The Art of Overpaying.
something beautiful you can truly own.
I. 2:36 at Sotheby’s.
In 1986, Claude Monet’s Meules (1890) painting, sold for $2.5 million, or $7.34 million in today’s dollars. It was kept in a private collection until Tuesday, May 14, 2019. On that day at the Sotheby’s in New York, Monet’s impressionist painting sold for $110.7 million, a 44x return on investment in 33 years. The internal rate of return was over 12%, outperforming the S&P 500’s 9% during that same timeframe. The piece was bought by Hasso Plattner, the German technology billionaire who founded SAP, a $200 billion public company.
Meules doesn’t even make the top thirty list of most expensive paintings sold. To even be considered for the top five, a piece needs to surpass $200 million in final clearing price, for instance, Klimt’s Portrait of Elisabeth Lederer ($236 million) purchased by the estate of Leonard Lauder of Estée Lauder, or Cézanne’s The Card Players ($250+ million via private sale) purchased by the State of Qatar, or Kooning’s Interchange ($300 million via private sale) purchased by Citadel’s Kenneth Griffin. Less than 150 individuals in the world can compete in the highest end of the market, with sufficient discretionary funds to scoop up $50 million masterworks like a ground ball. But that number - 150 - has grown significantly from 30 years ago. Wealth is increasingly concentrated in the hands of multi-billionaires, making $100+ million art sales a semi-normal occurrence at Sotheby’s. And, sovereign wealth funds, particularly in the Middle East, are now buyers as well.
It is important to understand, however, that art is a mediocre investment as a whole. There is a statistic that “blue-chip” art returned almost 14.3% annually between 1995 and 2020, while the S&P 500 returned 9.9%. The issue with art indices that calculate returns is that they rely on art pieces with “repeat-sales”, which are exclusively the highest demand pieces, like our friend Meules, skewing the return profile upwards. Less than 10% of art pieces ever appreciate in value at all, while 90% lose value. Furthermore, artworks priced at over $1 million (the top 1% of transactions) account for 58% of total market value. Yet even at the highest end, returns are not guaranteed. For every Monet painting that was bought for $2 million and sold for $100 million, there is a Giacometti sculpture that was expected to sell for $70 million and failed to find a buyer. A few Middle Eastern sovereign wealth funds might learn this lesson soon. Perhaps they already did with LIV.
II. Neon Boudeaux’s Revenge.
There goes Happy heading for the cash machine! Oh yeah he’s gonna get himself another linebacker! That guy’s got the best players money can buy! The best players money can buy! You know, I’ll tell you something else. You know, someplace, someplace in America right now, there’s some 10 year old kid. He’s out there on that playground, and he’s playing, he’s dribbling between his legs, he’s going left, he’s going right, he’s already above the rim, he’s stuffing it home. You know what’s gonna happen to this kid? Five minutes from now, he’s gonna be surrounded by agents, corporate sponsors and coaches. You know, people like me. Just drooling over this kid because he holds our future employment in his hands. I mean, that’s what we’ve made this game. That’s what we’ve done.
Pete Bell, Blue Chips (1994)
The concept of paying college football and basketball players is nothing new, it was done pre-NIL, and Shaq even starred in a movie called Blue Chips that used the moral tension of paying college players illegally as the core plot.
But no one ever thought that they would take it this far.
In this past transfer portal cycle, a handful of clear first round NBA picks opted to go back to college instead, each pocketing upwards of $4 million, and in one case, $10 million between traditional revenue sharing, an unprecedented collective deal, and pre-arranged sponsorships with university-affiliated corporations. Said player stood to make approximately $3 million by getting drafted in the back half of the first round, but now he will get paid roughly the same as Cameron Boozer (projected 3rd pick) before factoring in Boozer’s endorsements. In a market where all but the top-10 picks could make significantly more money going back to school, one cannot help but wonder about the second-order effects of inefficient pricing. Think about this: a borderline starter at a high major school can find an offer for $1.5 - 2 million at a different school. That pay range is significantly higher than most second round draft picks, who are, broadly speaking, better at basketball than the average college basketball starter. At essentially every level of high-major college basketball, programs are overpaying for talent. Now, you might be tempted to question the assumption here… How do you know they’re overpaying? The simple answer is that the NBA has far better price discovery than college basketball programs - it is a more efficient market than NIL, and if college teams are doling out 2x+ the price for the same caliber of player, they are overpaying. Of course, there are clear incentives that can explain why this happens.
Shiny object syndrome kills rationality. Never before could wealthy college alumni be as influential in bringing a championship home to their alma mater. This is FanDuel at the highest level; gambling $5 million for a collective to sign the star point guard and watching the team break school records as a result. Plus, it’s tax deductible. Mark Cuban funded Fernando Mendoza’s NIL package to bring a championship home to Indiana. Probably put the trophy up in his dining room like a Klimt painting. For those unfamiliar with the wildly complex financing mechanisms in college sports, there are three key ways players get paid. The first is revenue sharing, which dictates NCAA teams can share up to $20.5 million annually with their student athletes. The majority of revenue sharing goes to men’s football (~$14M+) and men’s basketball (~$4M+), but for the top spenders in each sport, for example, Texas in football or Louisville in basketball, this is simply a drop in the bucket. Louisville’s basketball team signed Flory Bidunga, a top 5 transfer, for an estimated $5M+, plus top 50 recruits in Oregon guard Jackson Shelstad, Arkansas wing Karter Knox, and Iowa forward Alvaro Folgueiras, who will collectively cost between $7-8M, before factoring in returning starter Adrian Wooley and five-star high school recruit Obinna Ekezie, who should cost at least $4M combined. All in all, Louisville’s basketball team is rumored to be spending as much as $20M on their roster, which means that a revenue sharing package is not enough. In order to fill the gap, top football and basketball programs turn to collectives for a significant source of revenue. And when I say revenue, I mean donations. Wealthy alumni or university affiliates hand out millions to support their programs and play a part in championship seasons, or, in most cases, average seasons. The University of Texas collective, for instance, raised $22M for their football and basketball programs in 2024, and that number has grown significantly in the past two years as bidding wars for players have spiked prices. The final and least developed method of financing rosters is by making legitimate connections with businesses so that players can advertise for said businesses and get paid to do so. In essence, the actual name, image, and likeness deals that started everything have become dwarfed by eight-figure collectives and revenue sharing.
Trophies usually lose their shine as time goes on. Reality is a tough pill to swallow, but when it goes down and works its way into the system, collective money will dry up for all but the top high-major programs that are actually competing for championships and can sustain unsustainable levels of funding. At some point in time, 80% of college basketball teams in the country will regress to far more modest compensation numbers when programs acknowledge they can’t outspend Michigan and Tennessee. Ivy League programs offer no pay-for-play arrangements, or even scholarships, yet Yale’s basketball program was ranked 81 in the country last year (KenPom), above multi-million dollar programs like Minnesota, Syracuse, Notre Dame, Rutgers, and Oregon. In the past two years, multiple Yale basketball players have graduated to the NBA, including first round pick Danny Wolf, and two-way players John Poulakidas and Bez Mbeng. Building a winning program without large capital reserves is doable, teams just need to find their unique advantage and lean into it. The most likely future scenario is a tale of two cities: a few big spenders bidding on trophy assets at the auction and a lot of penny pinchers playing moneyball at the flea market.
And I don’t know if it’s just me, but I’d heard where you climb the ladder and you say ‘Is this really it?’ And it was worse. It was less than ‘it.’ The journey was so much better than the destination… Literally it’s such a blur because there’s no time to celebrate. You meet with your seniors, you do exit meetings, you’re meeting with your players and trying to figure out what your vision with them will be for the following year. Plugging holes in your roster, trying to make sure you’re generating NIL opportunities and attracting businesses and things of that nature.
Dusty May, Michigan coach, to CBS Sports on winning March Madness (2026).
III. Quid Pretium.
When a billionaire wants to buy expensive art, the process truly begins with finding a reputable advisor. This could be an art advisory team like Schwartzman&, Athena Art Finance, a boutique shop, or a single reputable curator. The right advisory team makes a night-and-day difference in lighting up an awfully opaque market. Hundreds of questions must be answered with ballistic precision, such as, is this one of the artist’s top works? What do comparable sales look like? Will there be heavy interest from other buyers at the auction? The list goes on until daybreak, at which point, the ultimate question meets its much anticipated answer. What’s the price?
The right price can make or break the transaction in entirety. Art advisory teams take anywhere from 5-10% of the purchase price, and if the transaction ages well, it’s another stamp on their resume.
Information is the currency by which art advisory teams transact. It is the single most important asset on their balance sheets. They must collect it with a passion, collect it as their clients collect Picassos and Warhols. All of their qualitative and quantitative data points feed price discovery capabilities. Price discovery is all there is.
After a price is uncovered, the team must work to protect themselves from passion. An auction room’s architecture is designed to draw increasingly higher bids from its participants. Some buyers stay at home and allow their professional advisory team to represent them, oftentimes enforcing a ceiling bid that will not be surpassed. Some buyers acknowledge that the transaction is not an economic one, but rather, an exercise of bravado and spectacle, and they allow animal spirits to run wild. Yet, both of these bidders are justified; it is the one who lies in the middle that will suffer remorse.
The private markets, venture capital in particular, is becoming a tale of two markets. On one end, the biggest players are morphing into pure capital factories and raising money as quickly as possible from the largest investors, most notably, sovereign wealth funds, and then deploying the billions of dollars raised into startups that can handle a few hundred million dollar injection early on. Rinse and repeat, like a Ford factory in the 1920s. Price is no longer important for these buyers, because their singular incentive is to have bought the next OpenAI or Anthropic while the valuation is still sub-$10 billion. A $100 billion valuation is the minimum acceptable outcome for their winning pieces. $1 trillion is a lot cooler. On the other end, smaller programs will have to get smarter about their roster construction; Yale cannot compete with UConn for players, but that does not mean Yale cannot have highly successful seasons. Sophisticated limited partners, including a number of college endowments, are increasingly searching for boutique venture funds with specialized strategies that can deliver impressive returns. There is a top 15 endowment that has altogether stopped new capital commitments into venture “mega-funds”, and instead writes $2-20 million checks into boutique and emerging managers. An interesting stipulation for said endowment is that (a) they employ this strategy in order to get direct exposure into their funds’ winners and (b) they terminate relationships when a fund manager gets too large. On the first point, let’s say the endowment invests in ABC Fund, which invests in Ramp at the seed and Series A stage. When it becomes clear that Ramp is a winning prospect, the endowment then takes allocation at the Series B stage directly, bypassing the fund manager, meaning, the endowment isn’t paying any fees to invest. Direct deals like this can be extremely lucrative for endowments; the University of Michigan directly invested $20 million in OpenAI and the stake is now worth $2 billion, enough money to fund their basketball team for one hundred seasons. And with megafunds increasingly turning to sovereign wealth funds for capital, more endowments will be searching for boutique managers and direct exposure. Systems for price discovery will only appreciate in value.