Dark Art Markets
On January 26, 2020, nine people were killed upon impact as a Sikorsky S-76B helicopter came crashing down into the city of Calabasas, California.
Among those killed on board were the famous Los Angeles Lakers basketball player Kobe Bryant and his 13-year old daughter. In the following two years, the price of Kobe Bryant basketball cards increased by a an estimated of 600% culminating in the March 2021 sale of a 1996–97 Topps Chrome Refractors #138 Kobe Bryant Rookie Card in pristine condition for around $1.8 million dollars.
With the memory of the crash and the subsequent fading of interest in the celebrity basketball player, prices on collectibles are likely to fall as a consequence. But the rise of NFT’s is bringing innovation to an art and collectibles scene that has not seen much innovation since Greek scribes invented the auction in around 500 B.C. which must have eventually been applied to things beyond the ancient Greek practice of slavery. It is time to talk about the darker aspects of art investment that no one wants to talk about, the death of the artist.
The art world is a difficult and mysterious world to outsiders. The glamour and prestige shrouded behind the closed doors of a mansion secluded in some not-to-remote place, beyond the reach of mere mortals. Art investment is even more mysterious as the ownership records on some paintings attest. Sometimes less than a few hundred people ever even see many works of art valued in the millions of dollars in person. There are reportedly only two of those Kobe cards in existence.
Scarcity must be apart of the equation in more than one way, but all this recent talk about investing in art should bring to mind William J. Baumol’s famous 1986 paper entitled “Unnatural Value: or Art Investment as Floating Crap Game” where he argues that “prediction as applied to stock prices is a losing game, it is certainly unlikely to be a winner in the market for works of art.” Disagreements about the Efficient Markets Hypothesis aside, it is at least worth noting that art investors seem to disregard actuarial assumptions about human mortality when it comes to celebrities.
This is to say that investors are awfully slow to understand that a famous person like Kobe Bryant might have a fatal helicopter crash at age 41. A somewhat morbid article in MedPage Today asked just how probable this was and came to the conclusion it was something like one death in 100,000 hours of travel for commercial flights so for Kobe’s hour-long trip it was fairly unlikely. The point however, is that it didn’t have to be a helicopter or a car crash or a heart attack or a mugging gone wrong, accidents happen and people die every day.
NFT’s are very early and many of the artists will not have real deaths but some may have digital deaths where their anonymous accounts fall into a void. Eventually the market will develop and use features of the existing art markets with all their celebrity interests, but it’s also likely that NFT’s, which really just represent ownership interests or legal documents as code on a blockchain, can develop into much more than just art speculation. It’s about more than JPEG’s and cryptographic keys, the medium for generating art in the 21st century will be communities and NFT’s are a technology that can help us get there.
If one wanted an art investment thesis that could potentially violate Baumol’s arguments it would be to purchase collectibles and artworks related to people who are still alive, recently popular and who are actuarially likely to die soon. This seems quite morbid, but it seems a more straightforward and correct thesis than any theory that one can predict social moods and the whims of fashion on any long term horizon. Of course the shocking death of a young celebrity sells newspapers, but it also sells art, and violates the EMH in the process.
Some believe that this is not the case, at least not in the fine art markets. There a story is told about artists who, notwithstanding a sudden death or secret troves of unreleased art, gracefully grow old with lowered productivity along the way leading to a sort of smooth transition into a market equilibrium that remains unperturbed by the death of the artist. So while this may not hold quite as rigorously for art, it could still hold for autographed collectibles like baseball cards and books. Presumably the author, athlete or other celebrity can write their own name up until the day they die, but after that day they will sign no more.
To beat the market you need an edge. Your edge in NFT’s as in the traditional art markets is probably not in some hyper-awareness and attunement with future fashions. It is more likely to be in the reality of community, of life and of death. With that in mind and no offense to any current celebrities, I’m off to arbitrage some autographed books by famous late middle-aged professors for under $100 as call options on human mortality in the short run.
