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The Keith Haring work that Anatole Shagalov failed to pay for was not simply any other lot offered in an Evening sale. When it sold in May 2017, the work set a record price for Haring, an artist whose market has been long-anticipated to take off. The 1982 painted tarpaulin measuring nearly 10 feet square was a solid candidate to reset the Haring market.

It almost doesn’t need to be said. But the art market takes its pricing cues from prominent public sales. When the untitled tarp made $6.5m at auction, it should have recalibrated expectations for potential buyers in the public and private markets. It would also have sent signals to owners of Haring’s work who might want to offer their works for sale.

Following on that point, it is important to remember that the public records of the sale remain in place despite Shagalov’s failure to pay. Thus the market has a false narrative of demand for Haring’s work and the prices collectors are willing to pay. Now that we know more about the fate of this sale and the value of its resale, let’s take a look at Haring’s market over the last several years.

Before we look at the market history, let’s dispose of the record-setting work and its resale. After Anatole Shagalov failed to pay for the work, Sotheby’s went back to the other bidders seeking the best possible price. The results are telling about the way an auction adds value and how quickly the aura of value can evaporate.

It Only Takes Two …

Below is the bidding schedule from the May 17, 2017 sale of Keith Haring’s Untitled work. The painting had a guarantor and was estimated at between $4m and $6m. The first bid recorded is $200k below the low estimate. It was followed by a bid at the low estimate presuming the work would sell there having reached the reserve price.

At this point, Shagalov entered the bidding at $4.2m. His bid was followed by the entrance of a third bidder at $4.5m. The first two bidders were clearly not up for the fight and withdrew from the competition. But Shagalov wasn’t to be deterred. He countered with another $200k. The new bidder chopped the bid to $100k for $4.8m. Shagalov made another valiant effort to shake off his rival and bid $200k more to hold the 5 handle of $5m. From there, the underbidder and Shagalov traded chopped $100k bids all of the way up to $5.6m where the underbidder packed it in.

When Shagalov failed to pay for the work, Sotheby’s went back to all of the bidders. Naturally, the underbidder did not feel obliged to pick up their bids having come in after Shagalov. (Imagine if you were asked to pay a price you bid against someone who proved not to be a serious buyer?) That left two other underbidders. One came in below the low estimate and was not likely to pay more. The last of the bidders, who offered the $4m bid, was likely the third-party guarantor. No longer bound by their guarantee, the bidder nonetheless wanted to work of art and was still willing to pay that price.

Now, one of the features of the lawsuit involving Sotheby’s is Shagalov’s claim that Sotheby’s resold the work below market price. Shagalov even tried to adduce evidence of a buyer at $5m but the court papers show there was some irregular activity that makes it hard to credit the price. The buyer was simply unaware of the contretemps around the work and would not have paid $5m for a work with a recent history of market turmoil. Indeed, Shagalov’s own behavior in the private market shopping the recently purchased tarp to finance firms and private buyers has somewhat devalued the record sale by revealing it to those in the know as a sham and putting others off the broader Haring market.

Luckily for the consignor and Shagalov, the guarantor paid $4.4m for the painting validating the market and making Sotheby’s partially whole on the transaction. Sotheby’s made good on its commitment to the consignor by paying the $5.6m he or she would have received from the sale. The auction house then sued Shagalov for the remaining $2.13m.

Signal Strength

Whatever Sotheby’s ends up recovering from Shagalov, the damage here isn’t confined to the auction house and the failed bidder. Every sale becomes a data point for the broader market. Private deals are priced off the public sales of similar works. The broader market for Haring’s work is also signaled by any sale but a record price sends an even more important signal about demand for the artist’s work and how it is ranked relative to other artists.

As one observer points out, the price information about these sales does not get updated. Neither Sotheby’s own site nor artnet will change the sale price for this untitled tarpaulin from $6.5m to $4.4m. Smart and sedulous market participants might know that the price ought to carry an asterisk but anyone who doesn’t can’t reasonably be blamed for their ignorance.

The previous and once-again record price for a Haring was the $5.5m paid for a work, The Last Rainforest, sold by photographer David LaChapelle at Sotheby’s in June of 2016. The Last Rainforest is one of three paintings that the artist completed after he learned he had AIDS in 1989. Originally planning to create 100 works, Haring was only able to finish three. As such, the catalogue essay from the sale suggests, “it should be viewed as Haring’s artistic last will and testament; a socio-political warning shot to those who would outlive him and a formal summation of his cruelly curtailed career.”

Whatever the painting’s position in Haring’s oeuvre, it remains substantially ($700k) more valuable than the works that lie below it on Haring’s record price listing. The graffiti artist’s market has cycled through different market phases. Just before the collapse of the global financial crisis, Haring’s work had seen a market peak in 2007-2008. The next several years were a dormant period until 2014 when Sotheby’s was able to sell during one Evening sale in May of 2014 three different tarpaulins for prices ranging from $3.78m to $4.59m to $4.87m.

Prior to that night, the previous record had been set at $2.86m in 2008. In fact, to give one a sense of how the Haring market cycled between the high of 2007-2008 and the re-birth in 2014, there was a work sold in both periods. The massive 10ft by 12ft tarpaulin Tree of Life (1985) was sold in November of 2007 for $2.169m. It came back to the market in July of 2014, in response to the three solid sales at Sotheby’s in May, but could only advance the price after seven years to $2.64m or less than $500k.

The remainder of 2014 saw two more big prices above $2m and a work that failed with a $2.5m low estimate. Whatever happened in May of 2014 at Sotheby’s, the market effect was not easily replicated. In 2015, the Haring market saw four prices over $1m and one work that failed with a $2m low estimate.

It wasn’t until June of 2016 when David LaChapelle’s The Last Rainforest came up that there was anything like fireworks in the Haring market again. That record price made the market sit up and notice. In November, there were three works that sold over a $1m, one at Phillips and two at Sotheby’s. The work at Phillips was actually a pair of works that sold for $1.1m over a $1m high estimate. At Sotheby’s, two works on white ground did well. One had a $900k high estimate and made a respectable $1.069m. The other was a four foot square self portrait of the artist that was sold for a solid million dollars over the $3.5m high estimate.

A little more than a year later, the price on The Last Rainforest was effectively confirmed by the self portrait’s sale. Taking the size of the work into account, Haring’s market finally seemed to have momentum. With that in mind, Katya Kazakina’s reporting about the untitled work that Shagalov tried to buy makes some good deal of sense:

The painting was sold in December 2016 at Art Basel Miami Beach by the Dominique Levy Gallery, where it was offered at $3.9 million. It appeared at Sotheby’s auction the following May, estimated at $4 million to $6 million in the kind of quick turnaround that’s generally frowned upon in the fine art industry.

The buyer probably didn’t pay the full asking price for the work. But when he or she consigned it to Sotheby’s, the owner didn’t have to wait long to lock in a profit. Some time before the sale, Sotheby’s secured a $4m irrevocable bid. What’s interesting is that after the Shagalov sale fell through, the guarantor, who presumably would still have received his or her share of the profit from the $6.5m sale that Sotheby’s was honoring, decided to buy the art work outright.

In other words, while the rest of the market moved on, the guarantor passed up a no-risk profit to take a long position on the Haring market by owning the work. That bullishness comports with what happened before and after the Shagalov sale set a new record. Earlier the same day that Shagalov would set a new record, a work in Christie’s day sale made a solid but not spectacular $1.8m against a $1.5m low estimate.

In June, Sotheby’s and Phillips did good Haring business with Phillips making $1.22m over a $1m high estimate on one work and Sotheby’s making $3m over a $2.3m high estimate on another. Back in New York that Fall, Christie’s landed within the estimates on a $4.2m sale; Sotheby’s make almost $800k more than the $1.5m high estimate on a 6ft square tarpaulin.

Will the now-public scrutiny surrounding the failed Shagalov sale put the Haring market back in the cooler it seemed to be hiding in from 2008-2014? Or, like the guarantor who opted to buy the tarnished tarpaulin, is there more depth to this market? Are buyers simply waiting for another work on the level of LaChapelle’s?

Sotheby’s Battles Art Dealer Over Keith Haring Winning Bid  (Bloomberg)