I continue to be baffled by the breathlessly uninformed reportage of the supposed sale of Damien Hirst's diamond-and-platinum skull. From the very first news report of the sale in the Evening Standard journalists have gotten it wrong, and everyone else happily repeats the unsupported headline ["Investment group pays £50m cash for Hirst's diamond skull"], as fact, despite plenty of information to the contrary.
If the media and its reflexive echoes through the audience are so easily gulled on something irrelevant, like a diamond skull, what would happen if a serious issue of global importance came along, like someone trying to start a series of wars across the Middle East? [oh wait...]
Forget Carol Vogel's buried bombshell today that the skull is actually an edition of three. Has anyone ever mentioned that before, anywhere? I'm a collector of $100 million sculptures, I want to know if it's unique or a multiple, it's not a trivial question. But whatever.
Forget the persistent claims that it cost $25 million to build. For one thing, it was first reported to cost $20 million to build. Is the difference in reports from the same sources due to late-arriving invoices from the diamond guy? Are they expensing the cost of marketing and security for the show? Is it the heinous-and-getting-worse dollar/pound exchange rate? Or is it willfully and strategically inflated and or shifting claims on the part of Hirst & Co?
First reports from two weeks ago said the sale would close "in three to four weeks," and that Hirst has "has retained a stake to keep some control over what happens to it." Based on a conversation with Hirst manager Frank Dunphy, Bloomberg reported "the price hadn't been discounted and would be paid in cash, though he wouldn't say over what period, or identify the investment group."
If an "investment group" is involved, why not try discussing the deal as if it were any other private equity investment? Consider Hirst as launching a start-up. He invested his own seed capital to make the skull. I'll be generous and say it was $15 million. He has 100% of the skull for $15 million.
Now he brings it to Jay to sell. They say it's now worth $100 million. If it were any other work or any other artist, Jay would take a 50% cut of the sale price, $50 million. But that means Damien would only net $35 million. While I'm sure it's good to be Jay, it's not that good. Jay will get a nice piece of the sale of the thousands of prints, but let's say he only gets 10% of the sale, or $10 million. Now two people have stakes in the skull, though: on paper at least, Damien's $15 million investment is already worth $90 million.
The NYT reports that dealer Alberto Mugrabi's offer of $50 million was refused. No duh. VC money is always expensive, and if you don't need it, don't take it. Mugrabi would've doubled his money on paper instantly, paying just $50mm for a perceived-$100mm work, while Hirst would've netted a mere $30 million [$50 - 5 -15], a return of just 100%. [Note, if the skull actually did cost $20-25 million to make, Hirst's return would've been even worse. Either way, though he thinks his reported offer makes him a player, Mugrabi comes off looking like a lowballing goof.]
But now we come to the "investment group," whose ownership stake in the skull and the price they're paying for it is undetermined. All we know is that the deal gets done at a valuation of $100 million. With two unknown variables, it could literally be anything: $10 million for a 10% stake, $50 million for 50%, etc.
Let's look at one possible scenario, that an investor takes a quarter of the skull and lets Hirst and Jopling pull their own initial investments out: $25 million. Which leaves Hirst with a $75 million stake and control of the skull, which he'll continue to promote around the world. In 2-3 years, after the tour ends, they can sell the skull, or bring in another round of investors at a [hopefully] higher valuation.
Another scenario hinted at by the non-disclosure to Bloomberg is payments over time. Maybe the deal lets Hirst pull his cash out now--$15 million-- and has an earn-out, another payment after the tour, either at the same or a higher valuation.
Jopling could keep his skin in the game, too, by converting his $10 million owed into equity [I would hope he'd get a discount, or at least a nice friends & family offering price, but who knows?]
Since the possibility was raised and not answered, I would guess there's a payment schedule involved. If a deal goes through, it'd probably give Hirst at least an immediate 100% return on his investment, i.e., $30-50 million, for a commensurate share in the skull, with additional payments along the way and/or a nice post-tour bonus/buyout option.
The most aggressive scenario may be the first one reported in The Art Newspaper, which had the skull's price discounted about 20-25% to from 50 to 38 million pounds, $76 million. If this were the offer, and Hirst wanted to preserve the $100 mm valuation, his and Jopling's stakes would be 25%, roughly what they "put in."
Then the question arises again of the timing of the payments. The $100mm price could just as easily be the future value of a series of payments which could total $100mm, but because of the time value of money, would be--aha--discounted to the present value. The most familiar--and in this case, perhaps most appropriate--example of this is the lottery; the $330 million in the US news recently had a lump sum payment of $197 million, 59% of the "value."
By fixing only the announced price and leaving almost every other variable on the table, the transaction value of Hirst's skull could literally be almost anything. The whole exercise exposes the content-free ridiculousness of public obsession with the price of a work of art, especially as an indicator of its importance. [Or rarity. Remember, it's now an edition of three. Are there any artist proofs?]
Or maybe there's a more conceptual explanation. Duchamp opened the door for art to be whatever an artist declares it to be. Perhaps Hirst is simply extending that practice to the work's price as well. Price is not an object, it's the subject. The essence of the work exists in the deal's spreadsheet and term sheet, a score for a multi-year performance of wire transfers and receipts that plays out while most people are distracted by the shiny object.
