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UPDATES Is Betting On Box Office Good For Films?
WORST IDEA EVER? Wall Street Plans Futures Exchange Tied To Box Office
Washington, DC (March 31, 2010) – A growing coalition of entertainment industry workers, creators, independent producers and distributors, business organizations and theater owners today announced opposition to two proposals to establish online wagering services based on speculation over box office receipts for motion pictures.
In a letter to the Commodity Futures Trading Commission (CFTC), the Directors Guild of America (DGA), the Independent Film and Television Alliance (IFTA), the International Alliance of Theatrical Stage Employees (IATSE), the Motion Picture Association of America (MPAA) and its member companies, and the National Association of Theater Owners (NATO) also jointly asked the Commission to postpone action now scheduled for April 2 on an application by Media Derivatives, Inc. (MDEX) to create a designated contract market for film futures.
The groups said that the proposal by MDEX and a separate plan by Cantor Futures Exchange, L.P. “are based on faulty understanding of the film industry and create a risk of rampant speculation and financial irresponsibility at a time when the nation is still seeking to recover from an economic meltdown of the financial markets.”
“With Congress and the President working on reforming the financial markets to help curb the abusive practices that triggered our nation’s economic crisis, now is not the time to open up new and highly speculative marketplaces that could end up costing jobs and harming legitimate businesses,” the groups said.
In the letter to the CFTC, the groups said: “We respectfully ask that the deadline be extended to April 16, 2010 in order to allow the DGA, IFTA, IATSE and MPAA time to submit a written comment addressing the merits of this application. Several of these parties had no notice or knowledge of the applications until late last week. This will allow the time needed to gather factual information and provide detailed and focused arguments that we believe will be helpful to the Commission’s consideration of the application.
“Among other things, we will address whether any exchange infrastructure is capable of surveying the box office marketplace to detect and address potential market manipulation. We have just received today the MDEX’s current proposed rulebook that supports its application. This version of its proposed rulebook has not previously been available to the public. We also note that it was only yesterday afternoon that we received the MDEX’s March 26, 2010 response to the MPAA’s March 23, 2010 letter to the Commission. It includes facts that we previously have not been aware of including, among others, that MDEX’s rules will require ‘the studio/distributor to provide evidence to support its public box office number when it falls outside the standard deviation level.’ We were unaware of any proposed requirement that studios disclose information to MDEX, and, accordingly, our comment also will address whether any authority exists to require disclosure of any information from studios.”
The letter to the CFTC notes that an extension of the deadline will not prejudice MDEX because the deadline for the contract it seeks approval to trade is not until April 23.
Cantor Futures Exchange, L.P.’s request for approval to register as a designated contract market is scheduled for April 20 and its request for approval to contract film futures and options is pending in May. The groups signing the letter today intend to file written comments about concerns about this proposal as well.
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Worst idea ever. Next thing you know they’ll have an exchange that bets on the death of aging celebrities…
Jesus, what ever happened to earning money by “producing and selling things”?
Time for Nero to break out the fiddle…
Like the MPAA is doing this to protect investors. Pul-eeze. They don’t want people to know about their uh, accounting methods.
Really? You don’t think this has something to do with having an entire class of investors with a financial stake in the failure of your movies?
Starting this exchange is opening up a Pandoras box that will quickly transform development, production, and distribution into a massive clusterfuck.
I’m surprised the unions haven’t joined in this fight. (Or did I miss this?) Cuz in this town, you can pretty much torpedo a project in a heartbeat without too much effort. A film’s production is already a tenuous house of cards. It usually takes years and years to put together just one project, plus a lot of luck. And once greenlit, all it takes to kill the project is an accident, a bogus rumor, leaked dailies, ginned up bad press, etc. This is hard enough stuff already without having jackoff gamblers on the sidelines who put down money that your movie will fail. Doing this will only result in toppled projects left and right which damages the industry as a whole.
And then Wall Street can claim victory for burying yet another American industry.
Thing is, the MDEX approach is to only trade these box office contracts 4 weeks prior to the movie release. Seems far-fetched that the trading of these products would have any effect on a movie already “in the can”.
Of course you can torpedo a film in four weeks. Out the lead of a romantic comedy. Manufacture bogus rumors that the director is a socialist. Trash reputations. Astroturf web sites with bad “advanced” reviews, etc. etc.
Four weeks is plenty of time to destroy the production and post production process. Many movies don’t get completed until mere days until the film shows up in theaters. Do producers really need to deal shit from gamblers while they’re under a deadline to try and complete a movie- and make it good?
Using your logic (and I use that term loosely here), a company like Apple could totally sabotage an upcoming product release, in order to make a greater profit because they heavily shorted their company stock.
Nevermind that they easily stand to profit more with a successful product release.
Nevermind that the damage to the company’s reputation easily outweighs any short-term profit that might be realized through a strategy such as this.
What are THEY so worried about…
These guys are extremely nervous that the two new markets … will cause the industry to finally have to be honest about how they spend money on film production. The LAST THING they want is national exposure to their accounting methods.
The second the new trading starts rocking the boat or getting rocked BY the boat … the studios will be called upon to “account for their accounting” … something they have been able to avoid for at least a hundred years and more.
Fear runs deep in you Master Hollywood.
I don’t get it. MDEX has as much to do with the real movie industry as Santa Claus and the Easter Bunny have to do with religion. Does anybody think a bunch of voyeuristic investors can manipulate the ticket-buying habits of millions of patrons just to make their bets come true? Studio marketing departments can’t do that despite wielding billions of dollars of ad-pub money. It’d be easier and cheaper to fix sports events than for an outsider to make a movie flop or fly just to win a bet.
The only ones who will win are the traders with CFE.
Some of us are looking forward to trading on this exchange. Maybe the movie industry should stick to it’s core business (making movies) and leave the financial industry alone.
How would the movie industry like it if the millions of people involved in finance in this country did not go see any new movies or purchase any DVDs for the next 3 months in response?
The fact that some of the people making a complaint did not even know about this until last week speaks volumes about their lack of qualification to make judgement about an industry they already know nothing about. I am just a regular person, but have been aware of these exchanges for 5 months. This just wreaks of the typical Hollywood attitude of having to have an opinion on everything, no matter how little they understand it, and being opposed to capitalism on all fronts, unless it benefits them.
Furthermore, complaints about releasing data are laughable, because the data is already released, and a virtual trading system has existed for a 13 years without any problems (HSX).
Cantor owns HSX, and HSX often predicts movie results more accurately than studio estimates, so the idea that these trading systems are designed around a faulty understanding of the movie industry is laughable.
If anything, this is one of the most tested trading systems in the history of this country to ever go live.
I cannot think of any other trading system we have that had 13 years of data on before people started trading it for real money.
Your whole rambling post is laughable and I am not sure you even read or understood the article. The main topic of the article, MDEX futures exchange, does not have anything to do with HSX and citing 13 years of HSX’s existence as proof that Cantor has the ability to operate an exchange is even more ridiculous. HSX is a play money site, that Cantor purchased fairly recently, it is not regulated and has no security measures. Their proposed exchange is not a financial market, it is basically an online gaming site.
I doubt Widows & Orphans Fund Managers are going into this market. I didn’t know that any extra receipt info was required outside the weekly cumulative, on which the Cantor is based, and is as routinely reported as the weather. The biggest possible flaw in the market is insider info, which is all but impossible to control, but which can be followed on a weekly basis as the contract originates six months before release date.
This is a whole new business which I believe should be encouraged. There are precious few new ideas floating around this country as it is. Just tell Uncle Sam that there are vast new tax possibilities here and you’ll be able to buy a ‘Twilight VI’ contract at the supermarket.
Agreed. And it is quite unbelievable that the CFTC has capitulated to this uninformed industry pressure after both exchange’s public comment period expired months ago. This reeks of Hollywood trying to protect their shady practices and fight any attempt at transparency into how they report their numbers.
Here’s an idea. Suppose I’m working on pre-release tracking data, and I determine that the models are missing a key interaction variable, and thus are not adequately measuring what we statistician/attorney types refer to as the Arnold Rothstein effect.
So I put that variable in the models, and coincidentally, def int among aware and first choice just happens to trend down for one particular movie.
Here’s the leap of faith. Suppose someone at a studio actually believes the tracking data, and decides to not push for the screen count they wanted.
OK, maybe that’s too far-fetched. Suppose I also buy really, really nice holiday gifts for my buddies in Knoxville, Kansas City, and Plano, just in case the Rothstein variable doesn’t tip the balance.
Cheaper than fixing a sporting event? I don’t think so.
Hmmm is this the future of indie finance? kinda scary, but kinda cool. Is this a healthy way to gamble, with art and then make money and if u suck at least you got your art. Win-?-Win
I think this sounds more fun than Wallstreet or Vegas. Reminds me of how Koreatown functions.
Hey, I’m going to open a futures exchange where you can bet for/against the success of this Cantor project! Who’s in?
Because the world needs even more derivatives.
God dammit. I can’t believe I’m agreeing with the MPAA on something.
W
It is so surprising that the MPAA et al are now just reacting to this. The CF project has been in the works for over five years. In fact, Cantor had a booth in the main corridor at last year’s NATO owned Showest in Las Vegas. They were showing their system to anyone with a pulse and a nickel in his pocket.
Yeah! Just more money for the bankers and stockbrokers! They need more money for contributing nothing, creating nothing!
Notwithstanding the merits or lack thereof of the idea it will be interesting to see if it leads to a speculative frenzy for properties like Box Office Mojo and even media properties such as Deadline Hollywood, THR and Variety. Given the ubiquity of entertainment related news maybe there really is a pent-up public demand for this kind of online gambling (and let’s face it, that’s what it is).
I have worked in both industries as a futures trader and film producer. The people who criticize this practice don’t understand it. Futures markets where designed to reduce risk, starting with the grain markets a long time ago. If you could lock in a good price for grain and didn’t know what the future would be, but you knew what your costs were, you could lock in a profit while speculators could take on that risk. It’s a great idea for the film biz. There will be fewer box office disasters and more films greenlit because of the influx of investor dollars. Those who don’t want it are nervous that their accounting practices will be scrutinized and they SHOULD be nervous. I say bring this thing on!!
I wholeheatedly concur with your post.
So what incentive is there for the studios to participate in this kind of gambling by providing Cantor with details of their accounting? Do they seriously think they can force the studios to do this? It would be one thing if the money was somehow flowing into investing in films, but I doubt they have any legal right to enforce this.
Don’t know about Cantor, but on Trend Exchange, a studio could not participate unless they were to contractually agree to divulge their calculation methods if their published opening weekend box office receipt differs more than a calculated 2-year standard deviation from the number calculated by Trend Exchange based on the raw data received by the 6600 theaters in the U.S.
In short, if the studio doesn’t agree, they can’t trade.
I just can’t crunch the numbers enough to figure out how the exchange will work.
Studios already bet against their own movie productions. Every last one of them.
There isn’t a single studio that releases a movie “naked” – meaning they bear the entire brunt if it underperforms, or upside if it performs well. Through already accepted practices such as slate financing, distrubution and foreign-rights deals, studios sell off a large chunk of their equity in these productions in order to mitigate their financial exposure. They sell this movie equity to banks and other investment entities. These are the natural hedgers in the marketplace – not necessarily studios such as Disney and Fox, but banks such as UBS, JP Morgan, and DeutscheBank. The studios have ALREADY TAKEN THE OPPOSITE SIDE on their movies!
Unfortunately, with the current economic environment, Wall Street funding for film financing has practically dried up. Which ironically seems to make a compelling argument in favor of these instruments.
Let’s suppose that you had $10,000, and you were approached about “investing” in a movie. Why wouldn’t you invest? Maybe it has something to do with Hollywood Accounting, which can easily conceal movie profits, and thereby making your $10,000 investment practically worthless even though the movie performed very well in the theaters. Keep in mind too that there are no existing verification procedures for what a studio announces as their box office tally – they basically can announce whatever they want, and there is no independent review or audit of their calculation.
Now, suppose you decided to take that $10,000, and through an intermediated broker associated with an approved FCM of Trend Exchange, bought two $5,000 notional contracts for a $20mil opening weekend strike for the movie in question, and you paid $50 times the trading price for the contract (0.25-99.75).
If the contract is trading at 30.50 for example, that represents a 30.5% public sentiment that the opening weekend number will come in higher than $20mil, and you would pay 30.5 x $50 for each contract ($1525), and a total of $3050 for the two contracts for a potential return of $10,000 if the contracts end up in-the-money. The other side (the seller) receives your $3,050, and is on the hook then to pay you $10,000 if they lose on the contracts. Note that if the weekend number falls below $20mil, then you are out your $3,050 investment, and the seller walks away with your $3,050.
Who is on the opposite side of your trade? Either the bank or investment entity that currently owns equity in the movie, and is hedging their risk by selling to you, or the actual studio if they ever wake up and understand how these products could benefit them.
So, the movie has an opening weekend take of $22.7mil. On the Trend Exchange, you just made a guaranteed profit of $6,950 on your $3,050 investment. If you had invested directly with the studio, it’s doubtful that you would have seen that money ever again.
Now, my example does not take into account fees or margin required that would affect the amount of funds available for you to trade with, but conceptually this is a decent representation of how this market would work.
Hope this helps.
I honestly though this was an April Fool post… and was STUNNED to see it posted on 3/31.
Un-effing-believable.
Parasites looking for a new host.