Abstract
Although the Artist’s Contract, first developed in 1971, was not broadly adopted in its early decades, renewed interest in it fifty years later has led to inventive related structures that are enabled by blockchain technology, in particular the phenomenon of NFT (non-fungible token) sales in art. We argue that the Contract’s conceptual roots have laid groundwork for a potentially powerful funding mechanism via the Contract’s resale royalties terms. Blockchain technology radically alters risks of incomplete contracting and lowers transaction costs, making the Quixotic terms of the Artist’s Contract newly actionable. We study the artist Hans Haacke’s longtime experimentation with the Artist’s Contract, along with contemporary data from the blockchain registry SuperRare, which pays royalties to artists. Blockchain companies such as SuperRare generally sell digital works outside the taste-making and gatekeeping systems of the upper echelons of the traditional art market. This arc from conceptual practice within the arts to commercial practice at the edge of the traditional art market points to the Contract’s legacy as a model for potentially disruptive technology and a new fundraising model for artists.
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Source: Franceschet (2020)
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Notes
These contracts date back to the early 1900s in France when André Level’s Peau de L’Ours (Bearskin) club, recognized as the first art-buying syndicate, shared resale proceeds with artists after their 1914 sale at the Hôtel Drouot in Paris (FitzGerald 1996: 16). The proceeds to artists constituted a substantial, e.g., 20%, share of the artists’ annual wage (FitzGerald 1996: 44).This sharing of proceeds with artists took place six years before French law came to require resale royalties or droit de suite to be shared back to artists (FitzGerald 1996: 17). The Hôtel Drouot sale brought 116,545 francs ($44,535 in 2020 dollars). Pablo Picasso’s (1881–1973) twelve works in the sale accounted for 31,201 francs, of which 3,979 francs was shared with Picasso; that amount represented 20% of the profits above the artworks’ acquisition costs and made up 20% of Picasso’s recorded income for the year 1914 (FitzGerald 1996: 44, 276, 278). Even artists who did not receive large payments wrote thank you letters to Level (FitzGerald 1996: 44).
The contract also granted artists copyright protections, moral rights, the right to a portion of rental fees when the work is loaned to exhibition, the right to borrow their work, and other economic rights in their works.
Royalty payments following the California Resale Royalty Act were not closely monitored. The only available data reflects payments made by sellers who reverted funds to the California Arts Council for disbursement. There are no public data on royalty payments made by individual sellers.
His institutional impact includes a scheduled retrospective at the Guggenheim Museum in 1971 which was cancelled owing to Haacke’s artworks investigating the actions of New York City slumlords and other social-political issues (Deutsche 1986). Haacke received subsequent retrospectives at the New Museum in 1986 and 2019, in addition to numerous major exhibitions in Europe.
There is little consistency among auction records in terms how the Artist’s Contract is noted, and sometimes it is not mentioned in auction listings for affected works at all (van Haaften-Schick 2020). Haacke has also emphasized that his ability to secure a teaching job early in his career gave him financial security to refuse certain buyers. He was able to use the Artist’s Contract because he never relied on art sales for his income and as such was willing to risk alienating buyers and dealers. (Eichhorn 2009: 74).
Whitaker and Kräussl (2020) have proposed retained fractional equity as a privately contracted alternative to resale royalties, with artists “purchasing” the equity in foregone primary-market proceeds, circumventing arguments made my scholars such as Rub (2014; Sprigman and Rub 2018) that royalties constitute a special class of welfare to artists. The work is divisible as property so that the rights persist after first sale (Hansmann and Kraakman 2002).
Whitaker and Kräussl (2020) have shown that if various mid-twentieth-century US artists had retained equity in their work they would have outperformed US equities markets substantially.
Potts et al., (2008) have proposed “social network markets” as a framing device, characterizing creative industries as both market-driven and dependent on networked relationships, emphasizing Granovetter’s (1985) concept of embeddedness of markets within social structures. Social networks have also been applied to crowdfunding, though some scholars have critiqued crowdfunding for potentially accidentally replacing public funding with a neoliberal logic (Brabham 2016). At the same time, public funding in the USA often comes under threat by conservative administrations, and the administrative requirements and legal structures that art organizations must adopt in order to qualify for most public funding, such as 501(c)(3) non-profit status, can also force them to adopt that neoliberal logic regardless (Wallis 2002). Models of financial reliance on artists’ resale royalties and retained equity could fall prey to this criticism as well.
Within the visual arts’ current diffusion of registrarial systems, there is no centralized database of museum collections or gallery inventories; certificates of authenticity can be lost or forged; incomplete provenance records can make sales and authentication impossible; and the only public sale data is that from auction houses, leaving a huge percentage of private and gallery transactions unaccounted for and difficult to retrace. Blockchain-based approaches have numerous use cases. Yet these systems also contend with art’s illiquidity as an asset, the industry’s aversion to transparency (Velthuis and Coslor 2012), and the difficulty obtaining price information (Velthuis 2005: 166). Opacity especially governs the secondary art market, where auction houses and dealers protect the identities of buyers so that even artists do not know who owns their works. The Artist’s Contract was in part designed to mitigate these problems by requiring sellers to inform the artist of the sale price and the identity of the new owner whenever works are sold or ownership is transferred, serving its own vetting function.
Monegraph uses Ethereum as a layer-one blockchain protocol in tandem with Polygon, a layer-two protocol.
For early entrants to SuperRare, the royalty rate was 10%; it is now 3% (Author correspondence Charles Crain, SuperRare, November 2020).
Also employing smart contracts to secure resale royalties was the Calgary-based Uppstart, founded in 2018 and dormant at time of publication, offered a 4% resale royalty via self-executing smart contract (Addapcity, Inc., 2018).
Proof of work (PoW) and proof of stake (PoS) are two different methods of verifying new blocks that are added to a blockchain. In the Proof of Work system, computers compete to solve brute computer processing puzzles with the winner receiving cryptocurrency. This method is especially criticized for consuming power and therefore damaging the environment (Kahn 2021). Ethereum network has announced its intentions to move from proof of work to proof of stake with its launch of Eth2 (Ethereum.org 2021a; 2021b).
The blockchain ventures also hold numerous similarities, for instance, employing some kind of physical tagging technology, such as RFID tags, QR codes, and synthetic DNA.
Artory’s system maintains an immutable record of every event in the lifecycle of an artwork, such as a sale or valuation request. When a new record is created, it is given a timestamp that can be located on Artory’s Ethereum-based blockchain. In 2021, Artory announced a move to the Algorand blockchain (Artory 2021). This system offers a secure register of when each record was entered, “with a goal of providing greater confidence in an artwork’s ongoing provenance and greater efficiency in its eventual resale” (Artory 2018). In November 2018, Christie’s auction house held the first sale wherein all works sold were registered on Artory’s Ethereum blockchain. That sale, the Barney A. Ebsworth Collection, brought $318 million (Elhanani 2018).
Counteracting these limitations of art as illiquid and private-value asset, Maecenas has worked by tokenizing art (called the ART token) to convert blue chip artworks into smaller financial units that can be bought and sold as digital certificates, or securities. Investors can then resell them via the Maecenas exchange (Maecenas 2020).
These blockchain companies offering fractional ownership in art are contextualized by a broad literature on studies of the returns to investment in art. Baumol (1986) found returns similar to corporate bonds with higher volatility (Renneboog and Spaenjers 2013; Burton and Jacobson 1999). These studies have drawn primarily on repeat sales methods (e.g., Goetzmann, 1993; Mei and Moses 2002, 2005) and hedonic regression or mixed methods (e.g., Renneboog and Spaenjers 2013; Korteweg et al. 2016). Further studies have identified significant variation in returns across works within a sample (Spaenjers et al., 2015) and high transaction costs (Ashenfelter and Graddy 2003).
Precedents for clarifying these exist in the analog art world. For example, certain ephemeral art forms such as performance and idea-based conceptual artworks are readily acquired by museums via certificates of authenticity and other forms of documentation, so that while there is no tangible art object to own, and anyone could hypothetically execute the work, such works are nonetheless able to be exclusively owned and command substantial prices via certificates or contract-like paperwork (Abrams & Whitaker 2021; Buskirk 2003).
The Contract was designed to be revised by artist users, and terms could be waived. Levy and others have argued that the very nature of technologically self-executing contracts does not allow for interpersonal exchange, negotiation, and for consensual non-enforcement (Levy 2017), which legal realists have long-held are important aspects of the sociality of contracts (Macaulay 1963; Macneil 1978). As such these technologies may not capture the bond between artists and collectors that the Artist’s Contract anticipated (Library Stack 2017). Siegelaub’s goal for artists to keep “aesthetic and exhibition control” remains to be tested, by technologies that could be built to retain relationality without sacrificing the economic and enforcement benefits of automation.
It would remain to be determined whether those investment trusts included artists as currently defined or a broader realm of visual and cultural producers.
We use the pre-pandemic market report, which shows the relatively stable size of the art market prior to COVID.
The Artist’s Contract exposes the previous selling price when works are resold, though Siegelaub and Projansky were aware that the actual price paid might not be recorded on the contract (Siegelaub and Projansky 1971: 3).
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Acknowledgements
Lauren van Haaften-Schick acknowledges the Smithsonian Institution Predoctoral Fellowship program and the Engelberg Center on Innovation Law and Policy at New York University Law School for support. The authors thank John Crain and Charles Crain of SuperRare, Kevin McCoy of Monegraph, and Anne Bracegirdle, as well as Massimo Franceschet for generously sharing formatted data files.
Funding
Funding for this study was received from the Smithsonian Institution Predoctoral Fellowship program and the Engelberg Center on Innovation Law and Policy at New York University Law School (van Haaften-Schick).
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Appendix: selected droit de suite/resale royalties legislation
Appendix: selected droit de suite/resale royalties legislation
Country or Jurisdiction | Royalty Rate | Threshold (minimum sales price) | Cap (maximum royalty) | Sales Covered | Term | Mechanisms of Collection and Enforcement |
|---|---|---|---|---|---|---|
European Union | < € 50,000 = 4% or 5% 50,001 to € 200,000 = 3% 200,001 to € 350,000 = 1% 350,000 to € 500,000 = 0.5% above € 500,000 = 0.25% | € 3,000.00 | € 12,000 | Resale in which "art market professionals" are buyers, sellers, or intermediaries | Copyright term | Paid by the seller member states can specify other payer rights holder has rights to sales information |
UK | Same as European Union | $1,000.00 | Same as EU | Resale in which buyer, seller, or agent "is acting in the course of a business dealing with works of art" | Copyright term | Compulsory collective management (DACS) seller, buyer, and agent have joint and several liability rights holder has rights to sales information |
Australia | 5% of the total resale price | AUD $1,000 | "Commercial resale involving art market professional" | Copyright term | Compulsory collective management seller, buyer, and agent have joint and several liability royalty due is treated as a debt to the rights holder possible civil and criminal enforcement | |
Brazil | 5% of any gain in value | No minimum if sold for a gain | Resale "of original work of art or manuscript" | Life of the author plus 20 years for artists who die after January 1, 1983 | Seller or auctioneer, if any, is considered the depositary of the royalty if the author does not collect it at the time of sale | |
India | Not to exceed 10% of the resale price, as set by the Copyright Board | 10,000 rupees | Resale | Copyright term | Disputes referred to the Copyright Board | |
Kenya | 5% of the net sale price on the commercial resale of an artwork | KES 20,000 and above | Does not apply to works sold for charitable purposes, architectural drawings and models, or manuscripts | Copyright term | The seller, the art market professional, the seller's agent and the buyer shall be jointly and severally liable to pay the resale royalty | |
Philippines | < 150,000 PhP = 5% 150,001 to 350,000 = 4% 350,001 to 600,000 = 3% 600,000 to 1,000,000 = 2% 1,000,001 to 2,000,000 = 1.5% above 2,000,000 = 1% | none | "resale or lease subsequent to first disposition by the author" | Life of the author plus 50 years | ||
USA Proposed 2011 | 7% of the resale price | $10,000 | Resale in an auction by someone other than the artist | Copyright term | Compulsory collective management Seller is liable for the royalty Remedies include suit for copyright infringment and statutory damages | |
Proposed 2018 | 5% of the resale price | $5,000 | $35,000 | Resale in an auction by someone other than the artist | Copyright term | Compulsory collective management Seller is liable for the royalty Remedies include suit for copyright infringment and statutory damages |
California, USA | 5% of the resale price | $1000 gross sales price, if price is higher than purchase | "Resale at auction, or by a gallery, dealer, broker, museum, or other person acting as seller's” | Life of the author plus 20 years for artists who die after January 1, 1983 | Optional collective management Seller or agent liable California Arts Council manages for unlocated artists remedies include damages, legal fees, and fines |
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van Haaften-Schick, L., Whitaker, A. From the Artist’s Contract to the blockchain ledger: new forms of artists’ funding using equity and resale royalties. J Cult Econ 46, 287–315 (2022). https://doi.org/10.1007/s10824-022-09445-8
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DOI: https://doi.org/10.1007/s10824-022-09445-8