How art market could be made a profit-generating machine

Last week, the highly respected Wallspace gallery in Manhattan announced it would close its doors permanently on Friday. The lease was up, and "it necessitated a re-evaluation", says Jane Hait, who co-founded the space with Janine Foeller. "It's a particularly tough climate for people doing work that's not necessarily super commercial."

The closure of such a celebrated fixture of the New York art scene underscores the fact that - despite the unprecedented avalanche of money blanketing the contemporary art world (something that is also seen here) - it's surprisingly difficult for galleries to make money.

The news of Wallspace's closing comes just weeks after the English release of Management of Art Galleries, a slim book that caused a furore when it was published in Germany earlier this year. Written by a 31-year-old German entrepreneur/professor/art adviser named Magnus Resch, the book argues that most galleries are undercapitalised and inefficient - and, moreover, that with proper business strategies, the entire art market could be turned into a profit-generating machine.

But the entire market is not profitable. After laying out his data and methodology (he sent a survey to 8,000 galleries and more than 1,300 responded with information on revenue, staff numbers and location), Resch isolates what he considers galleries' key impediments to profitability.

First, the rent is too high. In the US and Germany, the physical cost of an exhibition space was listed as galleries' greatest expense, and Resch writes that "the almost unanimous, and unquestioned, conviction that central premises in a major city are essential simply cannot be justified with an economic rationale".

In other words, collectors will go wherever the art is, and everyone else - the crowds at openings, the passers-by who pop in - has no bearing on the gallery's bottom line. Paying a premium for a desirable location, according to Resch, is therefore pointless. His research also suggests artists make too much and gallery staff make too little. Galleries generally split the sale of a work 50/50 with the artist. Resch argues that since galleries often have to cover marketing, production, shipping, and insurance costs, it should be closer to 70/30.