By: Ainsley Brown
The use of art as an investment is not a new concept, whether it is commissioning a piece for your self or buying existing works, art as an investment is centuries old. But what about investing in the right to buy an artist’s future works; that is as yet to be conceptualized future works?
The emerging artist derivative contract, the brainchild of Tom Saunders, a UK conceptual artist, has the potential to change the art world forever. The contract, drafted by Ferguson Solicitors, according to the parties involved is itself a work of art and allows an art investor to spend £2,000 now for the option of buying any piece of Mr. Saunders’ work for £1 in ten years. And just in case Mr. Saunders does not fulfill his end of the bargain there are contact provisions that cover premature death or non-production.
But what exactly are derivatives?
In the most basic of terms a derivative is a financial instrument that ‘derives’ its values from something else. That is to say a derivative is a contact between two or more parties that acquires (derives) its value from the future price fluctuations in one or more underlying assets. In the case of Mr. Saunders the underlying assets are his future works.
While there are many types of derivatives (futures, forwards, options, swaps) they are generally used for one of two purposes, either to hedge against risk or to acquire risk through speculation. The emerging artist derivative contract is an example of the former and not the latter. To be more specific the emerging artist derivative contract is an option.
Options are financial instruments that give the holder the right (the option) but not the obligation to buy or sell the asset or assets that underlay the option contract on or before an expiration date at an agreed price. Because the emerging artist derivative contract is a contact that allows the option holder to buy the underlying asset it is what is known as a call option.