Why Royalties are the Future of the Art World

Artist royalties enable artists to continue creating great work throughout their careers while also contributing to their short-term livelihoods. In response to recent articles arguing otherwise, I propose that collectors stand to profit the most from royalties, which foster greater availability of high-quality work and new visual ideas with the potential to enrich collections.

Artistic patronage has enhanced the cultural landscape and benefited emerging talent throughout art history. However, the decline of elite, Renaissance-style patronage coupled with the emergence of a mass market for painting in particular has created a need to ensure financial stability for artists according to resale rights and contractual royalties.

In 1971, Seth Siegelaub and the lawyer, Robert Projansky, developed The Artist’s Reserved Rights Transfer And Sale Agreement, while the EU established the Resale Rights Directive in 2001. Yet one of the remarkable by-products of NFTs was the emergence of a generally agreed community-wide 10% minimum resale royalty that ensured digital artists’ ongoing benefit from secondary sales of their work. Unfortunately, this mutually agreed standard is now in peril, with many NFT marketplaces no longer guaranteeing the payment of royalties to artists.

It is important to stress that royalty terms are not ordinarily embedded into an artwork’s smart contract. Instead, marketplaces have been trusted to enforce them. Government-enforced resale royalties are currently under scrutiny following the effective abolition of The California Resale Royalty Act in 2018, one of the few attempts to develop an Artist’s Resale Rights (ARR) regime in the US. Nevertheless, despite the bleak reality, there are green shoots globally, including the introduction of an Artist’s Resale Right in Mexico this year, with New Zealand set to follow in 2024. 

I argue that everyone who works in, spectates, and takes pleasure from the artistic community is responsible for advocating for the rights of those creating the works that sustain the ecosystem itself — the artists.

‍Artist’s Resale Rights versus contractual royalties‍

So, what are Artist’s Resale Rights? The concept is simple — an artist is legally entitled to a percentage of the sale of a work that has been sold on the secondary market with the involvement of an art market professional. In the UK and Europe, this applies to works sold for more than €1,000 (approximately $1,100) or its sterling equivalent.

‍Artist’s Resale Rights are protected by legislation, though the percentages differ depending on the jurisdiction. In Australia, the maximum amount is 5%, while, in the UK, the required ARR payment on top of the sale price is 4% for low to mid-value works (between €1000 and €50,000 sterling equivalent). The threshold reduces to 0.25% for works over €500,000, with a maximum payment of €12,500 even if a work is sold for €400 million. This provides clarity for collectors, who know how much they will need to pay. Many auction catalogs currently include a small symbol indicating VAT (Value Added Tax) as well as ARR, thereby informing collectors of the need to pay royalties as they would a buyer’s premium.

ARR legislation originated in France in 1920 in order to sustain the families of artists killed during the First World War, and to support artists themselves following the decline of the French Salon at the end of the nineteenth century. This right was known as the droit de suite (lit. “right to follow”). The law was enacted following public agitation at the sale of The Angelus (1857-59), a painting by Jean-François Millet, that sold for an enormous sum of 553,000 francs on the secondary market in 1889 at a time when Millet’s heirs were living in poverty. 

Years later, Robert Rauschenberg witnessed his painting, Thaw (1958), sell at auction for $85,000, many times its primary sale price of $900. His response to the original collector? “I’ve been working my ass off for you to make all that profit.”¹

The striking difference between these two instances is that if Millet’s painting were sold today (were it not the property of the French nation) the artist’s family would receive a percentage thanks to the ARR law enacted in France. However, Rauschenberg’s family would still not benefit from ongoing sales of Thaw, as the US has no laws in place to protect artists’ incomes beyond the initial primary sale.

The work of crypto art pioneers such as DADA.nyc to encode royalties into NFT smart contracts, coupled with the NFT boom of 2021, has fueled a new lobby for artists’ financial rights. According to data compiled by Galaxy Digital, NFT creators earned over $1.8 billion in royalties from Ethereum-based collections up to October 2022. This is an astronomical figure when compared to the data on artist’s royalties for physical art works. DACS, a non-profit organization that collects ARR on behalf of artists in the UK, reported collecting £9.9 million in royalties in 2021.

Comparing contractual royalties, which are not guaranteed by law, with legally enshrined Artist’s Resale Rights is revealing because artists working in traditional media have so far been excluded from the benefits of blockchain technology and contractual royalties, unless they are part of a country with ARR legislation. 

The fact that major art fairs take place in jurisdictions, including the US and Switzerland, without such legislation leaves a large portion of artists without access to resale royalties.

However, in the last year, organizations like Arcual have emerged to help artists working with traditional media adopt blockchain technology in order to receive a cut of ongoing sales. Arcual advocates that artists should benefit from resales regardless of their nationality, with the company enabling the payment of contractual royalties for physical artworks wherever they are in the world.

Meanwhile, the Artist’s Rights Society is working actively to introduce ARR in the US, launching an exciting new platform, ARSNL. Even if Artist’s Resale Rights are not enabled in the US, ARSNL seeks to protect the enforceability of contractual royalties for digital art. During the launch of his NFT collection with ARSNL in 2022, the artist Frank Stella remarked, “It will be wonderful if technology can give us what the government never would.” 

‍Why the art market needs a new generation of patrons

Historically, the primary market has been a buyer’s market, since there is a greater supply of art. But this has also meant that a large proportion of artists never sell on the secondary market. By contrast, the secondary market is controlled by sellers, who own the most sought-after artworks. Primary market galleries are often unhappy with this state of affairs, since artworks are likely to appear at auction without them knowing and sell for higher prices. Regardless, it is both collectors and art market professionals who control the traditional art market, leaving aside prominent artists like Damien Hirst, who bypassed his own gallery to sell his work at auction in 2008.

Having spoken to a number of artists without Hirst’s bargaining power, many remarked that requesting royalties while still awaiting payment for their primary sales is a difficult conversation to have with their gallerist. Indeed, many artists working with traditional media don’t even think of royalties, prioritizing revenue now in order to sustain their studios, materials, and lives. Yet resale revenues can alleviate artists’ financial constraints and enable the production of new art.

A recent report, titled “STRUCTUALLY F-CKED,” makes for disturbing reading when it comes artists’ pay and conditions in the public sector. For a major commission for an extra large public institution in London, artists can expect to receive a fee of £6,000 (approximately $7,700) for two years of work. This equates to an estimated hourly rate of just £1.56. Of course, the public sector includes museums and governmental institutions, but artists’ estates also need resale royalties to maintain archives, conserve works, and carry out research. 

What the blockchain reminds us is that reliable documentation and provenance has always been necessary for a healthy and wealthy secondary market. 

‍Royalties help collectors‍

The big question is: how can royalties actually benefit collectors? First and foremost, collectors profit from the reputational reward of being a patron of the arts, and of supporting artists in the creation of new work. It is also not entirely correct that collectors hate royalties. Certainly, flippers and others looking to make a quick exit are more likely to reject royalties. However, resale royalties can also attract a new wave of art patrons. 

Those who truly believe in the art they are buying tend to advocate for royalties so that the artists in whom they have invested can continue creating the art that they love. 

In the past, those collectors who invested in artists’ careers and built close relationships with those artists stood to benefit the most. Gertrude Stein’s early patronage of Picasso was an important catalyst for his subsequent success. Artist’s Resale Rights can help to sustain new careers while magnifying collectors’ social impact. At the same time, the transparent embrace of ARR by galleries can help to engender new collecting habits and bring new collectors to the market. I was pleasantly surprised to find a number of galleries at last year’s edition of Frieze Masters, predominantly a secondary market fair, including the relevant ARR label alongside the price of their artworks.

‍New technologies can support all participants in the market‍

Web3 technologies have shown that they can bring about new behaviors in the market, eliminating barriers to the payment of royalties and automating equity in the process. They can also help collecting societies — those non-profit organizations granted by law the right to collect ARR on behalf of artists — to automate their processes, thereby eliminating barriers and administrative burdens for galleries and auction houses. Arcual is currently in conversation with DACS, the leading UK collecting society, to automate and innovate the collection of resale royalties.

Artist royalties are not only about money — they have profound implications for the careers and livelihoods of artists. The next generation of collectors will use technology to enhance the operational efficiency, marketing, and management of their collections. The same goes for ARR.