Valuetainment - How the Trillion Dollar Art Industry Works & Why Billionaires Use It To Avoid Taxes

00:00:00.000 This building you're looking at looks like a regular building, except it's called Geneva

00:00:03.020 Freeport. It's in Switzerland. It holds roughly 1.2 million art pieces valued at, ready? A hundred

00:00:08.820 billion dollars. Many of the art pieces in there are owned by millionaires and billionaires around

00:00:14.720 the world who have never seen the art. They've never touched it, but they store it here. The

00:00:19.260 question is why? And by the way, art historically has known as being the top three most unregulated

00:00:25.360 industries in the world beyond drugs and sex, prostitution. But why are so many investors,

00:00:31.760 billionaires, millionaires, buying art? Why are they doing that? We're going to take a deep dive

00:00:35.560 in that topic today. So here's what we're going to be talking about. We're going to talk about the pros

00:00:46.840 and cons of investing into art, who the players are, how big of a market is it, what are the most

00:00:50.900 expensive pieces, the history of the players? And then at the same time, how do people value art?

00:00:57.120 How do you look at a piece and say, I think this thing's worth $3 million. We're going to talk about

00:01:00.580 all that today. So first thing we need to know is what is the market cap? Like how much business is

00:01:04.620 really being done with art? Last year in US, we sold $28 billion of art just last year. It grew by

00:01:10.740 third. Second place was China at $13.4 billion. Third place was UK at $11.3 billion. The last 18 years,

00:01:17.660 the top 100 artists, their return has been roughly 8.9% while the S&P has been roughly 3.4%. So these

00:01:25.840 are some of the data. Now, there is no guarantees with art. There's a lot of good stories. There's

00:01:29.740 a lot of bad stories. There's a lot of ugly stories. I'll share a couple of them here with you. One of

00:01:33.660 them is imagine buying an art piece that you sell in 2005 for $10,000. And that art piece 12 years later

00:01:43.440 sells for, you ready? $450 million. That's this art piece here you're looking at called

00:01:50.020 Salvatore Mundi. Here's what you need to know about the story of Salvatore Mundi. So this art piece back

00:01:55.540 in 1958, Sotheby's had it. They looked at it like, okay, it's great. They sold it for 45 pounds, not 45,000

00:02:01.960 pounds, just 45 pounds in 1958. Years later in 2005 in a Louisiana auction, it sold for $10,000. Then

00:02:10.600 eventually they restored it. They looked at it. They said, wait a minute. This was an art piece

00:02:15.960 that was owned by Henrietta Maria, who was the wife of King Charles I of England. And the story is in

00:02:20.880 2011, it was included in the Leonardo exhibition at the National Gallery in London. The show's curator

00:02:27.600 authenticated it as a long gloss Leonardo da Vinci recorded in the collection of, again, Henrietta

00:02:34.080 Maria. Having said that, the moment that happened, and it was validated and backed by a prestigious

00:02:39.860 museum, it was sold to a Swiss businessman, Yves Bouvier in 2013 for $80 million. Then the

00:02:48.860 same year he flipped it to Russian businessman Dmitry Rybolov for $127.5 million. And then

00:02:56.100 in 2017, it sold for $450 million to an anonymous name. Some say it's a Saudi prince. Again, this

00:03:02.280 is a rumor that the Saudi prince bought it. However, what is not a rumor is the fact that this thing

00:03:06.640 was sold for 45 pounds by Sotheby's in 58. $10,000 at an auction in Louisiana in 2005. $450 million

00:03:15.640 in 2017. Those numbers are real. So that's a good story. That's a success story. Let me give you an

00:03:21.840 ugly story about art. So back in the days, Picasso's not doing too well. He doesn't have a lot of living

00:03:26.660 to do. There's a local con man that's selling art, fake art. So he goes to a local artist and says,

00:03:31.860 hey, I got this art piece. I want you to draw similar to Picasso style. And the kid had a

00:03:36.260 Picasso style painting. So he does. He takes it. He says, you know, Picasso, there's this young guy

00:03:41.880 that really admires you. Would you mind if I bring it over to you? I want you to look at it and give

00:03:45.220 me feedback. Tell me if this guy's got some potential or not. Picasso finally apparently agrees to meet

00:03:49.540 with him. They do. And says, yeah, this is not really a good piece. He says, man, that's so

00:03:53.640 disappointing. Can I take a picture with you? He does. He has the picture with him and Picasso and the

00:03:57.940 painting. Picasso dies. Again, this is a story I've read. And then later on, this guy, the con man

00:04:03.860 sells the art piece saying, this is the last art piece Picasso painted. And people bought into it

00:04:08.520 because he had the picture. So there's a lot of that creativity where there is con, there's fraud.

00:04:14.660 There's a lot of that going on because it is the most unregulated industry in the world. However,

00:04:20.200 those are some of the stories you need to know about. Now in America, when you look at the top,

00:04:23.320 you know, auction houses, how are they doing? At the top, you have Sotheby's that did roughly

00:04:29.320 7.3 billion last year. They have offices in 40 plus countries. They're known for selling the

00:04:34.380 Andy Warhol's Orange Marilyn Monroe in 98 for 17.3 million dollars. But they also sold Edward

00:04:40.720 Munich's masterpiece, The Scream, for record-breaking 119.9 million dollars at the time. And then you

00:04:47.840 have Christie's. Christie's 7.1 billion last year. They were the ones that actually sold Beepo's,

00:04:52.620 you know, NFT for 69 million dollars. They have 85 offices in 43 countries. In 2016,

00:04:58.460 they auctioned off Rockefeller's collection, which was a record-breaking sale that they did. I think

00:05:03.480 it was 832 million dollars. So they're second place. And in third place is Heritage Auctions.

00:05:09.340 I've bought a lot of different things from them. Many, I'm talking millions of dollars of pieces

00:05:12.720 from these guys. Last year, they did 1.2 billion dollars. They're based out of Texas. Some of the

00:05:17.740 things that they do. They could do anything from a car to a card to an art piece to comic books.

00:05:23.660 There are a variety of things that they do. And the last one being Phillips at fourth place at 1.2

00:05:28.700 billion dollars. So again, when you look at this, you may say, Pat, I know nothing about this. Well,

00:05:32.080 most people who get into art don't know nothing about this. But there are 6,300 auction houses

00:05:35.460 worldwide for a reason. And there is a reason why art in the last 18 years has nearly tripled the

00:05:40.180 returns on S&P 500. This doesn't guarantee it's going to continue doing this. But it is an alternative

00:05:45.960 investment that a lot of people are getting into. So now, the question becomes, how do you value art?

00:05:50.540 Because when you value a house, what's the realtor going to say? Appraiser? They're going to say,

00:05:54.560 well, that house, same size as you with the bedroom with the same lot sold for 628. That one sold for

00:05:59.540 639. That one sold for 648. Your house is roughly worth 631 because there's comps. In art, there's not

00:06:05.480 really comps. There's many different ways of value in art. We're going to talk about that right now.

00:06:09.980 Number one, supplying demand. Is there a market for it? Do people want to buy it? Number two, is it sold

00:06:14.340 privately or at an auction house? If it sells at an auction house, the auction house of Christie's,

00:06:20.340 when Christie's said they're selling people's NFT, everybody was like, wait, what? There was 33 people

00:06:26.340 at the end above a million dollars that were bidding for this NFT. But Christie's, in a way, validated

00:06:32.700 that NFTs are now a thing. So anytime a big auction house comes behind an artist, the value that artists

00:06:39.500 and their pieces goes higher. Number three, artists. There's some artists that people are fascinated

00:06:43.880 about. I'll give you one example. Banksy is an anonymous artist that nobody knows who

00:06:48.780 he is. There's some claims of who he is, but nobody knows really who Banksy is. He pulled

00:06:52.280 off one of the biggest stunts at an auction. So the auction's over with. Somebody bids on

00:06:56.240 his piece for $1.4 million. The moment they hit the hammer, the art piece starts ripping

00:07:02.280 apart at the bottom. People are flabbergasted. You should see the reaction of people. Like, wait

00:07:07.100 a minute, what just happened here? And then Banksy puts it on his Instagram and he says,

00:07:12.020 going, going, gone. Well, don't worry and don't feel bad for the guy that bought it

00:07:16.720 for $1.4 million. Sotheby's has it back on auction right now for $25 million. It's shredded

00:07:23.140 and people are willing to pay $25 million for a shredded art piece. Again, there's the artist

00:07:28.780 that's attractive that people say, I want a piece by this guy. Number four, career and

00:07:32.780 size of artwork. Meaning, you know, what was his career like? Is he still producing? Is

00:07:36.680 there a limited amount? Is it, is the artist dead? Many times when the artist dies, the art

00:07:40.980 piece goes more because he can't produce it. They can't make any more of it. So career

00:07:44.900 and size of artwork also determines the value of the art piece. Who supports it and who's

00:07:48.980 owned it? If a major name buys an art piece and they say, Barack Obama just recently bought

00:07:55.020 this, this, this. Elon Musk just bought this art piece. And you know, like I'll go to Wynwood

00:07:59.860 in Miami and many of the places I'll go to, they'll say, this art piece was also bought

00:08:04.040 by Elon Musk, Jeff Bezos, Donald Trump, and Barack Obama. Like, oh wow, there's credibility

00:08:08.200 behind it. With pictures of individuals who bought that art piece, there's some credibility

00:08:12.340 and valuation on pieces goes high. The beauty is in the eye of the beholder. What does this

00:08:15.980 mean? You know how they say there's always somebody for somebody and you look at someone

00:08:19.100 and you say, I cannot believe she married him. What the, it doesn't matter. She sees something

00:08:25.300 that you don't see. The beauty is in the eye of the beholder. Whoever wants to buy that art

00:08:29.360 piece. I've seen some art piece. I'll stand in front of an art piece and I'll look and I'll

00:08:32.720 say, I am so confused. I'll say, what was this person on when they painted this thing?

00:08:38.400 And another person is standing next to me, but I'm not saying my thoughts out loud and

00:08:41.760 I hear them say, what an incredible piece. It doesn't matter what I think. This person

00:08:47.060 thinks it's incredible. They're willing to pay $600,000 for it. It's a $600,000 art piece.

00:08:52.840 Sentimental and cultural value. What does this mean? It could be a piece that has to do with

00:08:56.220 your heritage, your background. You're Armenian. You see something that has to do with your heritage.

00:09:00.300 You say, well, this is worth a half a million to me, but $20,000 to this person doesn't matter

00:09:04.660 because it's value to me. I'm going to buy this. I'm going to pay for this. So there's

00:09:07.300 some value to it. Another one could be a piece that was stolen many years ago, 20, 30, 40

00:09:11.900 years ago, 50 years ago. And now all of a sudden it's shown back up. Wait a minute.

00:09:14.780 This thing's been gone for 50 years. We thought it was completely gone. It's not resurfaced.

00:09:19.000 I'm willing to pay X, Y, Z dollars for it. So again, it may not be the traditional way to

00:09:22.780 get a comp of value in something, but that's how they value art pieces in that industry.

00:09:26.800 Picasso once was in a park and a lady comes up with, you know, and says, Hey, can you

00:09:32.260 make this portrait of me? And within a few minutes, he draws a portrait and says, here

00:09:38.220 you go. 5,000 francs. The lady's like, wait, what? 5,000 francs? It took you a couple minutes

00:09:43.220 to paint this thing here. It says, no, madam, it took me a lifetime to learn how to do this

00:09:48.220 here. 5,000 francs. The artist who has spent a lifetime learning how to do this gets to ask

00:09:55.520 for the price because it wasn't just a 5-minute, 10-minute piece. Like the engineer comes in

00:10:00.220 and says, hey, you know, can you please fix my AC? It's not working. And he goes and he

00:10:04.260 says, yeah, it's that one button. They press, the AC's not working. They said, $600. Why

00:10:07.580 am I paying you $600? I could have done it myself. Yeah, but you don't know which switch

00:10:10.780 it is. That's a form of being an artist. Today's sponsor is Masterworks. Matter of fact,

00:10:14.520 I really like what Masterworks does because a lot of people can't afford to buy a whole art

00:10:19.420 piece for $2 million. What Masterworks does is they buy the art piece, they file it with

00:10:24.760 the SEC. Then members are able to buy and sell shares. That's what they do. Now keep

00:10:29.940 in mind, you know, this is like you can't buy all of Apple for $2.5 trillion, but you

00:10:33.900 can buy an Apple stock for a few hundred dollars. Similar story. One thing you need to know about

00:10:38.000 how much wealth is being held in art today is an estimated $1.7 trillion. Millionaires,

00:10:44.400 billionaires have held their wealth in art. Deloitte says it's going to increase another $900 billion

00:10:49.040 by 2026. What Masterworks does is the last five paintings they sold since 2017, they're

00:10:54.740 average rate of return was 26.8% and contemporary art prices have outperformed S&P 500 total return

00:11:02.240 ready by 164% the past 26 years. So if this is something you want to take advantage of,

00:11:09.640 we're going to put the link below. There is a waiting list for people that are trying to get

00:11:12.960 into this program with Masterworks, but because you're part of Valuetainment, if you click on the

00:11:16.920 link below and you go through Valuetainment, you will skip the waiting list and you'll be able to

00:11:20.200 start buying and selling shares immediately. Now, let's talk about the pros and cons of investing

00:11:26.660 in art. Let's start off with cons first. Number one, when you buy an art piece, there is no dividends

00:11:31.540 for you. You're just buying an art piece. It's not like every quarter or every year you're going to

00:11:35.500 get some kind of a dividend payment. Number two, you need a lot of money to get into it. It's not

00:11:39.980 a business you get into with $5,000 or $10,000. You need some money to really get into the art

00:11:44.400 industry. Number three, there are a lot of fake and forged paintings out there that you need to

00:11:49.280 write people verifying it to make sure you're not buying it and it's worth nothing. How you do that,

00:11:54.860 if you're newer in the industry, you may be taking advantage of at times. Number four, if you do choose

00:11:59.720 to store it in your house, if you damage the piece or your kids damage it or somebody damages it,

00:12:04.520 the value obviously goes down. Investing is a gamble. Just like anything, if you go into an industry

00:12:08.800 you know nothing about, it is purely a gamble. So it's going to take you a minute or a few years to learn

00:12:13.740 the industry before you start making some money. Next, art is not as liquid as you know stocks and

00:12:18.420 mutual funds. You can sell some of those. It's not as easy to sell an art piece at the price that you

00:12:23.280 want to sell it at. Next, sometimes a great art salesman can sell you a piece because they're so

00:12:28.580 charming and charismatic but that piece is not really worth that much. So you got to kind of be

00:12:32.620 careful with the salesperson as well. Okay, so now let's talk about some pros. Number one, it's an asset

00:12:37.020 class that has grown exponentially in the recent years. So you ought to take a look at it. Number two,

00:12:43.140 it is a hedge against inflation. There are a lot of pieces where inflation is going up. If they're

00:12:47.120 no longer reprinting or drawing this piece and that piece is $50,000 today and inflation keeps

00:12:53.280 going up, that is a form of a hedge against inflation. Next, a form of diversification. If

00:12:58.060 you got all your money in one thing and you're not hedging it against you know other alternative

00:13:02.200 classes, this may be a form of diversifying some of your investments. Next pro, if you buy it,

00:13:07.180 it becomes scarce. Something happens that's going to go up in value. Anything scares nowadays, cards,

00:13:12.460 cars, painting, comic books, value is going to eventually go up. Next, if you actually like art,

00:13:19.380 there is a certain experience when you go into a house and there's art pieces there. I was looking

00:13:24.580 at a house in Palm Beach with a realtor who was selling Donald Trump's last house, one of the

00:13:29.060 houses he had in Palm Beach. He was asking for $140 or $145, $145 million and I went in there and I'm

00:13:34.660 looking at the house. I'm like, oh wow, so many art pieces. He says, this is my art collection.

00:13:38.460 $70 million worth of art collection he had in there. I said, are you selling a house or are you

00:13:42.780 selling art? He says, kind of both. Do you want to buy any of the art pieces if you don't want to buy

00:13:46.420 the house? But the point is, when somebody comes into a house and there's an art piece there,

00:13:51.440 there's a story behind it. So that idea of explaining, let me tell you the history about

00:13:56.160 this art. There are some tax incentives to owning art. You know, like you heard the story earlier,

00:14:01.040 Rockefeller's 2016, $832.6 million when they sold their art collection to charity. They can give

00:14:08.380 it to charity, but maybe that art collection when they bought it was only $40 million and now it's

00:14:12.120 worth $832. That's a big write-off right there because the valuation is the valuation. So there

00:14:16.760 is also tax incentives when it comes down to art. Of course, not an accountant, not a CPA. Talk to an

00:14:22.940 expert about that, but many do it for the tax benefits as well. And last but not least, you can

00:14:27.500 actually make some money in this business. It's not guaranteed. There's a lot of risk, but you can

00:14:31.460 actually make some money in the art business. So if you got value out of this video and some things maybe

00:14:34.780 you didn't know about, give it a thumbs up, subscribe to the channel, and I got another video I want you

00:14:37.860 to watch. This video, I don't know how many, maybe three years ago I shot this video about my million

00:14:42.000 dollar card collection that I had at the time. Today it's more like $8 to $10 million. But it shows

00:14:46.700 how this thing works. I bought two cards, Gretzky cards, at $540,000. Year and a half later, I sold it

00:14:53.560 roughly for $2.2 million. It was a world record for the most expensive hockey card ever sold. One of the

00:14:59.400 cards that I sold for $1.29 million with Heritage Auctions, six months later, sold roughly for $3.7

00:15:06.460 million. If I would have hung on to those two cards that I spent $540,000 today, both of them

00:15:11.900 combined today would be roughly around $5 to $6 million. That's the part about alternative

00:15:16.980 investments. There's many different things you can look into. If you're interested, take a look

00:15:21.100 at this video. Take care, everybody. Bye-bye, bye-bye.

Valuetainment - October 03, 2022

How the Trillion Dollar Art Industry Works & Why Billionaires Use It To Avoid Taxes

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