The picture is Picasso's 1932 La Rêve, a portrait of his mistress Marie-Thérèse Walter. Its owner Steve Wynn, the Las Vegas casino magnate and big-time art collector, accidentally punctured the picture with his right elbow after the sale contract with his friend, the hedge-fund baron and fellow collector Steve Cohen, had been drawn up.
The incident took place in Wynn's office in front of some guests.
Cohen's Californian art agent had viewed the picture a few days before, inspecting its condition and giving La Rêve the thumbs up. All that remained was the actual exchange of the money and picture itself.
Wynn, who suffers from an eye disease that affects his peripheral vision, ripped a tear in the lower right of the painting when making a gesture with his right hand. After uttering a four-letter expletive, he observed the damage, putting his finger through the two-inch hole that lay on Marie-Thérèse's left forearm.
Wynn later took the work to his dealer, William Acquavella, and Cohen met them at his New York gallery. Between them they agreed that the contract was now void.
The painting will apparently be restored over the next two months, but it seems likely that now Wynn will be keeping the Picasso after all.
Wynn bought La Rêve for an undisclosed fee in 2001. He purchased it from an anonymous source who, in turn, had bought it at Christie's New York in 1997 for $48m (£27.4m).
That auction price lies ninth on the list of all-time highest prices for works of art.
