For the past 13 years, art and business mogul Yves Bouvier has procured art for Russian oligarch Dmitry Rybolovlev, with works ranging from Picassos to Renoirs. The collection, in its entirety, is said to be worth almost $2 billion. On February 26, 2015, Bouvier was arrested in Monaco after Rybolovlev claimed that Bouvier had defrauded him of almost $1 billion over the sale of 38 paintings since 2003.
According to Rybolovlev, Bouvier was a broker representing Rybolovlev, negotiating prices for artwork, and receiving a commission. Bouvier denied this relationship, instead presenting himself as an independent party who merely gave special preference to Rybolovlev. The legal battle consisted of lawsuits in both Monaco and Singapore.
Art dealer company Sotheby’s brokered a sale between Bouvier and a group of experts in the Old Masters (e.g. Leonardo Da Vinci and Raphael) in 2013 for Leonardo da Vinci’s “Salvator Mundi.” The group acquired the work for only $10,000 at an estate sale, where it was thought only to be from the school of Da Vinci. Then, they authenticated it, proving that it was made by the master himself. The work was sold to Bouvier for $80 million.
A couple of days later, Bouvier sold it to Rybolovlev for $127.5 million. However, Rybolovlev was not the only one who felt conned. The group who had Sotheby’s sell the work for them also felt like they were cheated out of millions of dollars, alleging that Sotheby’s was in league with Bouvier. Indeed, Bouvier had been a valued client of Sotheby’s over the years, and the group alleges that Sotheby’s was biased towards the buyer.
In both cases, millions of dollars’ worth of conflict were created by legal grey areas and minutia. Sotheby’s relationship with Yves Bouvier during the sale of the Da Vinci is a perfect example. Bouvier was actually the one who brought Sotheby’s in on the sale, asking them to approach the sellers on his behalf.
However, Bouvier did not want Sotheby’s to approach the sellers as his representatives, but rather as a third party. As a third party, Sotheby’s could either be a neutral arbitrator or a broker for the seller. If an auction house becomes a broker, an “agency relationship” is created, where the auction house is legally obliged to act only in the interests of the seller, i.e. to get the best conditions and price for the work. In this case, it was unclear whether Sotheby’s functioned as a broker or just an arbitrator.
The luxury art market is inherently expensive and fundamentally illiquid, causing the pool of buyers and sellers to be quite small. Thus, the sales of high-priced works are based on personal connections and reputation. For Sotheby’s, personal connections with men like Yves Bouvier prove to yield a tremendous amount of business.
Nevertheless, relationships cannot come at the expense of reputation. Both auction houses and successful brokering careers are built on reputation, for no buyer or seller would want to use an auction house as a medium if he or she suspects it does not want to facilitate the transaction as fairly and efficiently as possible.
However, while brokers and auction houses need to tread very carefully in the legal gray areas of the art market to maintain their reputation as trustworthy, there is a lot of profit to be made. Yves Bouvier made up to a billion dollars, treading the fine line between broker and third party. This applies for both buyers and sellers.
While buyers run the risk of overpaying and sellers may risk underselling, they can also underpay and oversell. This gives the art market a much higher risk or reward ratio than it would have with a more regulated market with less grey areas.
For the public, the result of this is mixed. Museums are one of the largest buyers of art, so a higher risk-return ratio means that they would be able to buy more valuable works than they could normally. However, they can also run into financial difficulties from being overcharged. So, as a museum-goer, expect to see some great art, but don’t get too attached to the museum you see it in.