Andy Warhol’s iconic “Shot Sage Blue Marilyn” painting is hitting the auction block this May with an estimated sale price of $200 million - more than any 20th-century painting has ever fetched at auction.
The current auction record is held by Pablo Picasso’s “Les Femmes d'Alger (Version O)”, which sold for $179,365,000 at auction in 2015. A record-breaking sale in today’s active art market could take 20th-century art to a new level and create new opportunities for investors.
How this Auction Could Affect the Market: Record high prices can affect any market. Consider how the sale price of a house affects the home values in its neighborhood or how stock prices tend to track with the overall market and industry peers.
The art market works in a similar way since comparable sales are one of the key factors an appraiser considers when valuing a painting. For instance, the market has already determined that paintings by Pablo Picasso hold a certain value, making it nearly impossible to find one with a price tag under six figures.
A record-breaking value of $200 million being placed on a painting by Andy Warhol will likely result in higher values across all the artist’s works, as well as many others from the era in much the same way.
Of course, having a higher appraised value doesn’t mean there’s a buyer willing to pay that price. Similar to other markets, it’s important to consider the number of active buyers and overall transaction volume.
Under normal conditions, investors could expect to see a price spike in the market after a record-breaking sale spurs excitement, followed by a period of consolidation when higher prices result in less buying activity. An extended rally would be difficult to sustain because there has historically been a limited buyer pool in the exclusive art market.
The major art auctions have always been in-person events hosted in only a few cities throughout the world. However, that all changed in 2021 after the COVID-19 pandemic forced the largest auction houses to make a digital transformation, opening the art market up to a much wider audience.
Despite the pandemic, 2021 set a new pace for fine art with a record high turnover at over $17.1 billion and a record-high number of lots sold at 664,000, according to artprice.com. The market could very well have the horsepower it needs to see a major rally following May’s auction.
Will Bidding Actually Hit $200 Million?: It’s possible the painting won’t fetch anywhere near the $200 million estimate, but also quite possible it could sell for well over that. According to data from Artsy, Warhol’s works have sold for an average of 21% over auction estimates.
Most notably, his piece titled “Muhammad Ali (1977)” had an estimated value of $4.5 million to $6.5 million going into the auction, but recently landed a buyer for more than twice that at $15.5 million.
While the list of potential buyers may seem fairly limited, ultra-wealthy art collectors and galleries only make up a fraction of the buyers in the market. The strong historical price appreciation through all market cycles has made fine art an attractive investment, bringing hedge funds and other institutional investors to the table to compete for these valuable assets.
In fact, there’s a multibillion-dollar industry for art-backed loans and a growing interest from investors for debt products backed by art. This means even investors and collectors without an extra $200 million in liquid capital can bid on the painting.
NFTs Boosting the Market: Another factor in the recent growth in the global art market is the introduction of non-fungible tokens (NFTs) to major art auctions. In March 2021, an NFT from the creator Beeple titled “Everydays: The first 5000 Days” (2021) sold for $69.3 million at Christie’s against a starting price of just $100, becoming the first NFT to sell at a major auction house.
Other notable NFT sales have since taken place at similar auctions, including a batch of 101 Bored Ape Yacht Club NFTs that fetched $24.4 million at Sotheby’s and “Woman #5672” from the World of Women series that sold for $755,924 at Christie’s.
NFTs have brought the attention of a whole new crowd of investors to the art market and new competition for the traditional buyers at auctions.
Retail Investors Getting a Chance to Participate: One of the largest and most active buyers in the art market is a new company called Masterworks. The company has been buying up highly sought-after works of art and securitizing them. Retail investors then use Masterworks' platform to make fractional investments in paintings from Pablo Picasso, Andy Warhol, Claude Monet, Banksy and several other iconic 20th-century artists.
This strategy seems to be working well for investors so far. Masterworks recently landed a buyer for an Albert Oehlen painting that was offered through its platform and produced a 33.8% annualized return to investors of the initial offering.
Find more information on the growing art market and current offerings for retail investors on Benzinga.
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