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This past April, Sotheby’s Hong Kong held the first of two sales dedicated to the Estella collection, billed as “the most important collection of Chinese contemporary art ever to appear at auction.” The 108 lots fetched $HK139.4 million ($17.9 million), including premium, well above the high estimate, and several artists’ records were set. Even more remarkable than these results, and more revealing about the state of the art market, is how the collection came to auction—as well as how it came to exist.

The complexity of the Estella collection’s brief history and the number of players involved in creating, exhibiting and marketing it make the notion of a buyer and a seller simply exchanging goods seem almost quaint. Shortly before the April sale, it was disclosed that the items had been accumulated not by a single passionate connoisseur but by a small coterie of investors and their adviser, the New York dealer Michael Goedhuis, and then sold to William Acquavella, another New York gallerist. But the trail does not end there: It also turned out that Sotheby’s, which will offer the second part of the collection in New York next month, has a financial stake in it.

The two museums that hosted “Made in China,” a lavish exhibition of the Estella holdings that closed just weeks before the April sale, did not know that the items were headed for the block when they decided, in 2006, to mount the show. And some artists who sold pieces to Goedhuis with the understanding that the collection would remain intact and might one day belong to a Chinese museum consider the auction a betrayal.

Clandestine wheeling and dealing has underlain the marketing and selling of artworks for decades, if not longer, but it seems more prevalent today, no doubt because of rampant inflation in the art market and the increased tendency for collectors to consider their holdings assets rather than sources of enjoyment. In this atmosphere, it is not surprising that savvy dealers, advisers—even artists themselves—might manufacture provenance for contemporary works to pump up their prices. Buyers beware: Before you know it, today’s hot museum exhibition can become tomorrow’s buzzed-about auction preview.

Dubious practices to watch out for include trustees’ pressuring curators to feature artists represented in their personal collections, as well as galleries’ and artists’ estates’ strategically placing in important exhibitions works that they’re intending ultimately to offload. The trend has even crossed over to the commercial realm: Galleries mount museum-caliber nonselling shows to enhance the value of one or two pieces on display. Of course, none of these tactics is particularly new. What is different today is, again, the frequency with which they are wielded.

Wide exhibition exposure certainly contributed to the financial success of the Sonnabend collection, part of which sold earlier this year for a reported $600 million in a series of private sales. Most recently, the trove of postwar art put together by Helga and the late Walter Lauffs made $96 million at Sotheby’s New York after having been on loan for decades at the Kaiser Wilhelm Museum in Krefeld, Germany.

Goedhuis seems to have learned from such examples in expertly packaging and promoting as a collection what was essentially an art-investment fund. The dealer, however, claims loftier motivations for his creation. The Estella project, he says, was born almost five years ago of an interest in contemporary Chinese culture that he shared with one of his investing partners. “We noticed with frustration that there was no reliable, scholarly publication on the subject of contemporary Chinese art,” Goedhuis explains. “So it was decided to build a collection that could form the basis of just such a book. At the same time we decided to assemble the best possible group that would have a claim to international stature.”

As for the moniker, “I was reading Dickens’s Great Expectations, and I felt [Estella] was a name the Chinese could pronounce,” Goedhuis explained to the New York Times before the April sale, adding that although the collection’s namesake isn’t an admirable character—she seduces men just to break their hearts—“it’s a pretty name.”

From 2003 to 2006, Goedhuis, who says he wasn’t a partner in Estella but was “remunerated accordingly” for his work, amassed some 206 paintings, sculpture, photographs and videos, about 90 percent of which were acquired from their makers. All eventually wound up in the hands of Acquavella—but in a roundabout way. When the time came to sell, Goedhuis decided to offer the works to the Las Vegas–based casino and hotel magnate Steve Wynn for his $1.2 billion Wynn Macau resort, about 25 miles outside Hong Kong. In this way, Goedhuis thought, he could present China with a museum-quality collection of its con­tem­porary art without going through the country’s daunting bureaucracy.

So Goedhuis pitched the idea to Acquavella, who has close ties to Wynn, last summer, when the collection was conveniently on view at its first venue, the Louisiana Museum of Modern Art, in Humlebaek, Denmark, where it received rave reviews. “A few weeks later, the deal was done,” recalls Goedhuis. “I thought Acquavella was either going to flip it over to Wynn or, as he said at the time, buy it as an investment. We never imagined for a moment it would be broken up and sold at auction. If he had told us that was his intention, we certainly would not have done that [transaction].”

Acquavella remembers things somewhat differently. “I never had any intention other than to buy it and resell. It was a collection that was presented to me to offer to Steve Wynn, and he decided he didn’t want it,” he explains. “I said to Michael Goedhuis, ‘I’ll see if I can buy it,’ and we negotiated a deal, and I did.” At that point Acquavella approached Sotheby’s, which agreed to take a financial interest in the collection. (The firm declined to comment.) “Then I thought the best thing to do to sell it was to put it up at auction,” the dealer continues, “because it would reach a lot more of the Chinese community than what I could reach for sale, and so I did.”

This wasn’t the first time Acquavella had paired with Sotheby’s. In 1990 the dealer and the auction house, in what was then considered an unholy alliance, formed the joint-venture company Acquavella Modern Art to buy about 2,300 modern works from the Pierre Matisse Gallery following the death of its founder. The pieces, for which they paid $143 million, were sold off gradually, both privately and at auction, making the partners millions. Other enterprising dealers followed Acquavella’s example, forming ventures with auction houses that provided crucial financing for their acquisitions in exchange for some of the upside. That free-market interplay has evolved to the point where Sotheby’s and Christie’s have both acquired galleries—the Maastricht-based Noortman Master Paintings, in 2006, and the London-based Haunch of Venison, in 2007, respectively—as active subsidiaries. For their part, dealers sometimes invest in auction property as third-party guarantors, again blurring once clearly defined boundaries.

Acquavella reportedly paid between $22 million and $25 million for the Estella collection. If the actual figure is in this range, the second sale needs to make at least $10 million for the dealer and Sotheby’s to break even. No party involved would confirm the sum, but when asked if his investment had panned out, Acquavella, who recently added the Estella artist Zeng Fanzhi to his roster, coolly observes, “We have some more to sell, and I think we’ll do OK. I don’t think it’s going to be an enormous success, but I think we’ll make some money on it.”

What truly reveals the “obscene character of the incident, as the French sociologist Jean Baudrillard would have called it,” says Poul Erik Tøjner, the director of the Louisiana Museum, is the astonishing speed with which the art moved from museum to auction. Goedhuis proposed the “Made in China” exhibition to Tøjner in spring 2006 and was later approached by James Snyder, the director of the Israel Museum, who says he was eager to explore the contemporary relationships between China and Israel, Asia’s two oldest cultures.

The museum officials were not the only ones surprised when the works were flipped so quickly at auction. Goedhuis claims it was only at the end of 2007 that he himself “got wind” that Acquavella and Sotheby’s were partners in the collection and were going to put it on the block. Sotheby’s announced the sale in an ad in the catalogue for its mid-February 2008 auction of contemporary Asian art in New York and issued a press release about it early the next month, soon after the Israel show closed.

Anders Kold, a curator at the Louisiana Museum, was quoted in a Times article published after the sale, saying, “We seriously regret that [the exhibition] turned out to be mere speculation.” But Tøjner expressed a different opinion to Art+Auction: “I don’t think showing a curated and site-specific selection of works from the Estella collection, which attracted around 180,000 visitors, has compromised the museum. As I see it, museums are inevitably part of the market, whether they like it or not.”

Snyder, of the Israel Museum, is similarly pragmatic. “We had been looking for an opportunity to show some new Chinese art to our local public, and Estella seemed to us to comprise the strongest and most visually powerful such collection available for public display,” he says. “Our public responded with enormous enthusiasm—which was our objective—and this was gratifying to us.”

Just as the museums benefited in increased ticket sales and attendance, so the artists represented may eventually profit from the high prices their works achieved at auction. But some who sold their pieces believing they would remain part of an intact collection are unhappy. He Sen, known for his black-and-white photorealist portraits, told the Times, “We feel sold out by him.”

Last year, similar complaints were leveled against the Geneva dealer Pierre Huber, who reportedly convinced artists and dealers to sell him works at lower prices by telling them he was opening a private museum, only to turn around and sell 74 of them at Christie’s New York in February 2007 for $16.8 million. At the time, Art+Auction wondered whether this would lead to increased use of resale agreements (see The Reporter, May 2007), yet here we are more than a year later faced with the same issue on the same scale.

Not all the artists who sold to Estella are perturbed, however, at least not outwardly. Maggie Ying, a spokesperson for Zhang Huan, who recently joined the PaceWildenstein stable, says, “He really has no time to care about what happened in the auction houses.” Four of Zhang’s photographs were in the Sotheby’s sale, including a picture of himself wrapped in raw meat, My New York #4, 2002, which brought $HK511,500 ($65,700). Sculptor Sui Jianguo and painter Yan Lei, who also had works in the Hong Kong auction, expressed similar sentiments to Art+Auction. “As businesses,” says Sui, “they can buy or sell any way they think is right.”

Whatever advantages have flowed to the other players in this game, certainly none profited as much as the investors. During the period that Goedhuis was actively buying for Estella, overall prices for contemporary Chinese art increased fourfold—even more for a few superstars. One of the highlights of the collection, Zhang Xiaogangs Bloodline: The Big Family No. 3, 1995, the cover image for the museum exhibition catalogue, fetched a record $HK47,364,500 ($6.1 million), and Xu Bings The Living Word, 2001, made $HK7,607,500 ($974,000), also an artist’s high. Goedhuis had purchased the latter in March 2006 at Sotheby’s New York for just $408,000 and picked up the former from a Florida collector in 2004 for about $100,000.

It is the juicy profit margins and the brilliantly timed strategies that led to them that make this one of the most controversial sales of a group of works since Charles Saatchi liquidated “Art of Our Time” in the late 1980s and early ’90s, a divestiture accelerated in part by a pending divorce from his then wife, Doris. As in the Estella situation, artists were persuaded to sell the best of their works at relative bargain prices to be part of what was billed as a permanent collection. Permanent, in this case was barely five years; a lavishly illustrated four-volume catalogue is all that remains. Unlike “Sensation,” a later Saatchi extravaganza, displayed at London’s Royal Academy of Arts and the Brooklyn Museum in 1997–98, “Art of Our Time” had no museum imprimatur. Still, the scholarly catalogue translated into auction success for some of the pieces when they appeared at Sotheby’s in April 1991, a bleak time in the art market.

Whereas Saatchi was an individual collector, however, Estella was a group of shareholders, a categorization that implies that their interest in the collection from the very beginning was financial. As Acquavella says, “I don’t know what Michael Goedhuis told everybody, but he had a group of investors that bought it, so I have to believe that he intended to sell it all the time.” Goedhuis says there were no more than five “friends and investors” but declines to identify them. Various reports have named Sacha Lainovic and Raymond Debbane, cofounders of the New York hedge fund Invus Group.

The Estella investors most probably did not become connoisseurs of the art they were buying, leaving all acquisition decisions up to Goedhuis. In fact, the Belgian contemporary Chinese-art collector Guy Ullens, who knows Debbane and Lainovic from the days when he ran Artathe holding company that owns Weight Watchers International Incorporated, whose board they both sit on—says the two “never showed any interest in our collecting habits.” (Efforts to reach Lainovic and Debbane for comment were unsuccessful.)

Goedhuis maintains that he cannot be accused of deception. “The central idea was to form a great collection that would remain intact,” he says. “There was no thought ever to break it up because we felt that if it ever were to be sold, which ultimately was the concept, it would be sold to an institution, probably to one in China.” What happened? “We as a group—myself and the investors—all decided this was the moment to sell.”

So was Estella set up to make a quick profit, or did the group merely benefit from a combination of market forces and investor luck? That this question is even being raised points to a notable shift in market mentality: There is no longer any attempt to disguise the fact that high-end art transactions are crafted to meet and exceed the greatest expectations.

"Anatomy of a Deal" originally appeared in the August 2008 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's August 2008 Table of Contents.