The Gray Market: What James Murdoch’s Other Investments Tell Us About the Future of Art Basel (and Other Insights)

Our columnist examines the portfolio of the MCH Group's new "anchor shareholder" for clues about what might be next for its art properties.

Then-CEO of 21st Century Fox James Murdoch at the New York City premiere of National Geographic Documentary Films'
Then-CEO of 21st Century Fox James Murdoch at the New York City premiere of National Geographic Documentary Films' "Free Solo" at Jazz at Lincoln Center on September 20, 2018. (Photo by Bryan Bedder/Getty Images for National Geographic)

Every Monday morning, Artnet News brings you The Gray Market. The column decodes important stories from the previous week—and offers unparalleled insight into the inner workings of the art industry in the process.

This week, moving from a closed chapter to an unwritten one….

 

DONE DEAL

Last Monday, shareholders and board members of the MCH Group, Art Basel’s parent company, voted to approve a set of moves designed to calm the company’s stormy financial seascape and chart a new course forward. Since my colleague Naomi Rea reported the essentials in Artnet News, I’ll use this space to try to spyglass where the company might be headed next. 

To recap quickly: Although debt restructuring and a larger capitalization were important parts of the package, the nucleus of the deal is an injection of CHF 74.5 million (about $80 million) from Lupa Systems, the investment vehicle founded by News Corporation heir-turned-apostate James Murdoch. Lupa Systems now becomes the MCH Group’s new “anchor shareholder,” with three seats on the company’s nine-person board of directors, up to 49 percent of its equity, and a commitment to hold its entire stake for a minimum of five years. 

Despite some art-world consternation over James’s lineage and years of past work as an executive in his father’s controversial media empire (including a central role in the catastrophic News of the World phone-hacking scandal circa 2005–2012), the deal received the thumbs up from more than 70 percent of MCH Group’s participating shareholders, who together held just over 91 percent of its nominal share value. 

Eternally open for art-market debate is whether Murdoch’s bid would have sailed through as easily had he not resigned from the board of News Corp just three days ahead of the vote. Personally, I don’t think it would have made much difference given that most shareholders listen to money over everything and MCH’s balance sheet is currently so ugly that it can’t legally be shown to minors. The company made sure to remind everyone of this scenario the preceding week, too, when it issued a statement projecting that sales for 2020 would be cut in half compared to 2019, likely dooming the group to “an annual loss in the upper double-digit million range.” But we’ll never know what might have been. 

Nor does it matter. The deal is done. So how does the company fit into the rest of Lupa Systems’s investment portfolio? And what might be in store for MCH based on Murdoch’s career to date? 

Steven Soderbergh and Francis Ford Coppola at the premiere of Apocalypse Now: The Final Cut at the Tribeca Film Festival at the Beacon Theatre on April 28, 2019 in New York City. Photo by Roy Rochlin/Getty Images for Tribeca Film Festival.

Steven Soderbergh and Francis Ford Coppola at the premiere of Apocalypse Now: The Final Cut at the Tribeca Film Festival at the Beacon Theatre on April 28, 2019 in New York City. Photo by Roy Rochlin/Getty Images for Tribeca Film Festival.

FILM STUDIES

After Murdoch’s offer came to light last month, I did a deep dive into his personal and professional background, as well as some of the known investments made by Lupa Systems. The TLDR version: at least by the warped political standards of 2020, James qualifies as a center-leftist—most recently, he and his wife donated $1 million to the Joe Biden campaign—who departed the news side of his father’s domain for the entertainment side nearly a decade ago. His resignation from News Corp finalizes the increasingly rowdy exit from the Fox lair he’s been conducting for at least the past 18 months. 

More importantly for our present purposes, since its 2019 launch, Lupa Systems has now invested well over $100 million in ventures that plug into three sectors: media, technology, and environmental sustainability. Those positions provide at least a few clues about how James and his team might be thinking about MCH and Art Basel. 

To my eyes, Lupa Systems’s most similar pre-existing portfolio asset is Tribeca Enterprises, the company best known for producing the Tribeca Film Festival. Murdoch partnered with Attention Capital to acquire a controlling stake in Tribeca Enterprises for an undisclosed price in August 2019. And while it would be unwise to treat the Tribeca Film Festival as a flawless precedent for Art Basel in particular, I do think it’s reasonable to use some aspects of the former to guide our thinking about the latter. 

One important distinction off the top: the Tribeca Film Festival serves a more mainstream, more domestic, and more middle-class audience than Art Basel. Their respective corporate sponsors drive this home. Tribeca’s lead sponsor (“presenting partner”) is American telecom giant AT&T. And while its next-biggest-spending sponsors (“signature partners”) include Chanel and Bulgari, those two luxury brands co-exist at the same level as Diageo (the spirit-and-beer conglomerate behind the likes of Guinness, Crown Royal, and Ketel One), the Borough of Manhattan Community College, a slew of philanthropic organizations, and US media properties including ESPN Films, New York magazine, and the city’s local NBC station. 

Now compare that slate to Art Basel’s: the fair’s lead partner is international banking juggernaut UBS, and its next-biggest-spending sponsors (“associate partners”) are luxury watchmaker Audemars Piguet and private air-travel marketplace NetJets. Even its alcohol partner (Ruinart Champagne, owned by LVMH) and primary international media partner (the Financial Times) speak to the high- and ultra-high-net-worth clientele powering the Art Basel brand year-in, year-out. 

Still, the Tribeca Film Festival serves up breadcrumbs. First, Murdoch and his partners seem to value continuity. They retained festival co-founder Jane Rosenthal as CEO when they assumed ownership, and she’s still in the post a year later. 

This is good news for Art Basel’s current executives, especially since the parent company has repeatedly positioned Art Basel as a rare sanctuary amid the financial carnage unfolding at other subsidiaries over the past few years. The MCH Group’s half-year results in 2019 proclaimed Art Basel had “further strengthened its leading market position and economic stability,” and the brand’s online viewing rooms were touted as one of the few innovations in the MCH Group’s 2019 annual report this March. So don’t expect Murdoch to try to shake up the C-suite there just for the sake of bringing in “his” people.

I’d also bet against any dubious rushes to bring back Art Basel’s physical fairs. On Friday, the Tribeca Film Festival confirmed it had moved next year’s edition roughly a month later than its usual late April/early May bow “to ensure the festival moves forward in the safest environment.” So while Murdoch and company would undoubtedly love to see Art Basel Miami Beach 2020 and/or Art Basel Hong Kong 2021 proceed as scheduled, their willingness to proactively delay Tribeca—an event that might not even have required a postponement had it held onto its usual late April/early May premiere window—suggests the freshly capitalized MCH Group is prepared to play the long game with its IRL events.

Art Basel's inaugural online viewing rooms in 2020: Fergus McCaffrey. Courtesy of the gallery.

Art Basel’s inaugural online viewing rooms in 2020: Fergus McCaffrey. Courtesy of the gallery.

THE NEW DIGITAL SOUTH?

Soon after Lupa Systems and Attention Capital acquired Tribeca Enterprises, CEO Jane Rosenthal spoke about how she and the new owners would “look to grow and strategically scale” the Tribeca brand together. That sounds like a sensible model for what Murdoch might have in mind for the MCH Group and its portfolio of properties, particularly Art Basel—a brand now leveraging an online-sales platform, its own app, a robust digital exhibition catalogue of past shows, and a digital-media vertical that has expanded into webinars since the shutdown. 

I’m even more prone to think this because it aligns with what the parent company has been publicly signaling about its strategy for some time. Last fall, MCH Group CEO Bernd Stadlwieser said in a statement that the MCH Group would evolve by investing in “innovations, digitization, and internationalization,” with the ultimate goal being to “build communities that go beyond the physical event.” These same basic ideas reappeared in the firm’s official comments announcing the bid from Lupa Systems, which it said would help the MCH Group “develop classic exhibition and event formats into future-oriented platforms and communities.” 

Obviously, this verbiage could mean a lot of different things. But I feel pretty comfortable saying that it does not indicate a mandate to recklessly spew out more live eventseven after the epochal scourge that is the “c” word finally recedes from the global stage. I don’t think an anchor shareholder with a relatively distinguished career in digital enterprises and a portfolio rippling with tech ventures is going to be like, “Nah, let’s fill up some more convention centers ASAP. I need the Ruinart Champagne cart on all seven continents!”

That said, I would keep my eye on India. It’s true that the MCH Group’s previous foray into regional fairs, including its majority stake in the India Art Fair, didn’t exactly go well. But India remains the third largest economy in the world, and James Murdoch has been investing there for 20 years. Pivoting to India was the strategy that allowed him to stabilize the wheezing wreck that was Star Television, News Corp’s Asian satellite TV provider, when James was tasked with its salvation as a 27-year-old executive in 2000. 

Installation view of Archer Art Gallery at the 2018 India Art Fair. © Andy Barnham.

Installation view of Archer Art Gallery at the 2018 India Art Fair. © Andy Barnham.

Lupa Systems has also taken at least two positions in India-based startups this year. In January, it acquired a majority stake in Harappa Education, an online learning platform geared toward career skills, for an undisclosed amount; and in May, it led the Series G funding round raised by DailyHunt, a mobile-reading app and news-aggregation service designed to support content in English and Indian languages, at a roughly $36 million valuation. It also seems noteworthy to me that Murdoch’s investment vehicle has offices in only two cities: New York and Mumbai.

I’m not proposing that we should expect an Indian edition of Art Basel anytime soon. Still, the pieces fit together too well, and the potential opportunities loom too large, for the prospect to be dismissed long term. 

This is especially true given the nascent instability of Hong Kong. In late June, Beijing imposed a new national security law criminalizing “separatism, subversion, terrorism, and collusion with foreign countries” in what the New York Times described as “ambiguously worded” terms that give authorities “extensive power to target activists who criticize the the party.” To me, saying this scenario creates new uncertainties about the content and appeal of future editions of Art Basel Hong Kong would be an enormous understatement. 

(On Sunday, an Art Basel spokesperson told me there are “no fundamental changes foreseen for the upcoming Hong Kong show in light of the new National Security Law, and we will not be censoring artworks at the show.”)

If ultimately deemed necessary, I would expect Art Basel to move its Hong Kong fair to Seoul (as the New York Times did with part of its Hong Kong bureau), or another East/Southeast Asian cultural hub with liberal democratic infrastructure, before establishing an Indian replacement. Yet the two economies and art scenes are robust enough that they could someday coexist, too. 

It’s also worth keeping in mind that the MCH Group could return to the Indian market on a smaller-project basis before organizing a full-on fair there—and that it could even do so via Masterpiece London, the only regional art-and-antiquities fair remaining in its control, rather than via Art Basel. In this context, I can’t help but think about how Masterpiece waded into Hong Kong last October by presenting a “showcase” in partnership with the Fine Art Asia fair. 

Still, we’re a long way off from these possibilities. For now, James Murdoch and Lupa Systems have extended a desperately needed lifeline to the MCH Group and Art Basel. And while there’s no way to know their precise itinerary, every rescue mission is based on precedent. 

[Artnet News]

 

That’s all for this week. ‘Til next time, remember: History doesn’t repeat itself, but it does rhyme.


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