Not Gerhard Richter's time.

How Austria Lost Out on a Great Art Deal

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website
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On Monday, the biggest-ever auction of a private contemporary art collection proved one European government to be nearsighted, to put it mildly. It also showed that in the art market, even experts are often unable to predict a painting's price.

The auction at Christie's in London, kicking off the Frieze Art Fair, sold 44 works that were the cream of the 7,000-piece collection assembled by Austrian businessman Karlheinz Essl and his wife, Agnes. The Essl collection has a romantic and tumultuous history, starting with the couple's first meeting in New York City, where Agnes worked in an art gallery, and ending with business problems that put the collection in jeopardy.

Essl founded and ran the Baumax chain of Austrian hardware stores. Rash expansion into eastern Europe and Turkey put the company on the edge of bankruptcy, and Essl's only option to save it was to sell the art collection. He offered it to the Austrian state, but it passed, largely because the purchase would have eaten up 20 percent of the country's annual budget for arts and culture. Austrian politicians tried to deflect blame for not hanging onto the art. "Baumax's problems are issues to solve with economic, not cultural policy," said the governor of Lower Austria, where the collection is located.

In the end, the Austrian industrialist Hans Peter Haselsteiner acquired the bulk of the collection for about $151 million, after arranging financing from 42 banks. Essl got a 40 percent stake in the Haselsteiner company that bought the art, and he and his wife remain in charge of the Essl Museum's art direction. But there was a catch: To raise cash for the deal, some of the choicest bits of the collection had to be sold. That's what happened on Monday.

A second subplot has to do with two important artists, Gerhard Richter and Sigmar Polke. Both emigrated from East Germany before the Berlin Wall was built in 1961 and founded a style of painting they called "capitalist realism," their answer to the soulless "socialist realism" of Communist art. At one point, their friendship was so close it involved taking baths together, but then their painterly trajectories diverged: In Richer's description, his work veered toward the classical, while Polke's became more psychedelic. Polke died in 2010, but 82-year-old Richter is still active.

At Monday's auction, Richter was expected to do much better than Polke. His painting "Net" was predicted to go for 10 million pounds ($16 million) -- the highest price in the sale. It failed to find a buyer, however, and had to be unloaded after the auction in a 5.5 million-pound private deal. Another big Richter painting sold at the lower end of its predicted range. The top Polke offering, however, sold for 5.1 million pounds, far more than the 2 million-pound top estimate -- making a 3,990 percent return over the 17 years it spent in the Essl collection.

Of course, the Christie's experts who made the pre-sale estimates were top professionals. They may have missed a new trend, but, what's more likely, the surprise resulted from specific circumstances. According to Artnet, a wealthy Greek collector and an adviser reportedly working for the Prada Foundation were bidding for the Polkes. No one was as keenly interested in the Richters.

Why? It probably has to do with the way a work of art can create a separate market for itself, as explained in a recent paper by William Goetzmann of the Yale management school and two co-authors, who studied record auction sales since the end of the 18th century.

It's true that, in periods of rising wealth and inequality, art prices have generally gone up, and that fashion has an influence: In the late 18th century, old Dutch and Flemish masters such as Gerrit Dou and Rembrandt ruled the auctions. After World War I, English portraitists George Romney and Sir Thomas Lawrence fetched the highest prices. The 1950s were the decade of the French impressionists, Van Gogh dominated the 1980s, and Picasso prevailed in the 1990s and 2000s. Yet markets are also open to exceptions, dictated by collectors' idiosyncrasies, isolated auction battles -- "social competition among the nouveaux riches," in Goetzmann's words -- and "extreme supply constraints," or the realization by collectors that a certain auction might be their last chance to acquire one of an artist's last works in private hands.

Thus, top auction prices can be decoupled from a work's quality, and that's why an artist's most expensive paintings are often not that person's masterworks. In many cases, they are variants of well-known works already in museums, whose resale value seems assured.

Austrian officials, when offered a chance to buy the Essl collection, could have obtained most of it free of charge if they had thought of Haselsteiner's solution. The 40 works sold at auction plus the private sale of "Net" fetched $84 million, more than half of what the industrialist paid to control the entire collection. Instead, they balked at bailing out a hapless businessman and questioned whether a collection reflecting one couple's taste could be a national treasure.

Where art is concerned, private taste is, in the end, the most important factor shaping valuations. The Essls have been the winners: If their expectations for Richter did not materialize, those for Polke were exceeded. No wonder Haselsteiner left them in charge.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at

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Mary Duenwald at