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Cantor Fitzgerald, a leading Wall Street brokerage house which operates the fake futures exchange Hollywood Stock Exchange, now wants a real-life one. It’s seeking permission from U.S. regulators to set up a futures exchange to trade contracts on the expected weekend box office of major motion pictures. This is beyond ridiculous (and not just because it gives me nightmares that I’ll do DHD weekend box office and suddenly have to answer to the SEC). Here’s why: “This could lead to another source of revenue for studios who can make their own bets on movies they are releasing to increase total revenue take or hedge losses,” one financial source explained to me. “Who knows if it will take off but interesting nonetheless.” According to a company statement, Cantor Fitzgerald LP has asked the Commodity Futures Trading Commission to create this new exchange that plans to make domestic box office sales its first product traded on the Cantor Exchange in the First Quarter of 2009. Bloomberg reported that the contract is designed to let the film industry hedge and speculate on the theatrical performance of movies, and based on the first four weeks of a film’s release. Cantor’s Hollywood Stock Exchange is a virtual stock market that forecasts ticket sales and box office performance based on mock trading by users of the site.
Editor-in-Chief Nikki Finke - tip her here.
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film to follow: “dr. strangetrade, or how i learned to defray risk and love the shareholder lawsuit”
Ladies and The Gentleman–If this goes through and these are traded on the CME the CBOT or NYME, it will be recipe for disaster.
1. Since the studios will act as market makers–it doesnt matter if the price of the futures contract goes up or down–they still win
2. retail investors will be duped into this
3. this is a very sick and twisted way for the studios to virtually guarantee 100% of their equity in films. If a film costs 40 million to make–and each contract on margin cots 2500.00 and you get 20,000 traders from hedge funds to guys in dorm rooms–they in essence have protected the studio’s ass
The volatility will be extremely high, most people will lose their asses, and if the SEC, the NFA, CTA approves this, this will tank the country even more–and smart hedge fund traders–they will turn the studios into the auto industry
This is fantastic if you are a filmmaker looking for financing from the studios because after “hedging” their bets by receiving an engineered IPO price for all the pictures that otherwise constitute loss means that a billion or so per year loss per studio is now returned to the coffers for production. OK so you have to deduct 25% of the “returned losses” for trading commission, you still have at least $750,000,000 in new revenue for additional production. Almost. Don’t forget another 25% of gross revenue for the stars who will not play unless they are paid their share of this new source of film revenue. But the $500,000,000 is still not bad where on average you probably had a 75% loss before. But wait. Of that 500 mill we’ll have to deduct, say, $200,000,000 in new costs the studio “commodity division” books to manage and market that IPO (remember the rolling breakeven?). $300,000,000 in new valuation remains, no? No. “Trickle down” deductions for agency packaging fees, executive bonuses, special promotional expenses,etc. The insiders, just as in Wall Street, will be insiders. The filmmakers, except for a special handful who now have bigger budgets, may find less funding available post commodity, not more.
Might this exchange be a way to finally force Big Media’s books and accounting principles open to public scrutiny?
You are all drinking your own bath water!! -and have no idea how an exchange actually works. A studio wants to hedge its risk in a film by shorting $10 million of Futures contracts. One problem – who is on the other side of the trade?. Who is “going long” $10 million future contracts to facilitate your trade? How is the market maker hedging itself? This is all pure illiquid fantasy – the only participant to make money will be the exchange! There is no “quantifiable edge” in this scheme or real risk management. Bring on the suckers!
Some of the concerns raised about box office futures contracts are very similar to those raised about political prediction markets. For discussion and analysis of the latter, please read this paper, “Manipulation in Political Prediction Markets,” which is forthcoming in the Pepperdine Journal of Business, Entrepreneurship and the Law. A draft of this paper is available on the SSRN website linked to my name in this comment box.