Mo’ Money, Mo’ Problems, Mo’ Pictures Of Miley Cyrus

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Annie Liebovitz has been having some financial troubles lately.

Andrew Goldman in New York Magazine:

Lately, however, Leibovitz’s life had taken a decidedly dark turn. Her reference to “tough times” was significantly understated. In the past five years, Sontag and both of Leibovitz’s parents have died. Her debts now total a staggering $24 million, consolidated with one lender with whom she is engaged in a lawsuit and due in September. If she can’t meet that deadline, she may lose her homes and the rights to her life’s body of work.

Friends say Leibovitz has begun to think of herself less as a celebrity artist leading a charmed life and more as a single mother of three fighting to keep a roof over her head and food on her family’s table. It isn’t surprising, then, that she bristled at a lifetime-achievement award. The fear of no longer working is terrifying to her. She has to work. What remains mystifying is the simple question on everyone’s mind that night: How on earth could something like this have happened to Annie Leibovitz?

Felix Salmon:

Art Capital talked Annie Leibovitz into signing a draconian agreement — one which she was all but certain to be forced to default on. The terms were onerous enough to begin with, since they gave Art Capital sole right to sell any of Leibovitz’s work while any of the loan was still outstanding and for two years thereafter. But the terms become really predatory if and when Leibovitz defaults, to the point at which Art Capital expects to make an annualized return on its investment in the 40% to 50% range.

Art Capital did not, however, simply have $24 million lying around when it extended the loan to Leibovitz. As a result, it sold part of the loan to other investors, including Goldman Sachs. And Goldman Sachs, while it’s happy to make lots of money, does not want to be painted as a predatory lender. So Goldman is now Leibovitz’s best hope: if Goldman can buy out Art Capital, it might be able to come to a more Annie-friendly agreement.

The problem is that Art Capital is internally valuing its loan to Leibovitz at much more than $24 million. Goldman could offer to pay Art Capital back in full, with interest, but Art Capital has every reason to reject any such approach, since they would make much more money by allowing the loan to default and then exercising all their contractual rights.

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John Cook at Gawker:

When we reported on that suit last month, we mentioned that Art Capital was also mad at Getty Images for announcing what looked like an agency agreement with Leibovitz in March, in apparent violation of the Art Capital deal. What we didn’t know at the time was that Art Capital had actually sued Getty in April, claiming that Getty pretended to be interested in buying Leibovitz’s photo archive in order to gain competitive advantage in negotiating its own agency deal with her.

According to a judge’s order allowing parts of Art Capital’s suit to go forward, Art Capital claims that Getty CEO Jonathan Klein and vice president Matthew Butson masqueraded as potential buyers for Leibovitz’s photo collection, gaining access to information about it including the “number of shots, rolls of film, exposures, and public works” in the archive, the precise terms of Leibovitz’s arrangement with Vanity Fair, and the fact that Leibovitz owned some of her work for Rolling Stone “without restriction.” As part of Art Capital’s negotiations with Getty, the order says, Art Capital proposed that Leibovitz promise to do eight photo shoots for Getty over the next two years. All-in-all, Art Capital—which made Getty sign two confidentiality agreements—valued the package at $50 million.

Marion Maneker at Art Market Monitor:

This dovetails nicely with other conversations we’ve been having about Leibovitz’s catalogue and the $50m valuation ACG has on it. Just to recap, Art Capital offers loans up to 50% of the value of the fine art collateral it’s been offered. Even if one throws in the real estate that has been valued around $10m, the rights to Leibovitz’s existing work is valued by ACG at $30-$40m.

Leibovitz’s prints have sold at auction for as much as $50,000. Her portraits of Keith Haring, Muhammed Ali and John Lennon and Yoko Ono together are the works that have repeatedly attracted auction bids in the $35-50,000 range. Not really enough to drive a $50m valuation.

Since no physical prints are mentioned in the suit as collateral, ACG seems to be selling the copyrights to Leibovitz’s work as well as her labor. How would a buyer paying $30-50m realize the value from those copyrights? Surely they would not be expecting to make 1,000 prints of Haring, Ali, and Lennon/Ono (that’s a joke, btw), so what’s the commercial value (as opposed to the fine art value) of Leibovitz’s artistic output? The ability to sell postcards or plates with images of Whoopi Goldberg flailing in a bath of milk? (Ok, another joke. But also more than a rhetorical question.)

Joe Weisenthal at Clusterstock argues with Salmon:

Sorry, but this Annie Liebowitz-as-victim-of-predatory-lending line just doesn’t pass the smell test.

The idea of predatory lending kind of makes some sense when you’re talking about mortgage brokers foisting $350K mortgages on minimum wage earners, though even then, the brokers were profiting by exploiting the stupidity of banks. (We’re not asking anyone to feel sorry for banks here, mind you. We’re just saying).

But Annie Liebovitz is an educated, professional woman. When Felix Salmon says “Art Capital talked Annie Leibovitz into signing a draconian agreement,” are we really to believe that Liebovitz was unable to hire her own financial advisors to look over the after? After all, we’re talking about $24 million here. Why did she just agree to it willy-nilly without any advice? This is a gigantic financial decisions here. You can’t just talk someone into a loan at this level, or you shouldn’t have been able to. And Liebovitz, when faced with a huge financial choice, and the self-knowledge that she’s just a photographer, should have known not to make such a big decision alone.

Examples like this really do turn the idea of predatory lending on its head.

Felix Salmon argues back:

A tweet from Joe Weisenthal yesterday, on the subject of Annie Leibovitz, is I think revealing of a particularly American mindset: call it the Wealth Corollary of the Efficient Market Hypothesis. In a nutshell, it says that if you’ve made lots of money, you must be pretty smart.

I think there’s a pretty good case to be made that the EMH(WC) is responsible for a lot of the rules surrounding the limitations on who is and who is not allowed to invest in hedge funds, and also for many of the obsequious interviews with rich individuals frequently featured in the financial media.

[…]

The problem is that it’s far too easy for people to simply assume, on the grounds of wealth alone, that therefore there must also be some degree of financial sophistication.

The annals of finance are full of people taking advantage of the financially-illiterate, and while it’s certainly possible to take advantage of the financially-illiterate poor (lotteries, numbers games, payday lending, overdraft fees, etc) it’s equally lucrative to take advantage of the financially-illiterate rich, both through outright fraud and through hidden and/or excessive money-management fees. Or, in the case of Art Capital Group, getting Leibovitz to take out a loan with punitive default provisions, in the full and certain knowledge that she would be forced to default.

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Weisenthal:

Now it’s true, we wouldn’t expect Leibovitz to have much financial intelligence, but it’s not financial intelligence that you need in order to know that taking a $24 million loan with your life’s work as collateral is a huge, huge financial decision.That’s just normal intelligence.

For example, you may not know anything about medicine, but if someone tells you that you’re going to need chemotherapy and years of treatment at a huge cost, you should get a second opinion. You know you’re making a gigantic decision — or at least you really should know.

Part of the problem with Felix’s argument is that it’s tautological. Everyone that makes financially boneheaded moves — borrows too much, spends beyond their means, etc. — is demonstrably dumb financially. The question is whether someone like her should have known that she was  dumb financially, and thus in need of serious assistance when making such a big decision. We think the answer is yes, pretty clearly.

Matthew Yglesias:

To me the interesting thing goes beyond hedge fund rules and obsequious interviews in financial media, to a much more general phenomenon of the enormous general social, cultural, and intellectual prestige accorded to rich people. In this vein, Leibowitz is not a good example, since obviously she’s a rich person second and a famous photographer first and her work can be judged on its own photo-centric terms.

But in general it seems to me that we pay extraordinarily little attention to the giant role played by luck and happenstance in determining who becomes a super-successful businessman. Bill Gates, for example, clearly knows something about software and something about business. But there are lots of people who fit that bill. There’s only one Gates because it’s in the nature of things that only one firm gets to write the operating system that, thanks to strong network effects, becomes dominant and lets you start reaping monopoly profits. Nothing wrong with it, that’s life. But in general, as a society we tend to treat successful businessmen as if they were omniscient central planners who’d gotten rich through their powers of clairvoyance. In fact, the whole point of having businessmen instead of central planners is that nobody’s that omniscient—we let some flowers bloom and some chips fall and life moves on. But there’s no particular reason to believe that the ex post winners have enormous insights. If you hang around a casino, on any given night someone’s going to make money playing roulette, but that doesn’t mean you should ask him about his roulette strategy and it certainly doesn’t mean you should ask his opinion about public policy issues far outside his area of focus.

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