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Economics of Strategic Behavior - Tom's Thoughts

Essay by   •  April 13, 2012  •  Essay  •  647 Words (3 Pages)  •  1,605 Views

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Economics of Strategic Behavior - Tom's thoughts

For the project, high level I think we talk about the art market briefly, then the art financing market (with lots of charts), find it is fairly developed at the classical level, but "uncover" there is nobody doing this in contemporary / developing markets/niches.

That could probably be the semi boring core of the econ / strategy paper where we go through some sort of structured analysis and market research (which is 99pc done).

For the more interesting part, I was thinking of a few things which are not novel by any means but may be to the art market and specifically related to art finance, and especially with contemporary below a certain $ level.

From here on out I am just making up stuff here which may or may not make any sense in the art world. Basically trying to find a financing / managing gap and fill the niche.

Contemporary art is risky, but certainly there will be some winners, big winners. Presumably some people are better at picking these winners. At the xx dollar level, those are art dealers probably right?

But below that level (xx thousand / painting) is there an accelerator/VC/Lions Lab for budding artists? Art dealers may be too big for this level of artists, who have to fend for themeselves.

What if we could pick the artists who we think are going to be hot artists, essentially make an investment across their collection, and then work with them to promote their brand and also provide seller financing to their eventual buyers.

Importantly, they will have a full collection that would collaterlize our investment. One painting doesn't give us the collateral we would need from one person.

We could provide several types of capital:

1) Growth capital to artists, where their art is collaterailized in our possession. They need money to create more paintings. Its essentially a bridge loan but instead of points we earn equity upside. Targeted at poor artists who need cash bad but want to retain some ownership at paintings.

2) Tradtional VC financing structure - we give 10k for 20pc of their slate of 10 paintings. Valuation is at 50k but we think we can help sell them for total of 200k with our help. Not necessarily distrssed, just artists who want a boost.

Let's say one has 10 works that they really think can be worth $50k each if he just gets the exposure. Now he can only sell them for $10k each. If promoted the right way, he gives up 20pc for $20k, but gets a ton of "free help" to create value.

3) Could also do some sort of seller financing also if we are having trouble moving the first few paintings in a collection.

Of course in 1 or 2, we get our bait back first as

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