C&B Notes

The Art of it All

The $450 million sale of a Da Vinci painting resurrected Matt Levine’s commentary on the saga between art collector Dmitry Rybolovlev and his former dealer Yves Bouvier.  The story provoked us to think about art valuation and general difficulties in aligning incentives in advisory relationships.

We have talked a few times about the legal battle between art dealer Yves Bouvier and Russian oligarch Dmitry Rybolovlev over a painting that Rybolovlev bought from Bouvier.  The issue is that Rybolovlev paid Bouvier $127.5 million for the painting, and then found out that Bouvier had bought it for $80 million.  This undisclosed markup enraged Rybolovlev, who started a protracted legal battle, and it has obvious analogies to the bond market.  Was Bouvier obligated to disclose his markup?  Was it deceptive not to?  Was Bouvier — or did he hold himself out to be — an adviser to Rybolovlev who had higher obligations to be transparent, or was he an arms’-length counterparty who could demand whatever price he wanted?  Was Bouvier being compensated for the service of sourcing art for Rybolovlev, or was he just selling an asset at the going rate? What even was the going rate, if not the rate that Rybolovlev was willing to pay?  As the U.S. sends bond traders to prison for similar, let’s say, misunderstandings, the Bouvier case was an interesting one to follow.

Also though that $127.5 million painting is the same Leonardo da Vinci “Salvator Mundi” that sold for $450 million at Christie’s this week. Felix Salmon writes:

The last time this painting was sold by an auction house was only four years ago, in 2013, when Sotheby’s sold it privately to Yves Bouvier for $80 million.  That decision, to go with a private sale rather than a glitzy public auction, now looks very, very stupid.

Bouvier then flipped the work to Rybolovlev for $127.5 million.  When Rybolovlev found out how much Bouvier made on the deal, he was furious, and basically gave up art collecting entirely.  His decision to sell the painting was made in anger, out of pique that he had been ripped off.  Now it seems he has made more money off one painting, in four years, than most art collectors dream of making in a lifetime.  There’s probably a moral here, but I have no idea what it is.

One moral is that a trader’s deception about his markup really is analytically distinct from deception about an asset’s value.  Value can be hard to determine!  The markup is more straightforward.  And so you see people get really mad when they are misled about the markup they paid for an asset, even if the asset’s actual value turns out to be way more than they paid for it.  From the outside, that can look a little silly.  Why worry that you overpaid by $50 million when it turns out you actually underpaid by $300 million?

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