“Art is not tradable, like an asset,” states Larry Gagosian, considered by some to be one of the most astute dealers in the art world. “You shouldn’t acquire it to add to a diverse portfolio. There is intrinsic value in art. It should be easier for you to buy it than to sell it. The key is simply accumulating it.”

Gagosian was the inaugural speaker at “The Business of Art,” a joint venture between Wharton and the Institute of Contemporary Art (ICA), the goal of which is to explore “the connection between creativity and commerce.” Gagosian straddles both, a visionary in a field sometimes noted more for its excess than its access. During his remarks, Gagosian focused on the romance, adventure and surprising amount of common sense that go into creating a world-class business in the art world. But he also answered questions from an audience that was equally interested in hedge funds, investments and asset diversification.

In the highly competitive world of buying and selling art, it is necessary “to be counter-intuitive,” Gagosian says. “Classic business models could never work [here]. Picasso has held up [as an investment] better than Chevrolet.” In his business, he adds, “you have to deal with all the issues of talented, demanding people. You appreciate early on the importance of actually liking the artists you represent — especially if you have to have dinner with them.” Among the artists Gagosian represents are Cy Twombly, Damien Hirst, Richard Serra, Joseph Beuys, Jeff Koons, Ed Ruscha and Rachel Whiteread. The estates he handles include those of Arshile Gorky, Roy Lichtenstein, Willem de Kooning, David Smith and Andy Warhol.

Parking Cars, Selling Posters

Recalling his first exposure to the commercial aspects of art, Gagosian said he “had to get around a system I didn’t know how to penetrate. I wasn’t planning to get into the art world. I didn’t know there was such a thing as an ‘art dealer.’ Nothing in my family background prepared me for it. I hadn’t worked in the business. I am entirely self-taught.”

That informal education began humbly enough when Gagosian was parking cars for a living in the Westwood section of Los Angeles, Calif. “I saw a guy selling posters, and he seemed to be making more money than I was. I said to myself, ‘I can do that.'”

Gagosian soon was selling $15-$20 posters — framed, with the help of his girlfriend — out of the back of his car. “They weren’t great frames and they weren’t great posters, either.” But this was the early 1970s and posters were finding their niche as “art” in trendy decorating schemes. “Not long after that, I made enough to move inside. I knew that the little Hungarian restaurant next to the parking lot where I had worked was not doing too well and I was able to rent it for $400 a month. I moved up to slightly better posters and slightly better frames.

“And I learned that all businesses are, in their own way, unique. I learned that the art business has a special quality to it because people care about art. There is a social dimension. And the art business can be very entrepreneurial. You don’t need a lot of capital to get into it.” Nodding at his audience, Gagosian smiled and added, “I think you would say, ‘There was a low barrier to entrance.’ Not much has changed in the art world since then.”  

Galleries as Museums

Continuing his comparison of the sometimes contradictory worlds of art and business, Gagosian told his listeners: “An old German art dealer once said that because of the temperaments in the art world, rarely is a work of art sold before 10 a.m. in the morning. And that’s fine with me…. I can’t stand meetings. I’m not good at them. I tried it. I can’t run a meeting. I don’t need a structure where information is seamlessly transmitted and is transparent. I’m not sure that’s the way to [sell art]. We’re less structured than most galleries. I don’t like the corporate approach.”

Gagosian prefers an idiosyncratic schedule and sticks to a handful of fundamental principles, including his practice of paying commissions to his sales associates — highly unusual in the art world. He says he couldn’t “imagine doing it any other way. It gives people an opportunity to work hard and make more money. Then the business makes more money.” 

Another principle is the need to “find or create a great space, a beautiful space, in which to show the art. You have to draw attention to yourself, to the gallery and to your artists.” When he first entered the New York art market in 1987, Gagosian says, “no one knew me. None of the artists I wanted to work with knew me. I tried to create ‘focus shows’ and ‘historical shows’ by doing retrospectives of artists, displaying their work as well as I possibly could and inviting the right people.”

According to Glenn Fuhrman, an ICA overseer and noted art collector who asked Gagosian questions during the presentation, Gagosian’s galleries (in New York, London, Beverly Hills and Rome, among other places) “are like museums.” This not only attracts great artists to him, but actually helps establish the market, because sometimes Gagosian will only have one or two pieces up for sale. As Furhman notes, “art has no official value.” The sale of art is entirely market-driven.

Gagosian says he is “not much of a fan of art in ‘new media’ forms. I just don’t get ‘video art,’ for example. I like paintings and sculptures and drawings. That’s what the collectors like, too.” Another motivating force in Gagosian’s business is his aversion to what he calls “transactional sales” or one-and-done arrangements, as opposed to “working steadily, over time, with collectors and helping create or expand their collections.”

Does Gagosian himself collect art? “I am a dealer who collects, yes,” he says, “but I don’t have a collector’s mentality. I’m not a real collector. And what I do collect is not for sale.” 

A Dealer’s “Stealth Costs”

As the discussion continued to touch on business topics, Gagosian made several points about the nexus between investment and art. For example, he acknowledged that “historically, art has been a great investment,” but “if you spend a lot of money on art, you will care about how it does. If you see that it doesn’t go up [in value], you won’t enjoy looking at it as much.”

He also noted that “the art market is very strong. There’s a lot of liquidity in the world, not just in the United States, but all over Europe, in China, India and Japan.” He also said that he “deals in more expensive art through estates. You can ‘reexamine’ the prices that way.” And he “won’t do business with people buying art just to ‘flip’ it” and make a quick profit, much like real estate speculators who flip buildings.

Finally, he said that “‘stealth costs’ for an art dealer include establishing the artwork’s provenance (i.e. authenticity), shipping, writing and printing catalogues, mounting exhibitions, and paying an artist while he or she produces.” That can cut the percentage a dealer normally makes for the sale of art from the customary 50% to as little as 15%. In most cases, however, the split between artist and dealer is about 50/50, “unless the artist is really important.”

One additional subject that Gagosian clearly feels passionate about is what he calls “impatient money.” It’s better to buy and keep art over time and let the artistic asset slowly increase in value, he says. “Don’t buy somebody else’s taste,” he warns, returning to a point he made several times. “Art is not meant as an ‘asset class.’ It can become an asset, but that happens more by accident. I don’t do asset allocation or estate planning.”

He is equally dismissive of the idea of hedge funds investing in art. Hedge funds “have been around for years,” Gagosian says, “and they never seem to spend any money on or really know the first thing about art.” Indeed, Gagosian is very much opposed to buying art the way one would buy stocks, bonds or real estate. He objects to hedge funds dabbling in art investment, partly because he feels they don’t bring enough true expertise to the transaction.

“I have no problem with the concept of ‘art advisors,'” he adds. “They can perform a valuable service for collectors by coming to a dealer and ‘reserving’ a piece of art.” In the world as Gagosian sees it, his role as an art dealer is to identify great art, display it as effectively as possible and then offer it for sale to collectors who can not only afford it, but truly appreciate it. 

For Gagosian, the essence of being an art dealer is in the human contact and interaction. “The dialogue is much more complex now than it used to be,” he says. “Running a gallery takes all sorts of management skills, working with people on every level. It’s much more than the objects of art themselves.” Interacting with artists and collectors “is more collaborative,” he adds. “There are more museums than ever before and there are more decisions to make — and more opportunities.” Yet he rejects the title of “businessman.” “I know how to make money,” he says, “but I am not a real businessman. A ‘real’ businessman could walk into any field and create value. You see that all the time with CEOs. That’s not me.”