The art world is notoriously secretive and opaque. Common business practices across the spectrum of collectors, galleries, and auction houses can seem highly idiosyncratic to people on the outside, thereby presenting some interesting legal challenges. As the art market rose to unprecedented heights during the 1980s and 1990s, and on into the early 2000s, legislators in major cultural centers like New York and London increasingly called for greater transparency and regulation of the trade.1
One area that has been of particular interest to legislators (particularly in New York City) surrounds the practice of “chandelier bidding” in auctions at houses like Sotheby’s and Christie’s. A chandelier bid is a non-existent or “phantom” bid that an auctioneer calls out—pointing into distance, perhaps at the chandelier—in order to create drama and interest in the lot up for sale.2 Opponents to this practice claim that these bids are misleading and only create the illusion of competitiveness. It is further argued that this practice inflates prices and dupes buyers into believing there is a stronger market for a work or an artist than actually exists.3 However, auction houses and many others in the art world believe chandelier bids are necessary in that they encourage potentials buyers to partake in the action while concurrently hiding the “reserve price” of the piece. Auction houses assert that if the reserve price—the confidential lowest price for which a consignor (seller of the lot) has agreed to sell a work—is known, bidders will be reluctant to place higher bids, effectively hurting the market.4 The belief is that this practice protects the consignor in much the same way sellers in real estate transactions are protected by not disclosing their bottom prices in attempts to maintain negotiating leverage.5 Furthermore, it is illegal to place chandelier bids (which auctioneers prefer to label “consecutive bids” or “bids made on behalf of the consignor”6 at or above the reserve price.7 If the lot fails to sell above the reserve price, it will be “bought in” or “passed,” and the auction house will either have to buy it on its own if it was guaranteed or the lot will return to the consignor.8
Although not everyone who attends these auctions is a seasoned buyer, the possibility that this controversial practice may occur is disclosed in auction sales catalogs (“Conditions of Sale” sections near the back) and on a salesroom sign as required by New York City law.9 Opponents assert that this stipulation is not enough and still hurts transparency. During his tenure, former New York Democratic Assemblyman Brodsky drafted and submitted nine bills in Albany to prohibit these bidding schemes, but none passed the state senate.10 New York state senator John Flanagan even tried to just strengthen the disclosure of such bidding through an amendment to New York’s General Business Law that would prohibit “acceptance of sham or chandelier bids by auctioneers without disclosure” to the actual bidders.11 The amendment went on to say, “whenever an auctioneer or auction house accepts a bid that is made for the account of the auctioneer or auction house, the auctioneer or auction house shall announce acceptance of such bid with the term ‘auction house bid.’”12 This attempt failed in 2007.13
Although the bills trying to eradicate chandelier bidding have disappeared for now, many art world insiders believe that—due to the astronomical sums of money involved and the influx of wealthy new buyers—the market requires stricter market oversight. As one Christie’s executive noted, it would be best if the rules could be “self-imposed,” but that isn’t likely to happen.14 Legislators outside the New York City area have taken note and are attempting to pass similar regulations on chandelier bidding to increase transparency, as evidenced by state senator Daniel Squadron’s bill S2024 which purportedly addresses concerns of “manipulative bidding” which “serve to distort the market and disrupt operation of a vibrant, healthy and profitable marketplace.”15 The bill is still in committee.16
Chandelier bidding is just one of many concerns that need to be addressed in the murky world of art transactions. Legislators hope to someday remedy issues surrounding increasingly popular private art funds and securities along with third-party guarantees, loans, and other bidding practices that need additional regulation.17 But for now, pointing towards the ceiling to drum up enthusiasm is a valid, and legal, practice within the art world.
Daniel Grant, Legislators Seek to Stop ‘Chandelier Bidding’ at Auction, ARTnews (Sept. 4, 2007), http://www.artnews.com/2007/09/04/legislators-seek-to-stop-chandelier-bidding-at-auction/. ↩
Id. ↩
Issac Kaplan, The Auction House Buzzwords New Collectors Need to Know, Artsy (Mar. 15, 2018), https://www.artsy.net/article/artsy-editorial-auction-house-buzzwords-new-collectors. ↩
Id. ↩
Robin Pogrebin & Kevin Flynn, As Art Values Rise, So Do Concerns About Market’s Oversight, N.Y. Times (Jan. 27, 2013), http://www.nytimes.com/2013/01/28/arts/design/as-art-market-rise-so-do-questions-of-oversight.html. ↩
Grant, supra note 1. ↩
Judith H. Dobrzynski, How Auction Houses Orchestrate Sales for Maximum Drama, N.Y. Times (Oct. 28, 2015), https://www.nytimes.com/2015/11/01/arts/design/how-auction-houses-orchestrate-sales-for-maximum-drama.html. ↩
Id. ↩
Pogrebin & Flynn, supra note 5. ↩
Id. ↩
Grant, supra note 1. ↩
Id. ↩
Id. ↩
Pogrebin & Flynn, supra note 5. ↩
S. 2024 (N.Y. 2017). ↩
Id. ↩
Grant, supra note 1. ↩