The mirage of riches in museums' vaults

The Art Newspaper was kind enough to recently print my Op-Ed on museum storage as a panacea for financial woes at museums.  However, the limitations of space in the print edition meant that the full article could not be reproduced.  I attach below the extended full article, as I believe it helps to flesh out some of the argument and explain the role of deaccessions in museum ethics more broadly.


The recent debates over deaccessions by the Berkshire Museum and LaSalle University have led some to conjecture that such sales might easily solve the scourge of museum admission fees.


For example, a recent op-ed on artnet news entertains the “fantasy” that the Metropolitan Museum could simply sell nine works selected by the authors to pay for museum admissions in perpetuity.  More emphatically, Michael O’Hare, a Professor of Public Policy at UC Berkeley, boldly asserts in the San Francisco Chronicle that museums “should sell works in storage to avoid raising admission fees.”  O’Hare insists that there is an enormous windfall residing in the 90% of collections at most museums that remain languishing in the storage vaults, which could be readily disposed of and redeployed to satisfy any number of fiduciary challenges.


“I have estimated, by triangulation from a couple of cases in which museums did value their collections, the monetary value of the collection of one of my favorite museums, the Art Institute of Chicago: It’s about $35 billion.”  This appraisal figure of the roughly 260,000 items in the AIC holdings has apparently been a popular party trick O’Hare has trotted out for shock and awe: “This finding has dilated the pupils of everyone I have ever shared it with. ‘How much??!’” 


O’Hare asserts that this valuation came about through a “triangulation” from the competing appraisals of the Detroit Institute of Arts collection during the bankruptcy proceedings and an anonymous valuation of the holdings at the Berkeley Art Museum.  O’Hare goes on to suggest that—given this enormous windfall—selling the mere bottom one percent of the AIC collection would generate an unencumbered cash infusion of roughly $350 million in endowment funds, which could then pay for free admission at the AIC in perpetuity on interest payments alone. 


Picking up the mantle of O’Hare’s conjecture, Tim Schneider in artnet news further calculates that the 452,000 items in the Met’s online collection could likewise be extrapolated to suggest a market value of roughly $62 billion, of which prospectively $55 billion is currently languishing in storage, “walled off from visitors like the works were leaking uranium.”  In his view, this unacknowledged revelation, somehow suppressed by the museum administrators themselves, should “change the debate” on museums and their business decisions, and that we should “at least seriously consider how billions of dollars in stored art might be able to help solve some of the crises afflicting art museums around the world.”


On its face, this does seem like a fabulous, unexpected vista onto untold riches that could be redeployed to solve most museums’ current and ongoing fiduciary dilemmas.  Indeed, it is precisely this commodification principle that has driven the Berkshire Museum to disgorge the chief highpoints of its collection in order to garner a windfall beyond any reasonable expectation of their actual fiduciary needs, as Felix Salmon and others have cogently pointed out.


However, if this panacea were so close at hand, then why haven’t museum trustees and directors cottoned on to this simple solution, but rather, in O’Hare’s estimation, “have cooked up a ‘code of ethics’ that forbids them from selling from their collections except to buy more art...”  Well, in answer to this simple question, it might be helpful to quote Hobie Doyle in the recent Coen brothers film Hail Caesar!: “would that t’were so simple…


Putting aside the messy procedural concerns of museum ethics for a moment, let’s consider the cogency of some of these financial assumptions.  The current director and chief registrar of the Berkeley Art Museum are unaware of any comprehensive valuation of their collection ever having been produced.  As for the Detroit Institute of Arts collection, there were several competing attempts to place a value on the collection by parties with wildly divergent vested interests.  In 2013, despite the irate protestations of the museum’s trustees, Christie’s agreed to value a small subset of 2,773 objects that were acquired by museum purchase, at an aggregate valuation of $454-867 million.  This represented only 5% of the collection by object, given that the rest had been bequeathed and may have had donor restrictions and other encumbrances. 


However, that does not mean that one can simply multiply Christie’s figure by twenty and ascertain an aggregate value for the whole collection, in that 90% of the value actually resides in less than 5% of the collection, and is unevenly distributed over purchases and gifts alike.  Christie’s also found that an enormous 75% of their appraised value of purchased works resided in just 11 major works of art, and the rest quickly descended into the low three figures for the majority of the remaining collection, creating enormous discrepancies across the spectrum of works, and illustrating the weakness of using this particular sliver of the collection as a benchmark for the value in aggregate. 


A subsequent appraisal of the collection by Artvest Partners placed an aggregate valuation of $2.7 to $4.6 billion on the total of 66,000 objects, but noted presciently that the headwinds from donor lawsuits, market weakness in some categories, the effect of flooding the market, and the notoriety of destroying the venerable museum collection would likely yield, in practical terms, a much more modest return in the range of $850 million (at the top end of Christie’s valuation of the mere 5% of purchased works alone).  A final, competing appraisal by Victor Wiener Associates was commissioned at the behest of one of the bondholders—who stood to lose hundreds of millions of dollars in the looming bankruptcy—and after a quick two-week review process, alternatively placed the aggregate value at $8.5 billion, without countenancing any of these countervailing market effects if the works were actually sold. 


It would seem then that O’Hare’s “triangulation” postulate involves in part the simple extrapolation of this most optimistic valuation ($8.5 billion; 66,000 objects) to the AIC’s larger object count (260,000 objects), yielding the tidy figure of roughly $33.5 billion. 


However, even granting the wildly divergent figures offered here and bracketing for a moment any ethical considerations, do these estimates have any real meaning, if they are in fact intended to justify an actual policy for liquidating art in the public markets?  In other words, if the AIC were to take the unfathomable step of liquidating its entire collection, could it truly expect a $35 billion windfall to come back to the empty institution in a cashier’s check from Christie’s?  Absolutely not, for the manifold reasons that Artvest Partners and others have outlined, in that it would create enormous headwinds for any practical sales plan along these lines.  O’Hare’s breezy approximation of the AIC’s aggregate value appears rooted in untenable foundations.


To help illustrate this, we might look to a more unencumbered benchmark of a museum collection’s actual value.  In 2002, the Rand Corporation published a groundbreaking study by Ann Stone on the collections of the Fine Arts Museums of San Francisco (FAMSF), when the author was granted unprecedented access to the museum’s records over a century.  The study found that a significant portion of the most valuable works in the collection had received a curatorial valuation of fair market value, as the museum staff indicated that they internally use “monetary value as a kind of ‘shorthand’ for quality” in terms of “planning and decision making.”


The museum possessed at the time 112,569 total objects, of which 13,119 objects were accompanied with curatorial appraisals of fair market value; these 13,000 objects at the time had an aggregate valuation of $797 million. Although this figure indeed only covered 12 percent of the total objects in the collection, most of the high-value objects were included.  As a mere benchmark measure, it is instructive that the author also finds “about 90% of the collection’s value resides in less than 5% of the collection’s objects” (or 1,499 objects with an aggregate value of $718 million), even of this smaller cohort of 12 percent.  Given this detailed analysis on an item-by-item basis by professional staff, it would appear that the aggregate value was in the neighborhood of $1 billion.


Granting the many caveats of any apples to oranges comparison, is it really conceivable then that the aggregate value of the AIC collection, with roughly 2.5 times the object count of FAMSF in 2002 (112,000 vs. 260,000), should be valued in aggregate at over 30 times the latter’s internal valuation by curatorial staff, according to O’Hare’s conjecture?  Even granting the different frames of reference, is it conceivable that the Chicago collection should be more than a full order of magnitude more valuable than their close counterpart in San Francisco, which has an equally diverse and encyclopedic collection?  Or is it more likely that O’Hare’s jaw-dropping estimate of $35 billion, rooted partly in a dubious appraisal from the Detroit collections produced for an interested party during a bankruptcy proceeding, is nothing more of a fanciful confection conjured up to justify the wholesale liquidation of assets from the museum’s vaults?


Reasonable people can disagree as to what is an acceptable benchmark, but these rarified numbers underscore that this is actually an exercise in futility if construed as the pretext of an administrative plan to liquidate actual collections in the real world. 


Part of the problem with using these valuations as a rationale for administrative action resides in an insufficient recognition of the actual market forces that affect auction prices, and the unacknowledged role museum collections play in guaranteeing scarcity.  As I have noted elsewhere, the recent $450 million price achieved by Da Vinci’s Salvator Mundi, touted as the “last” Leonardo in private hands, rested firmly on the proposition that the other 15 in public collection would remain there in perpetuity.  If museums broadly adopted O’Hare’s gambit and sought to cash in on their purported riches, they would paradoxically trigger a catastrophic collapse of the markets which served as the inducement for this course of action in the first place.


Whereas outside observers might imagine a large amorphous population of market participants that provide liquidity to stabilize asset prices, similar to the NASDAQ or FTSE, in truth most auctions involve no more than a few dozen actual bidders, and any given lot may engage no more than two or three truly engaged participants.  This means that even subtle adjustments to supply and demand can radically affect expected outcomes. 


For example, in the 1990s the market for Pre-Raphaelite works remained buoyant as several deep-pocketed buyers—foremostly Andrew Lloyd Webber—actively pursued all available masterpieces, but Webber’s subsequent retreat from the market single-handedly precipitated a pronounced collapse in market prices—a market effect that caught the Delaware Art Museum unawares in their own deaccession debacle, when they tried to sell Isabella and the Pot of Basil by Holman Hunt in 2014, only to have it sell to a single bidder at half the low estimate.  As such, any broadly endorsed strategy along the lines that O’Hare and Schneider advocate would likely have the unintended effect that it would almost certainly tank market prices across the board. 


This underscores the inherently fungible nature of art valuations in the first place.  Despite Mr. O’Hare’s accusation that museums have refused to account for their art collections in their asset statements, this is not some nefarious scheme of a cabal of directors, but a straightforward accommodation US museums made with the FASB board in the 1990s, so they would not need to capitalize collections retained under their charitable purpose on their income statements.  Nevertheless, they do indeed maintain aggregate valuations as a matter of course for insurance purposes, usually in the form of a global insurance value in the event of catastrophic loss.  It is perfectly conceivable that the DIA employs an insurance valuation as high as $8-10 billion for such purposes. However, these confidential assessments of the art collection’s insurance value for actuarial purposes cannot simply be translated into a benchmark of what such objects might actually yield in a liquidation scenario through the public auction markets.


But what of the more modest proposal, of just segregating the bottom one percent of the professed value of the AIC collection, and gleaning a tidy $350 million for an endowment to keep admissions free forever?  Well, if it turns out that the true “liquidation value” of the AIC collections is, in fact, closer to $3-5 billion, then this one percent target would yield at most $30-50 million, hardly enough of an endowment to enfranchise anything but a paltry discount to current admissions prices.


Nevertheless, this hypothetical exercise in parsing fungible valuations is thankfully unnecessary, given the real world obstacles to any such liquidation strategy addressed to the bottom one percent of a museum’s holdings.  As the Christie’s appraisal of the DIA collections and Ann Stone’s reconstruction of FAMSF’s collections illustrate, the vast majority of market value resides in just a handful of major works, most of which are the prized trophies gracing the walls of the central galleries.  The bottom one percent, however, is almost certainly freighted with low-value works that are, candidly, almost impossible to sell.


More specifically, having worked directly with the DIA, FAMSF and the Berkeley Art Museum on their collection reviews in the past, I can assert with confidence that one salient feature has categorically stood out front and center in all of their deliberations: as much as they would love to liquidate some of the bottom one percent of works in storage, there is often no cost-effective means for doing so


In truth, the primary obstacle to such an endeavor is not a lack of will or some prurient clutching to outdated ethical norms, but rather that any such transaction would be an enormous loss leader for such institutions, given the costs of administrative oversight and the modest expected return.  Any deaccession must entail an extensive research project to determine any donor restrictions or to secure commensurate approvals from living heirs, and this is a time-consuming and cumbersome process that is not discounted in any fashion for more modestly-valued objects.  As such, the FAMSF and Berkeley have both recently concluded that, in fact, any prudential campaign to reduce some excess in storage would actually cost them more money in administrative costs than they could ever expect to garner in return in the marketplace.


A related challenge is the fixed costs of auction transactions. The average operational cost for selling a work at auction is calculated by one measure to be on average $856 per lot, meaning that in most instances only objects estimated at $2500 or above (assuming a commission of roughly 30%) actually makes the auction house any money in the aggregate. That is why Sotheby’s, for one, categorically rejects consignments valued below $5000, which is a watermark well above the average market price of the bottom one percent of works squired away in most museum vaults.  As such, most museums find that their least valuable collections, in aggregate, are simply unsellable in the traditional marketplace.


For all of these reasons, the notion that museums could simply liquidate their bottom one percent of collections for a cash windfall that would solve most fiduciary challenges is simply a canard.  The reason that frontline museum administrators have not adopted such a policy is that they are for the most part acutely aware of these obstacles, which brings us back full circle to the protestations of O’Hare and Schneider, that museums are clinging to an outdated ethical paradigm when the arcadia of financial independence simply lies beneath their feet in the sub-basement vaults.


On the contrary, any solid professional ethics should be rooted in pragmatics, and the protocols that US museums have adopted have evolved precisely because they allow the institutions to properly function in an optimal framework. Museum ethics are not an artifice of misguided prurience or outdated fealty to bucolic ideals, but have evolved—like most common law precedents—through trial and error and won acceptance precisely because they have proven to aid institutions in abiding by pragmatic norms.  They are adopted principally because they work. 


Thus, for example, museums generally abide by the principle that they will sequester deaccession funds for future acquisitions because the alternative would undermine the edifice of the museum itself.  If all museums had to secure updated annual appraisals for all objects under their purview and publish them on their financial statements, there would be enormous costs and security concerns.  Hence their prudent accommodation with the FASB board not to capitalize collections to avoid that conflict.  Furthermore, cannibalizing permanent collections for operational purposes is like drinking sea water when adrift in the ocean—it might temporarily quench one’s thirst, but it will only hasten the onset of dementia and death.  The history of deaccessions is littered with occasions of museums that tried to carve off parts of their collection for operational purposes, like the Finch College Museum of Art or the Rose Art Museum at Brandeis, only to find that such disgorgements hastened their prospective demise. 


Finally, if all museums were to capitalize collections in the manner envisaged—besides cratering the art marketplace that made such a proposal attractive in the first place—they would abrogate the terms of their charitable purpose, which is the preservation of objects of cultural worth for the public trust, on an implied contract with the donor to retain them in perpetuity.  Exceptions can certainly be made in specific circumstances, but if the exception becomes the norm, it would engender a world in which every institution is fundamentally at odds with its own rationale for existing—where, for comparison, every charitable foundation that supports cancer research commonly diverts 95% of its incoming funds to support staff salaries and related perks.  Such a convention would make a mockery of the charitable purpose on its face.


This does not mean that we do not face significant challenges when it comes to the many objects in museum storage, and that creative and thoughtful strategies need to be deployed to ensure they are more properly enjoyed and utilized, and deaccessions should indeed play a significant role in concert with a prudential collection management policy.  But the wholesale disposal of them on a quixotic vision of a quick and easy profit, in abeyance of any consideration of donor intent, and a commitment to preserving objects of cultural worth for the public trust, probably is not one of them.


© Martin Gammon 2018