The contemporary art market has been rising steadily for more than a decade. But the prices of the artworks aren’t the only things soaring. The costs of creating many of the sprawling, edgy pieces increasingly coveted by today’s collectors are also skyrocketing, according to veteran gallery owners and art dealers, who say that ballooning production costs are squeezing their profits.
 
A Swiss dealer recently co-financed a $4 million installation piece by Chinese artist Ai Weiwei that involved hiring 1,001 ordinary Chinese citizens—including pig farmers, students, and street vendors—and flying them to Germany. Dealers for American artist Aaron Young put up more than $300,000 to help create “Greeting Card,” a paint-by-motorcycle spectacle staged at the Seventh Regiment Armory in New York. Danish artist Olafur Eliasson employed more than 50 workers to produce a room-size installation in San Francisco that included covering the ceiling with mirrors and building an artificial sun, 50 feet in diameter. The cost of the project: more than $200,000. 

The rising production costs are mainly a reflection of higher price tags on everything from artists’ materials to labor, say art-world observers. But the escalating costs also underscore contemporary artists’ attempts to dream up ever-more ambitious projects in an effort to separate themselves from the rest of the creative pack. No longer satisfied with mere paintings, an expanding cadre of artists is creating—and selling—showy spectacles that can be very expensive to make.

“It’s a very crowded field out there, and artists are simply trying new and bolder ideas to make their work much more distinctive,” says Richard Lang, a partner at Electric Works gallery in San Francisco. He estimates that his spending to support artists’ projects has grown by more than 20 percent during the past two years. “More money than ever is needed throughout development of a project, and that’s forcing many of us to expand our budgets.”

Artists typically receive funding for their creative undertakings from foundations, gallery owners, and dealers. They sometimes bankroll their own projects. British artist Damien Hirst personally financed the $10 million to $15 million needed to create For the Love of God, a platinum cast of a human skull covered by 8,601 pavé-set diamonds. The single large stone in the middle of the forehead is said to be worth $4.2 million. (Hirst says the work sold last year to a group of investors for $100 million; that price is still being disputed by some art dealers.)

But in recent years, as the number of galleries has proliferated in art hotspots like New York and London, gallery owners are providing a bigger piece of the funding pie. That is especially the case among newer galleries that are trying to create art-world buzz.

“Many of these galleries want to make sure the art world is aware that they’re relevant,” says Harvey Shipley Miller, a Manhattan dealer who is on the boards of several museums. “They often see these projects as a way to get an enormous amount of attention very quickly.”

Prices for paintings and sculptures by French artist Xavier Veilhan have risen steadily at auction and among private dealers in recent years. But so has the cost of making the works. Veilhan, 41, is known for figurative sculptures and abstract and conceptual pieces that typically have price tags in the $100,000 range and cost well below that to create. Paris’ Galerie Emmanuel Perrotin exhibited some of the artist’s boldest and most expensive works to date at a show in April, including Le Requin, a seven-feet-long, polished stainless-steel shark that cost more than $150,000 to create. The gallery confirms that the artwork sold to a French collector for well above that figure.

“Working artists today like Veilhan want to create something special, regardless of what it costs to produce,” says Emmanuel Perrotin, the longtime French dealer who also owns a gallery in Miami. “It is in everyone’s best interest, especially collectors.”

Despite gyrating financial markets and global housing turmoil, the contemporary art market continues to show strength. A growing cadre of collectors from Russia and the Middle East is investing heavily in contemporary art, reports top auction houses. And thanks to a weak dollar, buyers from Asia and Europe are still chasing pricy contemporary artworks. Sotheby’s said that it sold a total of about $5 billion of fine and decorative art last year, up 39 percent from 2006. The 2007 total includes $1.3 billion in contemporary art, more than double the year before.

As prices for their works have risen at auction and among private dealers, some contemporary artists are adding to their budgets by expanding their staffs. Jeff Koons now has dozens of employees roaming his Manhattan studio—from graphic designers who assist in creating works on canvas to architects who build small-scale models of the artist’s sculptures. Hirst’s office says that he employs more than two-dozen people at his London work space to do every thing from public relations to acquiring hard-to-find materials.

“The modern artist studio is a big departure from the days when most of them just worked out of cheap warehouses,” says Lawrence Lane, director of new projects at the International Gallery in Manchester, Britain. “Today’s artists have studios that look more like Silicon Valley startups.”