Untitled episode

okay today's video has been moderately requested I'd say but I believe that those requests were actually very very important and deserve to be addressed the topic is obviously Masterworks everyone read the title and the reason is because the company has become the target of YouTube Community scrutiny or distaste I should say over the past few weeks with some of that criticism being worthy of Merit while

other parts not so much I'm not going to turn this into a grudge match between YouTubers I'm not going to start throwing shots at my fellow creators even though some creators out there absolutely will do that even if they just happen to see one sponsored segment on someone's video from a company that they decided they don't like and that no one else should like either and

rather than turning this into a debunk the criticism video with a whole lot of animosity which really was my first instinct here I'm turning into something that I hope will be infinitely more valuable to everyone here's the disclaimer before really diving in first Masterworks is a sponsor of this channel they have paid me before I will probably renew with them again if that's an option and

they explicitly offered to pay me for a dedicated video on this topic today needless to say okay I rejected the offer I have never actually done a fully paid dedicated video before for any brand and this definitely wasn't the time to start that being said here I am covering it because I want to I have not been paid a single penny for this video by Masterworks

second thing there are now a number of different videos about Masterworks on the YouTube platform and how it's a scam or a con or a risk and some of those videos are certainly better than others when I say some I mean one of them the video by plain bagel which is linked down below is the best of what's out there plain bagel posed logical questions responsibly

called for caution and made legitimate comments on a few separate components of the Masterworks brand I liked that video and I wanted to make sure that everyone watching understands that it became a foundational resource and a few of the questions I was ultimately able to ask of the CEO of Masterworks Scott Lynn the rest of the videos on Masterworks yeah not so great riddled with ridiculous

conclusions inconsequential but somehow pivotal example issues that are out of context and Incorrect and concern turns that might make sense on a surface level to some people until you've done even the slightest bit of research I get it I really do not everyone always does that and I've made mistakes myself on content in the past to be sure there's a couple glaring examples that I could

reference but for this one I felt it was my responsibility to try and learn more since I have promoted Masterworks in the past the onus is on me to find and discuss the information last thing before the actual content I was able to conduct two separate interviews with the CEO of Masterworks Scott Lin during this whole process one of those interviews was fully recorded and I

have a link to it the unlisted video file Down Below in the description I had to blur certain pieces of confidential information of course and during the first call we had a bit of a deeper discussion about some of that material in general but it was important for me to gather as much information as I could for the public and stay away from just saying trust

me bro which is becoming all too common in in the YouTube circles that I currently run in everyone is welcome to evaluate that material in the comments section for themselves many of you will likely be able to dissect it even better than I but during the process of making this video and during my own due diligence even before this I had become deeply familiar with Masterworks

business operations restricted here only by the fact that to describe everything we take a tremendous amount of time suffice it to say I did what I could let's break this down into eight key items after reviewing the criticism of Masterworks thoroughly I might add I see the following items popping up most frequently comment sections DMS Etc with similar and related criticism dominating The Narrative number one

the Art Market is corrupt money from the sale of artwork can have ties to terrorism scary stuff it's prone to money laundering billionaires use it to evade taxes etc etc alarming number two the art is stored in a Freeport while investors have no idea what will happen to it what if a painting is destroyed are they preserving them properly what is being done to protect investors

etc etc number three the Art Market is dominated by five main Gallery Sellers as well as two main auction houses Christie's and Sotheby's so what if those industry players decide to cut Masterworks out of the equation all at once number four paintings might never sell most artworks are only ever even sold once in their lifetime it's possible for investors to lose everything they put in and

that's just as bad as crypto number five the true up cost is a hidden and sizable problem that new retail investors aren't being properly made aware of number six they have exorbitant fees 1.5 annually and 20 profit is a whole heck of a lot number seven bad marketing and fomo tactics advertising low entry costs and high returns with deceptive techniques and lastly number eight it's unregulated

Masterworks is not registered even with the SEC therefore big red flag sounds terrible right this is not a complete list of all criticism that has been levied against the platform but it's a pretty good portion of the most popular items and today we're going to talk about them let's kick it off with number one because that's one of the more flashy items on the list right

terrorism and major crime which is also one of the most straightforward the Art Market is corrupt billionaires do use it to evade taxes that's absolutely true and some paintings were even bought or sold by terrorist organizations or connected organizations that do business with drug cartels things like that fundamentally that's true I'm sure there are actually quite a few examples where criminal Rings purchased artwork to try

and move their money across Borders or for some other intended purpose but the primary reference here motivating a fear that the Art Market is terrible I.E Masterworks is terrible is this right here this is an article from The Washington Post in 2014 that has been cited to me by multiple critics who expressed that I should no longer work with Masterworks and that it's irresponsible of me

to do so that I was fooled by them from the beginning these are some bold claims so here are the facts this article refers in particular to the Mexico City area it focuses more precisely on local galleries that had seen a 30 percent relative drop in sales not 70 percent as some people have tried to claim in my DMs and otherwise 30 also this is a

boldly deceptive claim if we try to apply it to the wider Art Market in general and saying that the Art Market dipped by 70 percent is wildly inaccurate in reality the global Art Market transaction volume has seen a fairly dramatic dip in 2009 obviously but barely even wiggled in 2013 and 2014 as a result of Mexican anti-laundering measures likewise the total sales value of the Art

Market from 2010 to 2021 again Global displays precisely zero Major Impact as well switching over to the concept of tax evasion I just I have to say this as plain as I can who cares the fact is billionaires use artwork to legally evade taxes you can ring your hands and cry foul at this but Masterworks has grown a business where they buy and sell Blue Chip

artwork which happens entirely within the confines of the law to and from private collectors who may absolutely receive tax benefits from all that artwork afterwards but why in the world do you care if the investment vehicle that you utilized already past tense goes on to be utilized differently by someone else in the future morally maybe it's possible to argue that it's immoral to evade taxes when

you have enough money to legally do such a thing but that's a bit of a different question isn't it next up insurance and storage some people are concerned that lack of proper storage could result in client losses and this one is very easy to address all Masterworks artwork again all of it is appraised at two separate values first is the appraised value of the work for

investors which will dictate things like how many shares it will have Etc but second is the insurance appraisal value which is always and you can of course listen to the longer call with CEO Scott Lynn that is linked down below the second appraisal value is always higher than the investor appraisal by a target of 10 percent it can vary sometimes eight percent higher or five percent

higher Etc but if a painting is somehow destroyed investors will not be harmed by that in addition Masterworks has one Gallery in New York City already they are currently working on another one as well in a more suitable location leaving the only valid concern here a question of safety for the artwork itself with the only valid criticism I can see on this particular Point revolving around

distaste for artwork even being an investment vehicle in the first place which is a perfectly fine opinion to have when we recognize that it is of course merely an opinion Point number three the Art Market is dominated by five main galleries with two main auction houses AKA high risk for Masterworks this is even directly stated by a lot of people on the subject because those industry

players are extremely selective what if they cut Masterworks out of the equation this one again came with an example when I was told that I had been conned by Masterworks and I should be ashamed of myself that example that they use to prove that point a singular decision made by one dealer at the freeze art fair where actor Daniel Radcliffe was allegedly denied the opportunity to

buy a particular painting because he quote wasn't exactly what the gallery was hoping for in a buyer end quote but if you expand the context on that the actor did actually get to buy the painting The Artist was apparently a big fan of Harry Potter and the entire thing is an example of absolutely nothing Daniel Radcliffe wanted one painting from one dealer one time and has

no discernible industry status in the world of art Masterworks is the largest individual buyer has regular meetings with the management of major prestigious Galleries and auction houses but even still if it did somehow come to pass that auction houses and galleries simultaneously cut off access to Masterworks in unison what would happen the answer is again pretty straightforward Masterworks conducts and please keep in mind I've been

able to see internal data for many of these points and there is a longer interview linked down below Masterworks conducts less than 10 percent of its buying and selling activities total through auction houses they will only ever even participate in an auction when they have a minimum guaranteed buyout price they'll only ever sell to an auction when they have a guaranteed minimum this is an effort

to protect investors from the prospect of a painting somehow failing to receive high enough interest where the sale would result in a loss for clients AKA in case it was sufficiently clear if Masterworks was cut off by even all of the major industry players in the Art Market right now they could still conduct business because most of their sales and buying opportunities are done through private

collectors Point number four Masterworks cannot guarantee buyer interest leaving clients with a tremendous amount of risk what happens if someone buys in and the painting never receives interest again at all to be honest this is one of the scariest things on the entire list and I understand why people are afraid and obviously any investment vehicle will carry some degree of risk but here's what I've come

to understand after attempting to evaluate Masterworks in the most thorough way I possibly can Masterworks has been offered and I've seen these numbers myself with my own eyes hundreds of paintings by almost any individual high value Artist as an example the company has been offered well over 200 paintings by the artist known as Basquiat this is a perfect example since Basquiat is one of the most

prominent names in the entire Art Market right now as we speak and through it we can begin to understand the Masterworks selection process contrary to apparent public opinion Masterworks does not rely on auctions for anything other than data they do not attend with the primary interest of buying from those auctions they send representatives to Major Art auctions and record statistics they record things like number of

bids bid price how much interest is maintained for a given painting over the span of multiple auctions and they use all of these different data points to find offerings that they believe legitimately qualify as the most profitable and secure options if a painting has been offered let's say five times at auction but there's only ever One Singular buyer interested and they're not even bidding that high

it's a very bad sign however paintings that sell successfully at auction to a private collection for example with multiple High bids from different parties interested simultaneously that's a very good sign I wasn't given access to all of their criteria on this obviously that's their proprietary system they're building out and most likely one of their most profitable assets because nobody else in the art world is even

doing that at this point in time but leading into the next major concern from the community at least this is a measure to try and avoid risk of the painting never selling there are two separate categories to keep in mind here first is the primary Market primary art sales are by far the most risky buying artwork direct from like let's say a living artist or from

someone who acquired it through inheritance or received it as a gift etc etc if that artist never achieved Legacy status or acquired sufficient interest in the secondary Market to where their paintings are sought after multiple times consecutively that is how you typically end up with an unsellable overpriced over-appraised work that can lose everyone all of their money but that's not what Masterworks does categorically instead Masterworks

will only buy work artwork that has been sold multiple times to specifically confine their investment vehicles within a category of work that has the most potential and likelihood of profitable resale in simple terms they are tracking how much demand there is for the work that they invest in with more data than pretty much any other player in the entire Art Market what the offers are value

have said all offers etc etc and choosing pieces six out of over 200 in the case of Basquiat that display sufficient evidence of long-term interest if they were buying on the primary Market risking investor money in the process that would be a red flag a big one and I'd talk about it but as per the express now public words of their CEO stated to me directly

they do not do this ever some of the most direct and alarming criticism that was first sent my way indicated that survivorship bias is an extremely risky phenomenon in the art world and I wholeheartedly agree the danger presented by Masterworks buying a painting that had only one appraisal or an unproven record of interested bids is very real but again that is not how the business operates

as a decisive measure to actually mitigate survivorship bias risk in their portfolio next up number five the true up the true up is where I have to voice very public distaste with Masterworks this is one of the only things I did not already know about from my own due diligence work or had not already discovered prior to this and I feel that it was improperly disclosed

I do not view that improper disclosure as an indication of malice or predatory intent but the disclosures involved have now been reworked I can show them to you on screen right now and I was shown much more detailed information on what this is where it goes and why Masterworks is often securitizing artwork for months on end before investors are even allowed to engage with it on

top of this there are some significant costs associated with blue chip artwork acquisition that they are managing to avoid as of right now such as high commissions and taxes that come with the traditional art purchasing format this puts them in an interesting position where they are simply offloading the costs associated with securitizing the asset and additional fee structures to their customers a common industry practice but

doing so in a way that has managed to cause concern on its face I don't really like that I was unaware of this I understand the actual clearly demonstrated need for them to pay for management and Logistics of the artwork and securitization obviously but that should be much more clearly listed not hidden away in the fine print again I do not see any indication of actual

malice I see Zero sign that they have done anything wrong in the slightest here from a legal perspective but I am a big fan of clarity with a distaste for complex legalese so here you can see the updated language for anyone curious it will also be included down below that being said and you can once again watch the longer interview for more information on the fee

structure as well as individual items that have been eliminated by Masterworks for yourself that being said we arrive at number six exorbitant fees this is yet another critical focal point that I do not fully understand because the fee structure here in play is actually better and lower as per my understanding initially before I even signed on with them as a Creator and even more so now

after investigating further the fee structure that they use is better and lower than pretty much any hedge fund in America there is a 1.5 percent annual fee on your investment issued in the form of new shares of the vehicle LLC given to themselves and a 20 profit fee upon sale which is being referred to as AI or massive or predatory and I just don't see it

hedge funds institutions that trade pre-registered Securities almost exclusively they are not in turn registering the Securities themselves and then offering them to people operate under a 2 and 20 model to be clear that's more expensive than Masterworks but going further Masterworks will only get that money all of it since their 1.5 annual fee comes in the form of additional shares issued to themselves they will only

get that money after selling the paintings this makes them financially motivated to continue what they have already been doing proven to have been doing with a track record of 11 sales finalized which is selling the paintings for more than they paid and reaping profit for everyone as a result the private number of paintings they have now sold is a fair bit higher than 11 by the

way but 11 was the last figure I was given as an influencer to be able to tell my audience and I don't know if I can actually share the internal number right now so I'm just going to play it safe They will announce the rest after whatever additional process is required and they'll do it on their own schedule second to last number seven and I saved

the most prominent items for the end is fomo marketing I've heard a lot of people say that they are using false fomo fear of missing out to get people to click their links with urgency and put in money and to a degree I think that might be true they certainly lean into it at the very least but the wait list that everyone talks about has a

very clear definable purpose Masterworks is partnered with arate wealth which is a registered Securities broker with the SEC this will be important for the final item number eight as well but for now we'll leave it at that in addition before anyone can invest their money with Masterworks this is a mandatory part of the framework they will be sent through a process called suitability testing this process

is designed to filter out whether Blue Chip artwork is or is not a suitable investment for that particular person and Masterworks has about a 20 rejection rate this means that for one in five people they will be told this investment isn't really right for you at this moment in time and denied the option to buy in or invest but it also means that everyone one who

is accepted and they try to be accommodating wherever possible has to go through a roughly half hour long onboarding process with a registered financial advisor that obviously takes time and that is where the wait list comes from I have personally seen internal data to support this where the waitlist is well over 1 000 people long that's 500 man hours of waitlisted users depending on how many

financial advisors they have on the phones that could mean multiple days of backlog or a week of backlog who knows and that's all people over a thousand well over a thousand of them who have yet to go through the suitability process which has created a legitimate wait list depending on how you are introduced to the platform for anyone who has or will watch the longer interview

down below I tried to pick up on this and Levy what I believe is one of the best criticisms of the platform pertaining to their marketing material Masterworks does advertise explicitly Shares are only twenty dollars they do portray exponential looking graphs and lofty visuals on their website but they are rejecting people that do not quote fit their suitability profile end quote with a fairly substantial wait

list in the process my concern is this Masterworks appears to have attracted a somewhat kind of split demographic where some of the people who see the ads and feel it might be a good option for them actually aren't someone the service is really suitable for and that is entirely their own fault clarifying this would be a great step to take making sure people understand more at

least about their business separate from the data point the shares only cost twenty dollars which is true fundamentally speaking but clearly not their best focal point right now and allowing their YouTube creators more freedom in the ad read would be an enormous positive for them that also lets you the viewer differentiate between creators who are and are not advertising products responsibly I very much hope they

take this advice and using myself as an example here I try very hard to describe the Masterworks platform in as much truthful detail as possible within the confines of what they require from me I feel I've done a good job I honestly do but that level of care is not exactly enjoyable to have to take and I believe that they're overly precise marketing scripts based on

what someone has arbitrarily decided is a good idea for YouTube advertising or something that should be done away with making factual statements which is precisely what they've done does not necessarily mean that those statements are the best material to emphasize shares might be twenty dollars individually true statement but why is that a Key Advertising point when they don't actually even allow the crypto bro moonshot Chasers

which is really the demographic who are complaining about this to be on the platform with just 20 or 40 dollars why risk that kind of negative press which has obviously come back to bite them answer logically they shouldn't be risking it last item and then some general closing information Masterworks is not registered with the SEC number eight fact check true does it matter you tell me

Masterworks is not registered but they hold a partnership with arate wealth who is registered as a broker dealer and they do this so that RSA wealth can perform all service for them that you need to be a registered broker dealer to perform get it funny how people leave that out when they message me with criticism that Masterworks is unregistered and therefore unregulated and they're not even

a real broker dealer yeah no I get it I understand I've known that since the beginning there's a reason for that and they don't need to be they have a partnership with RTA wealth who is a broker dealer and they use that partnership to do all the things that you need the registration for I mean this is pretty clear-cut in addition all of their paintings are

specifically qualified by the SEC to issue public shares which is arguably the highest standard of security one can ask for in the public markets maybe it's not the absolute Pinnacle but it's pretty high up there shareholders have rights the SEC as well as RTE wealth who is registered with them have reviewed all documents involved and that obviously does not guarantee nothing bad will ever happen in

the future but the comparisons made here to crypto by some people are not just ridiculous they're damn near dishonest sincerely do we somehow believe a company that has now successfully qualified over 2 100 individual assets with the SEC and runs a licensed secondary Securities Exchange platform on their own website in partnership with a registered broker somehow can't be registered with the SEC no they absolutely can

they have a compliance department they have the capability it's just irrelevant what's more registered financial advisors who conduct suitability testing for Masterworks are not commission based this is a switch that was deliberately made by Masterworks it wasn't always that way helping to ensure that the people you talk to are not simply pushing you into a specific painting in order to pad their own bonuses with commission

none of this is to say there isn't risk there is but Masterworks has become the largest buyer with the most data in the entire Blue Chip Market the company is putting together a database of pricing with indicators that never even existed before and so far in my opinion and I would say that the opinion is quite obviously supported by factual data in my opinion they are

succeeding a company advertising positive returns in the Art Market World while selling shares in paintings through an LLC has gone through all of the regulatory scrutiny required to do so by our government has done precisely what they said with 11 paintings publicly sold thus far showcasing decisively positive performance for the past three years even though past performance does not guarantee future results and depending on how

you look at the statistics maybe it's 9.9 percent instead of somebody assuming that it should be over 30 percent or even higher and now they accurately advertise their track record and business model with factual statements what is precisely wrong here why are they a scam please let me know because right now I don't think they are one final criticism thread I don't even really know how

to tug on is that Masterworks could put predatory fine print in the future LLC offerings of paintings and the only response I have is yeah yes they could do that I could start scamming all of you watching this with crypto tomorrow but I have seen absolutely nothing in any of my research ever to indicate that they ever have or will do such a thing at a

certain point the potential for a scam to exist is constant and has to be viewed for what it is mere potential until it actually exists that seems to be the exact opposite of what they want to do right now but yeah for the people scared of it not much more I can say final point the secondary Market that Masterworks allows on their platform facilitated by Rita

wealth does not have high transaction volume liquidity isn't really there and this is sort of a criticism it could be I guess because it's a feature they do offer despite the fact that it's currently kind of unimportant but as per my internal data that I was given access to and have seen the private conversations I have had as well on top of that about 20 to

30 percent of the total value for any given painting is typically traded annually on the internal secondary Market this means that while Masterworks does not really advertise it heavily and is currently working on bolstering it with further institutional buyers and more participants the market can actually allow investors an option to offload their Holdings with much more liquidity than a three to ten year home no guarantees

at all let's be crystal clear about that but the illiquid nature of artwork is an obvious constant here across the board and the secondary Market existing or not wouldn't even fundamentally change my opinion of the platform in the slightest if it's there and populated amazing that's great big bonus but if it isn't so what apparently financial advisors deliberately choose not to emphasize the secondary market for

Masterworks during suitability in the first place which is probably a good idea I don't really have any meaningful criticism for them on that front bottom line most of the criticism I have seen of Masterworks is just blatantly flat out wrong A more extreme example would be the guy who ranted at me about how I was a sellout for being sponsored by a platform that uses blue

chip technology when he really meant Blue Chip artwork which is just a category of the asset YouTubers seem to be pouncing on the idea of Masterworks being oh so bad with inflammatory rhetoric and references to severe things and they'll even acknowledge themselves like actually they haven't really ever done anything wrong that I can find period but oh they're so bad because of all this context of

these things that are totally unrelated to what I'm actually even trying to prove anyway that's a bit of a rant but Masterworks is so bad to get their clicks some videos are better than others again the plain bagel has the best video about this out of everyone so far hands down but the majority of criticism I see in total from all sources combined on average is

just ever since established titles got basically run out of the YouTube Community by an angry mob I've had this nagging feeling that something wasn't right about how all that went down either and now I've seen videos pop up against like I don't know three more major sponsors all at once across the platform some of them obviously targeting Masterworks if there are real things to call out

and criticize let me know and I'll do it right to their face with internal connections and I swear to God I absolutely will hold their feet to the fire over anything legitimate but after digging it as best as I can this video is what I have come up with I will continue to accept sponsorships from Masterworks until I see or hear something to change that stance

which I have not seen or heard at this particular point in time that's it this video was not brought to you by Masterworks I refused any and all payment associated with it I did this because I actually believe in the platform if I'm wrong that will suck a lot and probably hurt my credibility quite a bit but I honestly don't think I am if you'd like

to support please check out the links down below especially locals patreon and channel memberships here on YouTube if I get enough of those I'll never accept another sponsor in my life actually but as of right now sponsors are a huge important thing in the lives of many creators not just me let's be accurate and precise when we try to tear them down not indiscriminately fire a

cannon for clicks thanks for watching [Music] thank you foreign