Betsy Broun, the Director of the Smithsonian American Museum, was presented with an intriguing proposal to purchase a one-of-a-kind sculpture. Months of negotiations later, she had acquired a $7.5 million sculpture for a grand total of $0. How did she pull off this master negotiation?
Broun was presented with an intriguing proposal. A board member recommended purchasing a beautiful, 30-foot tall Roy Lichtenstein sculpture to add to the museum’s collection. Even better, the board member offered to arrange for the sculpture’s transportation to the museum. All Broun had to do was find the money to purchase the sculpture so it could remain at the museum permanently.
Broun took the idea, with its $5 million price tag, to her team. The curators, realizing that the high cost could wipe out the museum’s acquisition funds for the next few years, were opposed to the purchase.
So Broun told the owner, an art dealer, that unfortunately she would be unable to make the purchase at that price. A month later, the owner came to Broun and said that after speaking with the dealership's partners, they could lower the price to $4 million.
Despite the 20% discount, the price was still too high for Broun, so eventually the owner asked what she would be able to pay. Broun offered $1 million now, with another $1 million over the next couple years. With a reluctant team of curators concerned about demolishing their collective acquisition funds, she wasn’t in a position to offer much more.
So the owner promised to think about it. Eventually, the owner came back with a new proposal: would Broun accept the sculpture for free?
As it turns out, the owner had the sculpture appraised and learned it was worth $7.5 million, $2.5 million more than the original price tag. Therefore, the tax deduction for donating such a high-value piece of art would be higher than anything that Broun and the museum could have paid. So, the owner got the tax deduction, the museum got the sculpture, and everyone was happy.
This is a classic example of value creating, where the negotiating parties try to find creative ways to expand the pie and distribute more value to all parties. In this case, negotiating purely on price would have left the parties unable to make a deal. But, by thinking creatively about value as a whole – the tax deduction for the owner, and the ownership for the sculpture for Broun – the parties successfully expanded the pie, and both walked away satisfied.
