When taxi magnate and art collector Robert Scull sold Thaw by Robert Rauschenberg for $85,000 in 1973, after having bought it for only $900 fifteen years earlier, an outcry from the artist ensued. “I’ve been working my ass off for you to make that profit?” Rauschenberg protested.

More recently, David Hockney’s painting Portrait of an Artist (Pool with two figures) was sold for $90.3 million at Christie’s after being originally purchased for $18,000 in 1972. And just last November, Amy Sherald’s painting Welfare Queen was sold for $3.9 million at Phillips New York — an artwork bought in 2012 by Princeton University Professor Imani Perry at a much lower price.

Portrait of an Artist (Pool with Two Figures) by David Hockney. Image courtesy of Singulart Magazine.

While the initial sale of an artwork happens on the primary market, resales happen on what is known as the secondary market, such as auction houses. According to the 2022 Art Basel and UBS Global Art Market Report, global art sales reached $65.1 billion in 2021. Out of those, $26.3 billion came from auction sales.

When most visual artists are only getting paid from the initial sale of their work, but resales represent 40% of the global market, shouldn’t they benefit from the secondary market as well?

According to the U.S. Copyright Office, an artist resale royalty, also known as droite de suite, “provides artists with an opportunity to benefit from the increased value of their works over time by granting them a percentage of the proceeds from the resale of their original works of art.”

Introduced in France in 1920, resale royalties have now become a common practice throughout the United Kingdom, the European Union, Australia, most of Latin America, and other locations, although not in the two countries with the largest auction market shares: the United States and China.

According to former Stanford Law Professor John Henry Merryman, there are two main justifications for resale royalties in the art world. The first is the notion that artists generally struggle to make a living from their art and earning a percentage from secondary market sales could provide ailment.

The second is the knowledge that an artwork increases in value because of the artist’s rise in notoriety due to their continuous work and effort and being compensated would only be fair. The renown of a work of art will invariably be correlated to the renown of the artist.

Furthermore, visual artists appear to be singled out in this regard when other artists such as composers, authors and actors have introduced royalties into their business models. In the UK publishing industry, an effort is currently in motion to pay authors royalties for the sales of used books.

On the other hand, there are those who believe the implementation of resale royalties would negatively impact most artists. Part of the claim is that resale royalties would in fact reduce the price for the initial sale when buyers took into consideration the requirement to pay the artists again at the event of reselling their work. Since many artworks don’t reach the secondary market, this could represent a problem.

Sotheby’s New York. Image courtesy of The New York Times.

Another factor that has renewed interest around resale royalties is the emergence of Non-Fungible Tokens through blockchain technology. “An NFT can be thought of as a unique digital claim to an asset,” Linda Chew, Head of Business Operations and Strategy at Forte, explains. “From the moment an NFT is created or minted in blockchain parlance, a permanent digital history of its ownership is recorded, and any changes in its ownership are tracked and recorded on a blockchain.”

This permanent recording of ownership history combined with a smart contract that can automatically send a percentage of the resale to the artist, would facilitate the process immensely. Tech start-ups such as Fairchain, founded in 2019, are betting on this to provide a more sustainable business model for both artists and galleries, “If widely adopted, as it should be, it could be pretty revolutionary,” said the artist Hank Willis Thomas, who is also an adviser to the company.

However, trading art among different blockchain platforms still represents a problem, as Web3 content creator Connie Digital explains: “There’s a proposal to create a standard NFT framework for resale royalties that ensures an artist is paid on every resale, despite what marketplace it’s sold on.”

Still, resale royalties may not be the only path to a sustainable income for artists. Fractional equity in the art world refers to a collectively owned piece of art, much in the way that stocks work. In this framework, both creators and collectors can act as investors who own a share of the artwork and reap financial rewards in the future, as well as share the risk.

The management of fractional shares can also be facilitated through blockchain technology and is now a reality through Fine Art investment platforms such as Maecenas, which tokenized 14 Small Electric Chairs Reversal Series by Andy Warhol in 2018.

In the spirit of Decent Work and Economic Growth, a United Nations Sustainable Development Goal, the conversation around creating a fair art market must translate into reality. One in which all actors involved in the success of a work of art – dealers, collectors, and artists – can have a fair share.

To learn more about NFTs and their impact on the art market, check out our Conscious Crypto Creator Mini Master Classes.

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