Fractional Equity, Blockchain, and the Future of Creative Work

Abstract

A core challenge in studying the real return on artist' work is the extreme difficulty accessing private records from when an artwork was first sold and thus relying on public auction data. In addition, artists do not typically receive proceeds after the initial sale. This paper, for the first time, uses archivally sourced primary market records to model returns on art and introduces a novel fractional equity structure for artists. We first model what would happen if the American artists Jasper Johns and Robert Rauschenberg had retained 10% equity in their work when it was first sold. Second, we model a portfolio return using data from the Betty Parsons Gallery and the Green Gallery. To add a portfolio analysis to the performance of “star” artists, we model the galleries as a fund invested in all of artworks sold, using auction sales as the realization event. We find that the individual Johns and Rauschenberg works would have vastly outperformed equities markets. The gallery portfolio still substantially outperforms the S&P, even including 20% transaction costs. Beyond the art market, our larger conceptual framework for retained fractional equity has broad implications for compensation of early-stage creative work in any field and for potential applications of blockchain technology. This paper was accepted by Karl Diether, finance.

Combating Copycats in the Supply Chain with Permissioned Blockchain Technology

“…New technologies, such as blockchain technology, are key drivers that change the business environment (Babich and Hilary 2020, Choi 2019, Guha and Kumar 2018, Hastig and Sodhi 2020, Niu et al. 2019, Whitaker and Kräussl 2020). Gartner estimates that BNCs' products with a value of US$5 billion will contain blockchain technology by 2023, and this number will continue to increase over the next decade (Dimitrov 2019).…”

Economies of scope in artists’ incubator projects

“…Whitaker and Grannemann ( 2019 ) have applied ideas of risk pooling to the arts, proposing that artists pool their resale royalties and that performing artists pool their equity shares in order to hold diversified exposure to the proceeds of their work. Whitaker and Kräussl ( 2020 ) have proposed fractional equity in art empirically, demonstrating that artists would benefit by holding shares in the art over time. This combined approach of diversified investment and retained equity leads to newer forms of individual investment practice for artists.…”

“…The logic stems from resale royalties for art, the percentage shared back to the artist when an artwork is resold in the secondary market. Some have proposed fractional equity in art that is managed by contract not, as resale royalties are, by legislation (Whitaker 2018 ; Whitaker and Kräussl 2020 ). Here, we can imagine fractional equity in concert with pooled investment trusts for the fellows within organization (Whitaker and Grannemann 2019 ).…”

Social Exclusion in the Arts: The Dynamics of Social and Economic Mobility Across Three Decades of Undergraduate Arts Alumni in the United States

“…Entrepreneurial education can also support artists to manage the early-stage risks and uncertainty in valuing creative work (Whitaker, 2018; Whitaker & Kräussl, 2020). Visual artists are typically paid in the primary market—when work is first sold—and do not receive a share of the proceeds when an artwork is resold in the secondary market except in jurisdictions that have resale royalties (DACS, 2016; U.S.…”