As the details trickle out of the Annie Leibovitz battle with Art Capital Group, a couple of interesting patterns emerge. The first is the simple observation that two major artists have met their financial ruin in the quaqmire of West Village real estate. Though the Village remains a charming place to live, one wonders what magic allure has driven both Julian Schnabel and Annie Leibovitz to lose their fortunes over grandiose homes among cobblestone streets.
Second, it would appear that both sides in this battle have made a bad deal. Art Capital Group offers loans against collateral that greatly exceeds the value of the loan; but disposing of that collateral these days may be very difficult, especially with an uncooperative seller. The danger in doing business with a firm like ACG is that a short-term loan will end up becoming a flat out distressed sale.
Something like that seems to have happened here as financial blogger Felix Salmon points out while quoting the complaint:
“Plaintiff obtained an appraisal for certain of the Fine Art Collateral which exceeds the loan amount and, if sold at that amount, would not only allow Defendants to satisfy their loan and other obligations to Plaintiff and its affiliate, but also allow Leibovitz to earn a profit, and to obtain financial comfort and financial stability going forward”
The implication here is that ACG can sell the Leibovitz photography rights for a sum well in excess of $24 million, pay itself commission, pay off the loan, pay off the “other obligations”, and still have enough left over to keep Leibovitz in “financial comfort and financial stability”. Her homes wouldn’t even need to be sold at all.
In other words, Leibovitz had to pledge her most valuable possession, her work, as collateral for a short term loan to set her finances in order. Timing appears to have been an issue here as well. In June 2008, the art market remained strong, Leibovitz’s art and real estate assets were likely to be appraised well.
Bloomberg gets a dealer on the record commenting on the odd nature of the deal:
“It’s like the Beatles’ signing away their catalog,” said Helene Winer, co-owner of New York’s Metro Pictures gallery, which represents photographer Cindy Sherman. “It’s a very odd thing to do, to give away control over your work.”
One assumes Leibovitz and her advisers set to work raising money right after they secured the $22 million short-term loan that ACG offered. [Felix Salmon points out in the comments that Leibovitz was prevented by her agreements from selling any of the assets pledged against the loan. That raises the big question: where did she hope to get $24m to satisfy the short-term loan?]
After all, that would be the purpose of a short-term loan from ACG, you pledge something worth a lot more than $22 million in order to buy the time to make other financial arrangements. Except you might not have foreseen the global financial crisis that would make it nearly impossible to execute a large art or real estate transaction for a year or more.
Worse, it appears that Leibovitz went back to ACG in December to improve her loan terms but also receive more money. In increasing her loan to $24 million, she reduced her interest rate by 2.75% but increased her exposure to ACG by agreeing to a sale of her body of work. Here’s the New York Times:
In December, Ms. Leibovitz entered into another agreement with Art Capital and its subsidiary, which increased her credit line to $24 million and lowered her interest rate. In exchange, she signed a sales agreement that authorized Art Capital to sell the rights to her photographs and her homes, and to collect a commission on those sales, the suit alleges. The proceeds of such a sale would be used to pay back the $24 million Ms. Leibovitz had by then taken out, and to pay off fees and commissions to Art Capital, with anything left over to go to the photographer.
In the eight months since the new deal was made, Leibovitz’s team doesn’t seem to have been able to pull off a sale a deal that would replace the $24 million. What could they have been planning in December? Who were they planning to get the money from and how? Did something fall through because the financial crisis froze photography and real estate markets? What role has the collapse of the media played in their miscalculation?
Whatever the miscalculations, time is running out on Leibovitz’s loan–the $24 million is due in September. A serious stalemate has developed. Both sides have a lot of leverage. But the situation may remain beyond the control of either side. It’s not clear ACG will have any better luck finding buyers for Leibovitz’s assets than she has.
Annie Leibovitz, Subprime Borrower (Felix Salmon)
Leibovitz, Photographer, Sued Over $24m Loan (Bloomberg)