pieces offered at auctions since 2009 have failed to sell at all—they’ve been “burned,” in the terminology of the art world. “He has way underperformed,” says Michael Moses, a retired New York University business professor who maintains a financial index for art. “He has lots and lots of negative returns.”
Hirst’s crash is all the more perplexing because it comes at a time when the contemporary art market has sharply rebounded, with auctions pulling in proceeds that rival the giddiest pre-recession highs. And it has continued through what would appear to be a year of accomplishments for Hirst. Following the spot exhibition, there was a retrospective at the Tate Modern, which drew record crowds. For the London Olympics, Hirst designed a stadium floor that looked like one of his signature “spin” paintings—a woozy Union Jack.
Hirst declined interview requests, as did Gagosian. James Kelly, chief executive of Hirst’s private company Science Ltd., says his boss “has transcended all confines of the art world” and is unconcerned about the auction results. “Certain artworks that come to auction are being priced, one could say, more realistically at today’s values,” Kelly says. “However, the long-term view is that prices for Damien’s work will be strong.”
Hirst’s naysayers doubt that. They trace his fall to a $200 million auction staged in 2008, on the day Lehman Brothers collapsed. Hirst sold hundreds of works directly to bidders, defying the custom of restricting supply. “Hirst screwed with his market, and it came back to bite him,” says Michael Plummer, principal of the investment advisory firm Artvest Partners. “He broke the economic rules of the industry.”
In mid-November, Hirst’s current place in the market is on display at the New York showroom of Sotheby’s (BID), which is holding its biannual evening auction of contemporary art. The centerpiece, a monumental Rothko, is surrounded by paintings from Jackson Pollock, Warhol, and other modern masters. “Here’s the real man of the moment,” Dan Abernethy, a Sotheby’s spokesman, says, gliding toward an opalescent abstract by the German painter Gerhard Richter. In October, Eric Clapton sold a similar Richter for $34 million at auction, a record for a living artist.
In a rear corner, behind an enormous fiberglass dog by Yoshitomo Nara, is Hirst’s lone entry in the auction. It’s a work called Sanctimony, part of his series of “butterfly” paintings, made by covering a canvas with household paint and affixing hundreds of wings. The effect is morbidly beautiful: The torn wings in blue, yellow, and monarch patterns play off against the turquoise background in kaleidoscopic fashion, evoking the rose window of a cathedral. To fully take in the painting, I try to back up, but bump into the rear end of Nara’s dog statue.
Hirst has little direct financial stake in the price of Sanctimony. There’s a difference between works that artists sell themselves, into the “primary market,” and the secondary trade among collectors, where the real gains happen. Nonetheless, artists care about secondary market prices, because they serve as a signal of broader importance. History offers many examples of artists who were elevated and later discarded by fickle collectors. In the 1980s there was Julian Schnabel, who cut a brash swath through the New York scene, making paintings out of broken plates and comparing himself to Picasso. His bubble burst during the 1990s recession. Today, Schnabel’s prices rarely exceed $500,000, and he’s known mostly as a filmmaker.
It’s too soon to say if Hirst is on a similar path. Critics have long been divided over the merits of his work, but even his detractors acknowledge that it defined an era. A product of working-class Leeds, Hirst made his name when he was still a student, as curator of a landmark show of work by a group known as the “Young British Artists.” He went on to create some of the most identifiable images of the last two decades, building a tabloid reputation for boozy antics.
“Great artists, they always go up to a peak, and then they go down to a very low low,” says collector Alberto Mugrabi. “I feel that Damien is one of the most influential artists of our time.” Hirst may care little about critics, but he knows collectors have great power. Advertising executive Charles Saatchi was an early patron, and in recent years, Mugrabi and his family have played a crucial supporting role. Mugrabi isn’t merely an art lover; he’s called his family “market makers.” His father, Jose, who made a fortune in the Colombian garment business, started collecting Warhols soon after the artist’s death, when his most expensive work commanded six figures. He continued buying them on the cheap through the downturn of the 1990s, and the Mugrabis now own the largest Warhol trove in private hands. They’ve followed a similar strategy with Hirst, amassing more than 100 pieces.
“Collectors have to learn to buy art with their eyes,” Mugrabi says, “not their ears.” An olive-skinned international bon vivant, he’s sitting in his Park Avenue office—a Warhol Blue Jackie sits propped against the wall behind his desk—and showing off a desktop picture on his computer screen: four Hirst sharks, suspended in adjoining tanks. “What’s more amazing than that?” he asks.
When asked what the piece is called, Mugrabi shuffles some papers, racks his brain, but the name won’t come to him. Finally, he yells to his secretary in an adjoining room: “Liz, what’s the name of the shark?”
“Theology, Philosophy, Medicine, Justice,” she shouts back.
You can hardly blame Mugrabi for letting it slip his mind. Since he acquired the piece in 2008, he’s rarely seen it. While his family keeps a few pieces around the office—one of the artist’s glass medicine cabinets, a bull’s heart impaled on a knife and encased in a transparent box—most of their Hirsts are stored in warehouses in Newark, N.J., and Switzerland, where the animals are removed from their tanks and refrigerated. Another installation includes 30 sheep, two sides of beef, a string of sausages, an umbrella, and a dead white dove. “Just to install a piece is a lot of money,” Mugrabi says.
Ultimately, Mugrabi is investing to make a profit. He’s trying to sell the shark, for instance, and says he has a good offer. But he’s in a tough spot: Like any major art collector, he has to protect the value of his holdings. That means he must prop up Hirst by paying—perhaps overpaying—at auction. Mugrabi says he thinks the acquisition strategy will pay off, as his father’s Warhol investment did. He brings up recently deceased art critic Robert Hughes, who once interviewed him and called Hirst’s art “a cruddy game for the self-aggrandizement of the rich and the ignorant.”
“In another year, nobody will talk about this man anymore,” Mugrabi says of Hughes. “In 2,000 years, Hirst will still be in people’s vocabulary.”
Mugrabi pulls up the auction listing for Sanctimony on the Sotheby’s website. “This painting at the height of the market would have been $3.5 or $4 million,” he says. Sotheby’s estimates it will sell for $1.2 million to $1.8 million—a tempting price. “People are very funny, because they like buying things when they’re expensive,” Mugrabi says. “They don’t like buying things when they’re inexpensive. All of a sudden, they can buy the art for the same price as it was 15 years ago, but now they don’t want to do it.”
Pricing fine art might seem like a preoccupation of the wealthy few, but it’s of interest to economists, who see it as a way to test fundamental questions about value. As Mugrabi points out, the market behaves in unusual ways: Demand for an artist’s work tends to rise as prices do, because the more expensive it becomes, the more status it confers. And while value is usually a function of scarcity, the opposite can be true for artists—some great ones, like Warhol and Picasso, left behind a prolific body of work. The most unpredictable thing about art’s valuation, though, is that it’s entirely in the eye of the beholder.
Frank Dunphy, a jovial white-haired Irishman who recently retired as Hirst’s business manager, used to advise him that “an artwork is only worth what the next guy is going to pay for it.” They met in the mid-1990s, during what he calls Hirst’s “rock-and-roll years,” when Hirst was winning acclaim and chafing at his subservience to dealers and collectors. “The galleries were saying: ‘We sell the art, you make it. Don’t get involved,’ ” Hirst said in a 1995 Observer interview. “I was saying, ‘I want to know who you are selling it to and how much for.’ ”
Dunphy had no background in art; past clients of his accounting practice included dwarf actors, circus jugglers, and a burlesque performer named Peaches Page. “It’s all showbiz,” he used to tell Hirst. As a star of the art world, Hirst was in a position to dictate his own terms. Dunphy played his London dealer, Jay Jopling, against Gagosian, whose empire was rising in New York. Instead of the customary arrangement, in which a dealer judiciously picks pieces from an artist’s studio, sells them, and takes half the proceeds, Dunphy allotted inventory as he chose, maintained control over prices and discounts, and knocked the dealer’s cut down to as little as 10 percent.
The dealers were willing to accept a smaller share because Hirst was a hot property. When a lamb pickled in formaldehyde sold for £25,000 in the 1990s, the Sun tabloid reported the news under the headline: “BAA-RMY!” A decade later, a similar piece went for $3.4 million at Christie’s. In 1995, the New York Times reported that Hirst’s spot paintings were selling for around $11,000; six years later, the most expensive were around $200,000; at the market’s peak, two topped $3 million at auction. “It’s from the marketplace that you want approval,” Dunphy says. “That’s always what you’re looking for in the end: Are people buying the work?”
Hirst made no apologies for delegating the actual work to young hourly-paid assistants. Warhol may have made his famous silk screens in a loft studio he called the Factory, but Hirst owns an actual factory: a 97,000-square-foot converted plastics plant in the English town of Stroud. His company employs hundreds, including metalworkers, taxidermists, and other specialists. “People forget that, you know, factories don’t only make dog food,” Hirst said in a video produced to promote the spot paintings exhibition. “They make Ferraris as well.”
Hirst was dissatisfied with the art world’s distribution of wealth. Why should collectors like Saatchi and Mugrabi take all the profits? In secret, Hirst and Dunphy made preparations for an unprecedented sale, sending the factory into high production. Their 2008 auction, at Sotheby’s in London, was like nothing the art world had ever seen—some compared it to an initial public offering. The 223 lots ranged from relatively affordable ink drawings to the show stopper, a golden calf. They called the event “Beautiful Inside My Head Forever.”
Hirst’s dealers were uneasy—Gagosian pointedly declined to attend—and warned of dilution. The day the event began, Sept. 15, 2008, Hirst and Dunphy heard the news from America about Lehman. “It could have been awful for all of us,” Dunphy says. But following the proceedings from a private room at Sotheby’s and relaying news to Hirst, who was playing snooker at a bar, Dunphy watched lot after lot sell over its estimated price, driven higher by bidders such as fashion designer Miuccia Prada, Russian oligarchs, and many first-time buyers. The golden calf went for $18.6 million to an anonymous bidder, rumored to be a member of the royal family of Qatar.
The final tally, $200 million, far exceeded expectations. “That, I always thought, was a work of art in itself,” Dunphy says. “It’s going to be in art history forever, isn’t it?”
“That’s not an artistic achievement,” Michael Findlay says. “It’s a financial achievement.” One day in October, Findlay, a veteran art dealer, is in his office at the Acquavella Galleries, explaining what he sees as the debasement of today’s art market. Earlier this year, he published a book entitled The Value of Art. In this cri de coeur, he cites Hirst as a prime beneficiary of a movement that assesses art according to financial metrics rather than deeper measures of value. “In fifty years time,” he writes, “will a shark preserved in formaldehyde look dated or profound?”
Many in the art world expected, almost hoped, that the 2008 crash would be a cleansing catastrophe, but the materialistic trend has only accelerated. Instead of remaining depressed for years, as in the early 1990s, the market has recovered robustly. Economists say that rising income inequality is good for art values; for the super-rich, investing in a masterpiece can be a hedge against inflation and financial instability. “As we know,” says James Kelly, Dunphy’s successor, “there are more and more millionaires created every day, and more and more billionaires created every day.”
By the calculations of Moses, the retired NYU professor, contemporary art has returned 12.6 percent a year on average during the 2000s, far outpacing the Standard & Poor’s 500-stock index. A cottage industry of art market analysis has emerged to fulfill the quantitative demands of investors. In March, for instance, Citibank (C) put out a report that identified Richter as “the next great market force,” comparing his returns favorably to those of Picasso, Warhol, and de Kooning.
Not everyone in the art world thinks such assessments are reliable. Private galleries often don’t report their sales; collectors and dealers can manipulate auction results. The art market is very illiquid—you can’t buy a share of Hirst, you have to buy the whole shark—and only a tiny percentage of asset-quality art changes hands in a given year. Therefore, just a few transactions can produce big swings in an individual artist’s valuation.
“Clearly, there are many other investment strategies without all this pain,” says Sergey Skaterschikov, a Russian investor and business strategist. Skaterschikov has probably taken the quantification of art further than any other analyst, while frankly acknowledging the risks of the market. His firm, Skate’s Art Market Research, named Hirst its “Disappointment of the Year” in 2011. “I think what ruined his market is this commoditization,” Skaterschikov says. “He degraded his market, almost cannibalized it, by developing this mass production of well-recognized images.” While Skaterschikov says Hirst can make plenty of money catering to a broader audience, he suggests that his days of record-setting sales are over. “This is Louis Vuitton (LVMUY), this is not Gerhard Richter.”
Hirst’s handlers resist any suggestion that his brand has gone downscale. Kelly says that auction results are a “totally misleading” indicator and don’t reflect the (unverifiable) performance of his primary market. “Damien’s collector base is spread widely across the globe,” he says. “With new markets such as South America and Hong Kong becoming more important, we’re seeing sales to these markets being very strong.”
Kelly maintains that, perceptions notwithstanding, the 2008 auction was a wise move. “It brought a whole new audience to Damien’s work,” he says, noting that nearly 40 percent of its buyers were making their first contemporary art purchase.
“Did it affect his market? Absolutely,” says Mugrabi, a critic of the auction at the time. “But I’m not worried about Damien Hirst.”
Hirst walked away with a sizable share of the $200 million proceeds, though his actual take is unknown. He also insulated himself from the swings of the Hirst market: His own collection includes valuable works by Jeff Koons, Francis Bacon, and Warhol. At Dunphy’s urging, he diversified by buying property, including Toddington Manor, a 300-room estate in Gloucestershire. “It was perfect—he sold at the peak,” Skaterschikov says of the 2008 auction. “But it left a lot of his collectors with a sour taste.”
To take a few sad cases from Artnet: In 2009 a small statue entitled Trust, acquired for more than $450,000 two years before, sold for $150,000. In 2008 a spot painting entitled Dicaprin sold for $1.1 million at a charity auction organized by Hirst and the singer Bono, and after one unsuccessful attempt at resale, it was auctioned off in 2011 for $600,000. A butterfly painting, purchased for $1.5 million in 2008, lost more than a third of its value by the time it was resold last year. All of those losses are considerably larger once you account for auction fees. And the market for his most ambitious work has not so much corrected as evaporated. Only four Hirsts have auctioned for more than $1 million this year, and none above $2 million.
To test his methods, I ask Skaterschikov’s firm to analyze Sanctimony, the Hirst on sale at Sotheby’s in November. Its report estimates that when it was first acquired from a private dealer in 2007, the painting was worth around $2.7 million. The firm figures it’s worth around $1.7 million now—which is above Sotheby’s own estimate.
The market delivers its verdict a few days later on Nov. 14 at the auction house’s Upper East Side headquarters. The tuxedoed auctioneer Tobias Meyer takes the podium in Sotheby’s salesroom, which is packed with art world eminences. Some are recognizable—collectors Eli Broad and Peter Brant—and others are discreet, watching from curtained skyboxes. Meyer, famous for his good looks and deep German-accented voice, swivels back and forth, hair flopping, as he plies bidders with a stockpile of catchphrases: “Shall we try one more?” “Are you sure?” The Rothko sells for $75 million, the Pollock for $40 million, and the Richter for $17 million, pushing the overall take above $375 million, a Sotheby’s auction record.
By the time the auction gets to Sanctimony, the trophy items are gone and the room is half-empty. “Lot 64, the Damien,” Meyer says, staying on a first-name basis as always with Hirst. He opens at $850,000 and briskly gets to $1.1 million, from an anonymous bidder on the phone. “At one million one hundred thousand dollars, then, are we all done?” Meyer says, drawing out the number theatrically.
Clack! Down comes the hammer. It’s over in less than 30 seconds. After adding Sotheby’s fees, the painting ends up going for $1.3 million, about half its value at market’s peak. It’s a hefty discount, but at least someone is still willing to buy the Sanctimony.
Rice is a Bloomberg Businessweek contributor.
