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Today's Art Market Hides Masterpieces

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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fraud case in Monaco has been making waves in the art world since February: Russian billionaire Dmitry Rybolovlev filed a complaint against Swiss art dealer Yves Bouvier for overcharging him for some very expensive paintings. Neither party inspires much sympathy, but governments throughout the world should pay attention to the case, because the changes in the art market that have given rise to it call for regulatory interference.

Rybolovlev got mad at Bouvier when another art dealer he met by chance boasted about selling a painting by Amedeo Modigliani for $93.5 million. Rybolovlev had just acquired the same painting through Bouvier for $118 million. There were other such incidents, too, as Rybolovlev, a former potash tycoon, whose fortune is estimated at $10.1 billion by Bloomberg Billionaires, soon discovered. So he went after Bouvier with all the fury of a cheated oligarch, getting his assets frozen and working to put him in jail. 

This is a story as old as the art world. Famed art expert Bernard Berenson, who helped Isabella Stewart Gardner assemble the collection that became the Gardner Museum in Boston, once found himself in a similar situation when some paintings were offered to the Gardner for a lower price than he had proposed to obtain them for. When the patroness pointed that out, Berenson replied:

Now, is it possible that really you were offered these Simones for less than 11,000 francs? Of course it is possible. In picture-dealing everything is possible; but do permit me to say once again that I really am not in the least responsible for the prices at which people may have offered you pictures which I sell you afterwards. The price of a work of art is not the same from day to day, nor is it the same for two persons on the same day.

Those were different times, and Gardner would not have sacrificed her intellectual friendship with Berenson to mere money considerations. But Rybolovlev is not likely to be swayed by such arguments. Bouvier keeps saying no one forced Rybolovlev to pay as much as he did for the art, yet the case will drag on. 

The real problem is that the works on which Rybolovlev has spent more than $2 billion in the past 10 years, including the Modigliani and a $186 million painting by Mark Rothko, are not exhibited anywhere that you and I can see them. They populate so-called freeports, glorified warehouses where art can be stored tax-free. Wealthy collectors sometimes do deals in the showrooms within the freeports, showing each other paintings most museums would kill for. But that's the extent to which these works are seen. 

Tax exemptions are not the only reason that art sits in freeports. Insurance companies get spooked when an expensive collection is kept in a house, vulnerable to a heist or some disaster that might destroy more than one masterpiece. Besides, a painting stored in a special facility can be used as collateral for a bank loan more easily than one on your wall.

It all makes perfect sense, and Bouvier, who owns and builds freeports, has been doing brisk business.

The growth of freeports in recent years reflects a change in collectors' motivations. These days, according to a Deloitte survey, 76 percent of purchasers buy art "with an investment view" rather than to satisfy a passion, and that’s up from 53 percent in 2012. An investment-oriented market needs infrastructure, and the more developed that infrastructure is, the higher art prices climb. 

As a result, the legitimate art market increasingly resembles the underground one for stolen paintings. "Criminals have been turning looted masterpieces into a type of underworld currency, trading the stolen canvases for guns or drugs," Ulrich Boser wrote in his 2010 book "The Gardner Heist." "After Titian's 'Rest on the Flight into Egypt' was swiped from an English country estate, the painting passed through the hands of five different gangsters, each time used as a bargaining credit." No one ever sees these paintings, either, except for the gangsters.

There is, of course, much more art in the world than can be displayed at once, and museums, too, keep most of their collections under lock and key. Yet the kinds of masterpieces that sell for tens of millions of dollars deserve to be seen by the public all the time. Instead they are turning into convenient bargaining chips for people like Rybolovlev, whose fortune is 80 percent cash and equivalents.  (In 2010, he sold his stake in potash producer Uralkali.)

This is a classic case of market failure. The buyers of major masterpieces -- defined, perhaps, by an impartial panel of experts -- should be required to exhibit them to the public. This, of course, would make such works less attractive to collectors, and prices would go down. But museums would have more opportunities to acquire works that people would flock to see. And those billionaires who remained in the market would have an incentive to open their own museums, as Gardner did in her time. As for the freeports, they would not go broke: They could go on storing the hundreds of billions of dollars worth of second-tier art that no one would line up to see.

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

To contact the editor on this story:
Mary Duenwald at