Cantor Bets on Hollywood, and Sports Gamblers Bet on Techniques

[clevfan]

Cantor Bets on Hollywood, and Sports Gamblers Bet on Techniques

By MICHAEL KAPLAN
DailyFinance.com
March 13, 2010

When Cantor Fitzgerald's Cantor Futures Exchange opens its online movie futures market next month, Hollywood will become more like the NFL: a sport that gamblers can bet on, with investors placing over/under wagers on box office performance.

Here's how it will work. Say Cantor -- which owns of the Hollywood Stock Exchange, used for entertainment purposes only -- sets the baseline for an upcoming action flick at $100 million. If you go long for $100 and the movie grosses $150 million, you earn a $50 profit. Go short, and if the box office comes in below $100 million, you win that way too. Of course, if you predict incorrectly, you lose. Sounds an awful lot like gambling on sporting events.

A few professional sports bettors, in fact, have thoughts on how to be a winner on the Cantor Futures Exchange. "Don't pick the obvious," says Alan Boston, a veteran sports bettor who specializes in college basketball. "If a company is paying a big cat like Tom Cruise to do a movie, you can already figure the movie's going to be pretty special -- and that will be factored into the price. I'd be looking more for the next Donnie Darko: a potential sleeper that looks a little strange and isn't expected to do very well. Or else focus on the cult director who's suddenly been given a major opportunity."

Cult Directors: Go Short

And if you're thinking of betting on such a film, by a cult director like Richard Linklater, Boston suggests going short. "He's an original thinker who just doesn't ever seem to click," Boston says. "Linklater is sort of the movie equivalent of the Minnesota Twins: You root like hell for them, they do everything right, and they just can't get over the hump."

Luke Kim, a Wharton graduate and former Wall Streeter who's found success at poker and blackjack, suggests a more analytical approach. "The first thing I'd do is hire a bunch of MIT guys to model the movie business," he says. Some highly successful sports bettors use computer software programmed with hundreds of thousands of variables and constantly updated, Kim says.

Get In Early

"I'd have the programmers factor in everything from the director to the genre to correlations between the success of certain types of movies and the overall economy," he says. "If the market for this gets big, people will bet on it in a serious way. It might become like weather futures, where it initially seems like a joke but goes on to become a big deal. I can see there being alternative funds that deal in this."

An expert on both financial markets and the gambler's mentality, Kim advises anyone who thinks he has a distinct edge or gray-area information to jump in early, while movie futures remain inefficient and not overly governed. "Before it gets too regulated, you can expect people to rape the money out of it," Kim says. "If this market exists five years from now, I guarantee there will be notable restrictions that just don't exist now." That sounds like something you can bet on.

[clevfan]

Reel It In: MPAA Upset By Proposed Movie Futures Market

by Wayne Friedman, 25 minutes ago
media daily news

Wagering on the future of movies? Don't bet on it, says Hollywood's main lobbying group.

The Motion Pictures Association of America, the lobbying group that represents the six major film studios, doesn't like the idea that two companies -- New York-based, the Cantor Exchange and Indiana-based, Veriana -- are planning to start a commodity-like futures markets based on movie box-office revenues.

The MPAA has notified the U.S. Commodity Futures Trading Commission about its objection -- per a story in the Los Angeles Times. The group calls these planned commodity markets the "equivalent of legalized gambling on movie receipts," according to a letter written by Bob Pisano, MPAA's chief executive.

As with other commodities, both the Cantor Exchange and Veriana view the exchange's hedges as a chance for movie studios to reduce the risk of investment. For example, historically, farmers have bought and sold corn or wheat futures to protect themselves against crop failures.

But the MPAA's worries are about abuse -- that speculators will drive prices up or down with little regard for the type of risk-adverse investing that defines a futures markets. These investors may also have inside knowledge of a movie's marketing plans, which deprives other investors of a fair investment environment.

For its part, Cantor Exchange, which is an offshoot of Wall Street investment company Cantor Fitzgerald, says it has an enforcement plan to deal with insider trading.

[nfleqbc]

Originally Posted by clevfan

But the MPAA's worries are about abuse -- that speculators will drive prices up or down with little regard for the type of risk-adverse investing that defines a futures markets.

Since when have futures exchanges been risk-averse? Sure one side of the trade may be seeking to lock in a price to reduce their risk, but isn't it normally the case that there's a speculator on the other side of the trade?

Hollywood just wants a piece of the action, just like I guarantee that if the NFL could collect a few cents of every bet they'd drop their opposition to betting.

[clevfan]

H'wood futures shock

By KAJA WHITEHOUSE
NY POST
Last Updated: 3:29 AM, April 2, 2010



A simmering battle between Hollywood and Wall Street may boil over today as the commodities market's chief watchdog decides the fate of a plan that lets investors bet on a movie's box-office performance -- something Tinseltown hates almost as much as a movie dud.

The Commodities Futures Trading Commission, known for oversight of mundane trades like corn and soybean futures, is expected to vote today on the application of Veriana Ventures' Trend Exchange, or TrendEx.

If TrendEx gets an OK, it could pave the way for a second movie-futures exchange being proposed by US brokerage firm Cantor Fitzgerald.

But Hollywood's powerhouses have pulled out all the stops in a bid to block the exchanges from ever seeing the light of day, this week asking the CFTC to delay any decision for a few more weeks.

"The reputation and integrity of our industry could be tarnished" by trading in movie futures contracts "in a manner which allows them to be viewed as the economic equivalent of legalized gambling on movie receipts," Motion Picture Association of America Executive Vice President Greg Frazier warned last month.

Indeed, Hollywood officials fret these exchanges could lead to insider trading, in part because movie screenings that come before a film's wide release might give some people an advantage over other investors.

However, the creators of the exchanges tout them as a way for movie studios to protect against losses -- akin to how farmers use options trading to protect against crop failures.

Earlier this week, MPAA asked for a second postponement -- this time with the backing of a coalition of other industry players, including the Directors Guild of America and the National Association of Theater Owners. MPAA represents six of the top movie studios.

A spokesman for the CFTC declined to clarify what the agency might do, or when it might make a decision.

"It's unclear as to the date to which the commission will be making a decision," he said.

Under both proposals, investors would be able to hedge against potential flops by pre-selling a share of future box-office receipts.

If a movie doesn't do as well as expected, investors would at least be guaranteed revenue from those presales, known as futures contracts. If it does better, though, they wouldn't get to keep all the additional receipts. Speculators would get a share when they bet on risky movies that do unexpectedly well.

[Boddie]

How in the hell can a studio hedge against a movie like Avatar with this concept? Weak argument for Cantor at best.....Avatar cost like 300 mill plus? Who is going to buy anything close to 1k worth...some kid and his five buddies in a dorm room?

[clevfan]

Decision on box office futures market delayed until next week

April 9, 2010 | 2:13 pm
-- Nathaniel Popper and Ben Fritz
LA TIMES

The fate of box office futures won't be decided for another week.

The Commodity Futures Trading Commission was set to announce Friday whether it was approving the Trend Exchange, one of two companies that has applied to allow investors to bet on the future box office receipts of Hollywood films. Late in the afternoon, the CFTC announced that it was delaying its decision until April 16 and is awaiting more information from a third party.

On Thursday, several movie industry groups wrote to the CFTC criticizing the Trend Exchange, which was proposed by an Arizona company, Veriana Networks. The letter, which was sent by the Motion Picture Assn. of America on behalf of the six major movie studios, the National Assn. of Theater Owners, the Directors Guild of America and the Independent Film and Television Alliance, said the exchange’s “sole purpose is to provide a trading platform for instruments that do not constitute legitimate futures or option contracts, but are in essence wagers that are susceptible to manipulation.”

After the CFTC’s announcement, an MPAA spokesman said, “We appreciate the commission’s decision to take additional time to review our concerns about the harm online wagering on box-office futures could do to our industry.”

Wall Street firm Cantor Fitzgerald has proposed to set up a futures exchange similar to Veriana's and is scheduled to receive its answer from the CFTC on April 20. The groups that wrote the letter on Thursday said that they would soon come forward with separate comments about the Cantor Exchange.

Both the Cantor Exchange and Veriana have complained that Hollywood executives waited until the last minute to air their concerns about box office futures. The Futures Industry Assn., a trade group, came to the defense of Cantor and Veriana on Friday.

“It is clear that the MPAA is not familiar with the futures markets or the regulatory framework within which they operate,” the group said in a statement. “No one can argue that the movie-making business is without risk or that there is no need for effective risk management tools. The potential introduction of innovative instruments for managing that risk should be applauded rather than criticized.”

[clevfan]

Feds delay review of box office trading site

Paul Bond
Sun Apr 11, 2010 9:40pm EDT

LOS ANGELES (Hollywood Reporter) - You'll have to wait another week -- and probably a lot longer -- before you can make some money trading box office futures.

A decision that was set for April 9 has been pushed a week by the Commodity Futures Trading Commission because it is awaiting more information. That decision concerned Trend Exchange, one of two companies hoping to win government approval for their plans to set up a mechanism for what amounts to wagering on the performance of movies at the box office.

Meanwhile, Cantor Exchange could receive permission for its similar service as early as April 20, though you'd probably not want to bet on it.

The major Hollywood studios and others have been lobbying hard against both exchanges. Although their efforts are prolonging the approval process, their goal is to prevent the exchanges from ever going live.

"We appreciate the commission's decision to take additional time to review our concerns about the harm online wagering on boxoffice futures could do to our industry," said a spokesman for the lobbying arm of the major studios.

[Domer]

trend exchange was just approved 5-0. it still has to go through final approval of what types of contracts can be traded there. Only institutional investors can trade on trend, though.

cantor exchange will get voted on this week...that's where regular joes can buy contracts.

if both markets pass through the CFTC as expected, congress will try to go the legislative route and ban movie contract trading entirely (trying to put the proposal in the financial reform bill).,

[clevfan]

April 20, 2010

Regulators Approve 2nd Movie Futures Market

By THE ASSOCIATED PRESS
Filed at 7:11 p.m. ET

LOS ANGELES (AP) -- U.S. regulators have approved a second market that would give speculators a way to bet on expected movie box office receipts, but again withheld a decision on the actual contracts that would allow trading to begin.

The U.S. Commodity Futures Trading Commission's ruling on the Cantor Futures Exchange on Tuesday follows a similar decision it made last week approving the Trend Exchange.

Hollywood's major studios and the country's largest theater owners organization have opposed such trading of futures contracts, calling it a form of legalized gambling.

Democratic Senator Blanche Lincoln has also included a ban on movie box office futures trading in a financial reform bill.

[clevfan]

Shocked, shocked

By John Feehery - 04/22/10 02:58 PM ET
thehill.com

Everyone’s favorite line from the movie “Casablanca” is when Inspector Renault says to Rick (as he collects his gambling winnings), “I am shocked, shocked to find gambling going on here.”

In the case of the Commodity Futures Trading Commission, I am actually shocked, shocked that the CFTC just gave the go-ahead to idea of gambling on the future prospects of movie box office receipts.

The ostensible reason for such a movie is to give investors a chance to hedge their investments in movies. But what it will amount to is higher regulatory costs for the movie studios and another risky trading instrument for Wall Street and for those people who are willing to bet on the future of a movie.

My good friend Dan Glickman, the former Agriculture Secretary and the former head of the Motion Picture Association of America, used to make the case that agriculture and the movie business had a lot in common. The word “culture” for example.

But in actuality, the movie business is completely different from the farming business. Farming is actually pretty predictable. You can guess the yields based on the weather and for that you have the “Farmer’s Almanac.”

In Hollywood, the old saying goes, “Nobody Knows Anything.” Nobody really knows what will be a hit and what won’t be. For every “Avatar” out there, there are a dozen Heaven’s Gates. How can anyone explain the popularity of Will Ferrell, whose movies are uniformly terrible, yet they somehow make lots of money?

So, it makes absolutely no sense to have a commission that is tasked with the authority to regulate mostly farm commodities like soybeans, West Texas Crude, and wheat futures, to get into the business of regulating a futures desk based on movie receipts.

The Congress, which is already trying to find way to limit the widespread and fraudulent gambling on Wall Street, does not look at this move by the Cantor Fitzgerald firm to make an exchange out of movie receipts.

The irony is that as the Administration makes moves to allow gambling on movies, it is also moving to ban gambling on cards.

A few years ago, the Congress passed the Unlawful Internet Gambling Enforcement Act, and now the Executive Branch is finally getting around to putting regulations in place that will make the banking industry act as a policeman to curtail the industry.

Playing poker on line isn’t exactly a high crime and misdemeanor. But because of some intense lobbying by the NFL and by a few social conservative groups, it is now illegal for an American to operate a poker playing website and still live in America.

As a result, most of the industry has moved overseas, away from American regulators and away from American taxing authorities. Has this law done anything to stop poker playing on-line? Of course not! But it has made it impossible to collect any tax revenue from the practice and also made it impossible for poker sites to cooperate with federal authorities on best practices to responsibly regulate the industry.

So, we have an interesting situation developing with our federal government. In places where it has no business promoting gambling in an industry that doesn’t want to be gambled on, the Feds are saying, hey, go ahead. Gamble to your heart’s delight.

And in places where it should allow gambling to go ahead in an industry that wants to be regulated, the Feds are saying, nope. Stop that dastardly poker playing.

You wonder why the American people are fed up with the Federal Government. I am shocked, shocked to anger in the streets and frustration with the status quo.


Shocked, shocked - The Hill's Pundits Blog

[howid]

[clevfan]

Fri April 23, 2010

Furious exchange on futures trading

Backers say B.O. exchange will help showbiz

By PAUL HARRIS

WASHINGTON -- Proponents of two proposed film futures exchanges defended their proposals on Capitol Hill Thursday amid an increasingly onerous political environment and skepticism among lawmakers about the viability of trading in weekend box office receipts.
But the teams behind the exchanges got a boost from an endorsement by Lionsgate's vice chairman Michael Burns, who argued in a letter to a House Agriculture subcommittee that the market in domestic box office receipts "would substantially widen the number and breadth of financing sources available to the motion picture industry by lowering the risk inherent in such financing."

The letter, sent April 16, was disclosed during the hearing of the Subcommittee on General Farm Commodities and Risk Management, which also brought testimony from Richard Jaycobs, president of the Cantor Exchange, and Robert Swagger, CEO of Media Derivatives, which has proposed another venture called the Trend Exchange.

Jaycobs and Swagger vowed that their planned marketplaces for movie futures would bring enormous value to the very film industry interests that have mounted such a vigorous and unexpected campaign against them.

"The notion that a regulated futures contract tarnishes an industry and is tantamount to 'legalized gambling' is not only outdated, but parochial and baseless," Swagger told the subcommittee.

The panel's hearing came a day after the Senate Agriculture Committee approved a financial reform bill containing a provision that would bar any trading related to a film's B.O. performance. That provision and Thursday's hearing reflect vigorous lobbying against the concept by the Motion Picture Assn. of America.

MPAA president and interim CEO Bob Pisano, making his first appearance before a congressional committee, repeated his assertions that the proposals "ought to be under the jurisdiction of the federal gambling and gaming laws, not the federal commodity trading laws."

The proposals for the two exchanges are before the Commodity Futures Trading Commission, which has approved creation of the exchanges, but has yet to rule on the box office contracts. It will do so in June under statutory deadlines following a round of public comments, CFTC general counsel Dan Berkovitz told the panel.

Lawmakers questioned witnesses on fears expressed by MPAA and others that a box office futures market would be subject to manipulation, serve no public interest and amount to wagering.

Burns said in his letter that Cantor's exchange "would allow a diverse group of motion picture industry participants, including studios, film distributors, theater owners, investors and other financial intermediaries within the motion picture industry to manage their risk and exposure to new film releases."

Jaycobs said the goal of Cantor Exchange is to assist the motion picture industry by expanding the breadth and depth of financing sources. "Enlarging the potential sources of film financing will lower the cost of making a film, help create American jobs, and contribute to stabilizing large and small numbers of the industry alike as they face the challenge of raising financing in the high-risk endeavor of filmmaking," he said.

Swagger echoed the promise of film futures as he depicted himself as an exec with strong ties to the film industry. He said his company's plan "seeks to bring the demonstrable benefits of futures contracts -- such as pricing transparency, liquidity and centralized clearing in a regulated environment -- to the highly uncertain and variable outcome of movie box office revenues."

"As we speak, unregulated foreign markets trade products upon movie box office revenues and related measures," he told the subcommittee. Examples include Ireland-based InTrade, which is open to the public and entirely unregulated.

Jaycobs noted that for eight years, Cantor Fitzgerald's virtual entertainment marketplace, the Hollywood Stock Exchange, has found that "hundreds of thousands of participants have not negatively impacted the virtual market domiciled on HSX."

The two execs found support from Schuyler Moore, a UCLA professor, attorney and film financing expert who told the subcommittee that "every investment in film is gambling."

"Studios gamble and investors gamble. That's the industry, and we all accept it. What this exchange offers is an efficient and transparent way for these studios to lessen risk." He predicted that manipulation would not be an issue for industry investors because they would make more on the upside than by shorting their own films.

Pisano said the MPAA's position is that the proposed exchanges are not in the public interest and are not useful to hedge risk. "Although it may appear in theory that establishing a short position in a futures contract could be a 'hedge' against poor box office performance, in the reality of the marketplace, selling a motion picture 'short' after production would invite catastrophic collateral consequences, both for the particular film's success and future relationships with financiers, directors, actors, exhibitors and others."

Pisano was backed by Scott Harbinson of the Directors Guild of America, who cautioned that the negative perception of shorting would in itself put the commercial success of films at risk. "This new risk would not be generated by the people who spent years and invested millions making the film, but rather would be generated by those who are likely to have no real stake in seeing the film succeed so they can share in the reward."

This would impact individual employees and their health and pension plans, he said.

Subcommittee members grilled the witnesses on numerous topics and voiced personal misgivings about the commodities plans. Rep. Jim Marshall (D-Ga.) said he worried about the proposed adoption of firewalls to safeguard against manipulation of futures contracts, a first for commodities exchanges regulated by the CFTC. "A firewall is a license to lie," the lawmaker mused.

Rep. Kurt Schrader (D-Ore.) was blunt in his assessment of the proposals. "I see no public interest in this," he said. "The people most affected by it don't like it."

Meanwhile, a group of five senators, including Dianne Feinstein (D-Calif.), Barbara Boxer (D-Calif.), Al Franken (D-Minn.), Jeanne Shaheen (D-N.H.) and George LeMieux (R-Fla.), sent a letter to the commission's chairman, Gary Gensler, saying that if the CFTC "lacks the clear legal authority to prevent the introduction of a futures contract that fails" a public interest test, "we ask you to inform us of this deficiency as soon as possible, so that Congress can properly consider whether to rectify this shortcoming during consideration of financial regulatory reform legislation."

Furious exchange on futures trading - Entertainment News, Entertainment Industry & the Economy, Media - Variety

[clevfan]

April 23, 2010, 4:48 am

Authorities Question Betting on Box Office

The idea of allowing futures trading on the box-office prospects of new films faced a skeptical audience at a Congressional hearing on Thursday, with lawmakers questioning whether ticket sales receipts are actually commodities to be traded and whether the proposed market would be ripe for manipulation.

The hearing, held by a House agriculture subcommittee, came as the approval of movie futures faces two obstacles — one regulatory and one legislative, The New York Times’s Joseph Plambeck reported.

“In looking at motion pictures, we’re going into an area that we haven’t gone before,” said Robert W. Goodlatte, Republican of Virginia. Unlike oil, he said, which is essentially the same commodity barrel to barrel, each movie is unique, and he wondered whether such a market could allow people not directly involved in a film — including movie reviewers — to push a movie that they have invested in.

In the last week, the Commodity Futures Trading Commission has approved two applications to open new futures exchanges. The two companies submitting the applications, Veriana Networks and Cantor Exchange, a subsidiary of Cantor Fitzgerald, have plans to trade contracts on those markets that would be based on box-office revenue.

The futures commission is still considering the companies’ applications for the contracts themselves, which would be necessary before actual trading could begin, and is not expected to make a ruling for several weeks. The contracts would allow investors to buy or sell — or bet against — contracts based on the revenue a movie generates at the theater.

Meanwhile, opponents of the idea, including most of the Hollywood studios and their political allies, have been busy in Washington. On Wednesday, the Senate Agriculture Committee approved a bill that included a provision to outlaw the trading of box-office receipts. That bill may be merged with the larger financial overhaul bill being debated in Congress.

Dan M. Berkovitz, the general counsel of the futures commission, told the committee that the agency was looking closely to make sure that the markets would not be susceptible to manipulation.

Bob Pisano, the interim chief executive of the Motion Picture Association of America, which is leading the lobbying against the new markets, described the trading of films as a “gambling casino” that wasn’t supported by the movie industry and said that the studios wouldn’t participate in the market.

“We have a market in search of a product that the people in the industry don’t want,” Mr. Pisano said.

But Richard Jaycobs, the president of Cantor Exchange, said that many independent studios had expressed interest, including Lionsgate.

“Major studios don’t need this,” Mr. Jaycobs said. “Financing is available for big studios but not independent ones.”

Schuyler Moore, a lawyer who teaches film financing at the University of California, Los Angeles, said at the hearing that “every investment in film is gambling.” The real reason behind the opposition, he said, is the fear that the exchanges may create bad buzz about a film. But, he said, there’s already a “roar of prerelease buzz.”

Mr. Moore said there would be an “enormous flood of money into the industry if there’s an exchange that is based on box office results.”

Authorities Question Betting on Box Office - DealBook Blog - NYTimes.com

[clevfan]

APRIL 23, 2010, 7:39 A.M. ET.

Sen Franken Not Smiling Over Planned Movie Futures Exchanges

By Jacob Bunge
Of DOW JONES NEWSWIRES


U.S. Senator and former Saturday Night Live cast member Al Franken (D., Minn.) on Thursday urged regulators to delay proposed futures products that could let investors take positions on the next Adam Sandler picture, and questioned the need for such contracts.

Franken and four other senators asked Commodity Futures Trading Commission Chairman Gary Gensler to hold off on considering planned movie futures contracts until lawmakers finish debating new rules for the U.S. derivatives market, including a provision that would ban any contracts tied to box-office receipts.

"The rules governing CFTC regulated trading could change dramatically in the coming months," the senators wrote in a letter to Gensler and CFTC commissioners. "We therefore encourage the Commission to withhold judgment on the legality of movie futures contracts until the Senate completes its debate, and Congress has had an opportunity to modify the rules that govern derivatives product approval."

Alongside Franken, the letter was signed by California Senators Dianne Feinstein (D., Calif.) and Barbara Boxer (D., Calif.), as well as George LeMieux (R., Fla.) and Jeanne Shaheen (D., N.H.)

The senators' letter follows other concerns voiced by lawmakers in recent weeks concerning movie futures, and come after a public hearing on the topic held Thursday by a subcommittee of the House Agriculture Committee, which oversees futures markets.

Representatives of the Trend Exchange and the Cantor Exchange, which both were approved by the CFTC as market operators in the past week, told representatives Thursday that their planned movie futures contracts would help the film business by allowing studios, banks and other investors lay off risk on an open futures market.

The hearing also brought opposition to the planned markets from film industry groups, which have aligned against derivatives products that they have equated to dangerous gambling that could endanger jobs.

Derivatives legislation approved by the House Agriculture Committee on Wednesday would bar exchanges from offering contracts tied to box office receipts, alongside a host of new rules for over-the-counter derivatives trading.

The senators' Thursday letter questioned the purpose of movie-based futures contracts, suggesting that nearly all major commercial interests in the film business have an interest in seeing films succeed.

That's different from the agricultural commodities market, where farmers have an interest in higher prices, while commercial buyers of commodities prefer a lower price, with those divergent interests helping to discover a fair price for the product, according to the letter.

"Because no movie industry participant wants to see a movie fail, the marketplace's primary commercial function would be insurance, and we are concerned that the CFTC lacks the expertise necessary to regulate insurance products," the senators wrote in the letter.

Though the CFTC approved both exchanges seeking to offer movie futures, several commissioners have stated that they did so only because they could find no compelling reason to deny the applications, and that specific products--which also require regulatory approval--would face tough scrutiny.

The senators wrote in the Thursday letter that if the futures regulator finds itself compelled to approve contracts that do not seem to serve a clear price discovery purpose, then perhaps the agency needs more power.

"If CFTC lacks the clear legal authority to prevent the introduction of a futures contract that fails this public interest test, we ask that you inform us of this deficiency as soon as possible, so that Congress can properly consider whether to rectify this shortcoming during consideration of financial regulatory reform legislation," the senators wrote.

[clevfan]

Firms want to bet on movie futures, but studios and the MPAA say it won't work

By Bob Strauss, Staff Writer
Updated: 04/26/2010 01:23:49 AM PDT
LA DAILY NEWS


The battle lines are being drawn between Hollywood movie moguls and Wall Street wheeler-dealers over a plan to trade box-office futures as a commodity – much like soybeans or pork bellies.

On the one side are financial firms Cantor Fitzgerald and Veriana subsidiary Media Derivatives, which won preliminary approval this month from the U.S. Commodity Futures Trading Commission to open two separate exchanges where investors could essentially bet on future box-office performance.

On the other are the major Hollywood studios and their lobbying arm, the Motion Picture Association of America, which maintain that movies don't lend themselves to informed speculation on pre-release profits.

"A movie is a one-time event," MPAA spokesman Howard Gantman said in an interview. "It's not like a season of oranges from 100 different agriculture companies.

"All sorts of variables get factored into how you're going to market each movie that aren't in how are you going to market a crate of oranges."

The exchanges would work much the same as for other commodities.

Investors would buy a contract before the film opens, predicting how it will perform at the domestic box office. The investor would pocket the difference if ticket sales exceed the contract amount, but would take the loss if receipts fall below it.

Supporters say movie futures would lower the risk of investing in movies and serve as a new source of film financing. But Hollywood fears the futures exchanges would complicate already tricky market factors and filmmakers do not equate ticket sales to barrels of oil.
"Most of what's traded on these kind of exchanges are real commodities," Gantman said. "You seek a price point, you seek to have something that is of particular value in and of itself. Box office number estimates have no inherent value."

Advocates of the proposed futures exchange say there are ways to make an educated guess about potential movie grosses, and regulated markets will shed light on such Hollywood commonplaces as hinky back-end deals and outrageous star demands.

"Unfortunately, there is an investor side to this business," said Richard Jaycobs, president of the proposed Cantor Exchange. "People are scared to invest in Hollywood because of the Hollywood accounting problems that have been throughout history.

"The reason we're providing a market, very simply, is that for over 10 years, the firm has had an interest in doing finance for movies. The feeling was always that you needed a public market to be able to do that cost-effectively - get prices out there, get transparency into the marketplace for financing films."

Perhaps a bit ironically for a business that inspired the term "creative accounting," one of Hollywood's arguments against the exchanges is that the appearance of insider-trading conflicts will prevent the very people who are supposed to gain professionally from futures funding from playing the market.

"It's a situation where the very people and businesses making the movies, because of the very nature of how movies are made, have inside information about the status of that movie," said Gantman of the MPAA.

"The way dailies are shooting, how private screenings are going, maybe some focus groups - they know whether the director or the cinematographer are feeling good or uncomfortable about what's being shot.

"And because they have that information that isn't publicly known, because of various conflict-of-interest rules, they could not participate in this marketplace and balance out that risk."

Jaycobs said movie people will be prevented from trading on the Cantor Exchange only if they are negotiating screen counts or promotional and advertising budgets, or receiving raw box-office data that hasn't been released to the media yet.

Veriana Chairman and CEO Robert Swagger, whose futures operation is currently called MDEX but will be known as The Trend Exchange if approved, said that individuals involved in compiling box office data will not be able to trade that movie on their accounts, but anyone else from the movie or the company making it could.

Cantor, which is designed for individual investors, plans to trade in movies from six months before their opening dates through their fourth weekends of release. TrendEx, which is geared for institutional investors, will trade movie futures only for four weeks before their theatrical openings.

So far the MPAA appears to have the edge in Washington.

Although the Commodities Futures Trading Commission have approved the first phase of both Cantor's and Veriana's offerings, three of the five commissioners expressed concerns that they want addressed in the second phase of contracts approvals, which could extend into June for both companies.

Meanwhile, last Wednesday the MPAA successfully lobbied the Senate Agricultural Committee, which oversees futures legislation, to include a provision that would ban movies futures trading altogether in the big Wall Street Transparency and Accountability Act that President Obama wants passed.

"My bill would prohibit movie futures because these are purely speculative contracts," the committee's chairwoman, Sen. Blanche Lincoln, D-Ark., said in a statement. "Movie producers and others within the industry have found that these futures cannot be used effectively, creating an imbalance between hedging and speculation that could result in dysfunctional futures trading."

And on Thursday, five senators - including California's Barbara Boxer and Dianne Feinstein, as well as showbiz veteran Al Franken - signed a letter to the commission supporting the MPAA's position.

"The MPAA's a powerful organization, and instead of respecting the CFTC and their processes, they're trying to kill a small company through politics," Swagger said. "This should not be in the bill, It was a last-minute line-item add into the bill.

"We've done years' worth of work and research, we've worked directly with studios and various groups, and we've worked for nearly a year directly with the CFTC."

Not everyone in the movie business is against futures markets.

Michael Burns, vice-chairman of Lionsgate Films (which is not a member of the MPAA), sent a letter to Thursday's House Agriculture subcommittee hearing on the subject, praising box office futures as a great way to lower the risk of production financing.

On the other hand, Scott Harbinson, who spoke at the House Committee hearing on behalf of the International Alliance of Theatrical Stage Employees and the Directors Guild, warned of myriad potential mischief by investors who bet against a film doing well.

"Unlike other business ventures, the commercial success of a motion picture defies quantification or reduction to a formula," Harbinson said. "Introducing a large new variable into the production equation poses a significant danger.

"The ability to trade on a film's box office receipts through movie futures exchanges - exchanges where the creation of a negative perception of a film can be extremely lucrative to those (betting against) it - puts the commercial success of a film at an even greater risk."

For the moment, the CFTC is proceeding under the law as it currently exists. If that doesn't change and they pass the second stage for authorization, Cantor hopes to begin futures trading with Lionsgate's August release "The Expendables" and TrendEx with films coming out around the same time.

Firms want to bet on movie futures, but studios and the MPAA say it won't work - LA Daily News

[clevfan]

Regulators express concerns on movie futures

The Associated Press

Friday, May 21, 2010 | 12:12 a.m.

People who finance movies have come up with a way to make money even when a film goes bust.

But before investors can trade future box office receipts much like soybeans and corn, the federal government must give its blessing.

On Wednesday, the government's top commodities regulators heard the arguments for and against creating new trading exchanges to follow the ups and downs of Hollywood. But they were not yet sold on the idea.

They must first determine if the concept meets legal requirements, how they would monitor trading and potential manipulation, and whether it would benefit the industry.

"I think it is pretty cool," said Bart Chilton, a member of the Commodity Futures Trading Commission, said about the idea of a Hollywood exchange. "But I'm not sure that cool means a business."

Moviemaking is a business and like all business it is not immune to economic conditions. Creating an exchange to hedge against big-budget flops would help generate new capital for the industry. Investor groups that put up the money for films are making the case for the exchanges.

It also could be used for speculation.

Major Hollywood studios strongly oppose the idea. They say rival studios could sabotage films by betting against them. A studio could bet against their own movie, knowing it will lose money. Some even worry that the kind of complex trading that crushed the housing market could someday do the same to their industry.

"We don't want to repeat in our industry what happened in the mortgage industry," Robert Pisano, the acting CEO of the Motion Picture Association of America, told commissioners. The proposed futures market "is a nightmare to try to control the use of inside information," he said.

The regulators have already approved the establishment of two new online exchanges but must vote by next month to approve specific contracts so the exchanges can operate.

A strained economy and limitations on lending have made it harder to finance movies. Executives associated with the movie industry told the federal panel they would welcome the new source of capital.

A new futures market would reduce uncertainty and give investors "an objective, clear result" that would bring them back to the moviemaking table, said Schuyler Moore, an attorney who represents industry financiers.

"I guarantee you the studios will be using this," Moore insisted. The Motion Picture Association of America, which represents the big studios and is leading the opposition, "has lost their mind on paranoia on this issue," Moore said.

It wasn't exactly Hollywood on the Potomac, but lively argument unfolded as regulators expert in how commodity markets work strained to understand the peculiarities and exotic financing mechanisms of the movie business. Quips and plays on movie titles flew.

Commissioner Scott O'Malia wished moviemakers great success, noting the industry's importance to the U.S. trade balance. Still, he added, "they have put up a lot of stinkers."

Like Chilton, other commissioners said they had concerns and that a rigorous review was needed.

"I don't know where we'll come out," CFTC Chairman Gary Gensler said.

By law the agency must approve or reject the contracts, which would establish rules for trading on projections for box office receipts, within 90 days of the request. That means a June 7 deadline for the Media Derivatives, or MDEX, contracts and June 28 for the Cantor Futures Exchange. If no action is taken by the end of the 90 days, the contracts are deemed approved.

MDEX's first proposed contract is for receipts for the movie "Takers," opening Aug. 20, featuring a cop played by Matt Dillon who takes on a team of expert bank robbers. The Cantor exchange's first contract is for "The Expendables," coming Aug. 13: Sylvester Stallone directs and stars with Jet Li and Jason Statham in a tale of mercenaries betrayed on a mission.

In addition to the Motion Picture Association, opposition has come from the National Association of Theatre Owners, the Directors Guild of America, and the Independent Film and Television Alliance.

In Congress, Sen. Blanche Lincoln, D-Ark., has proposed banning futures trading on movie receipts as part of the financial regulatory overhaul before the Senate.

Investors would be able to hedge against potential flops by pre-selling a share of future box office receipts. The exchanges could even guard against likely hits, such as the upcoming "Harry Potter" and "Twilight" sequels, falling short of projections. If a movie doesn't do as well as expected, investors would at least be guaranteed revenue from those pre-sales, known as futures contracts.

The Motion Picture Association represents the major Hollywood studios, including those belonging to The Walt Disney Co., News Corp., Time Warner Inc. and others.

[Boddie]

More financial products being offered which can be manipulated by those in the know.

[clevfan]

U.S. Clears First Contracts Tied to Film-Ticket Sales

June 14, 2010, 6:22 PM EDT

By Todd Shields

June 14 (Bloomberg) -- U.S. regulators approved the first trading contracts tied to movie box-office receipts, turning aside objections from Hollywood and clearing the way for financiers to hedge investments on motion pictures.

Veriana Networks Inc.’s Trend Exchange may let institutional investors wager on opening-weekend movie revenue, the Commodity Futures Trading Commission said today in a statement. The agency voted a 3-2 to clear the contracts.

Film studios and theater owners oppose such contracts, calling them in a letter to the commission “wagers susceptible to manipulation.” Witnesses told the CFTC at a May 19 hearing the contracts could help attract capital to film production.

Veriana will start to sell contracts as soon as possible on a set of movies to be determined, Rob Swagger, chief executive officer of Trend Exchange, said today on a conference call.

Film futures are a commodity and “not readily susceptible to manipulation,” the agency said. The regulator has approved trading in contracts for more than 500 commodities, including statistics on non-farm payrolls and unemployment claims.

The CFTC’s analysis could result in “anything under the sun” being considered a commodity, including “the likelihood of UFOs hitting the White House,” Democratic Commissioner Bart Chilton said in an e-mail announcing his opposition. “Popcorn prediction markets would serve no national public interest.”

Republican Jill Sommers also voted against the proposal.

Cantor Proposal

The agency by June 28 must decide on Cantor Fitzgerald LP’s proposal to let institutional and retail traders bet on ticket sales in the four weeks after the August opening of Lions Gate Entertainment Corp.’s “The Expendables” starring Sylvester Stallone.

The Motion Picture Association of America, representing studios, and the National Association of Theatre Owners in an April 8 letter to the commission said movie contracts have “no legitimate economic purpose” in part because nobody buys or sells box-office receipts.

The contracts are “freestanding bets,” said Robert Pisano, interim chief executive officer of the Washington-based studio group, in testimony to the commission. Insiders can decide to change release dates, the number of theaters showing a film, and marketing budgets, Pisano said.

A bill in Congress would ban trading of futures tied to box-office results. Lawmakers at a hearing in April expressed concern that films, as products influenced by media coverage, may be more prone to manipulation than commodities such as corn, oil and currencies. Swagger said he would fight efforts in Congress to bar movie futures.

Contract Scrutiny

The commodity commission approved the Veriana and Cantor exchanges in April, and is subjecting each type of contract to scrutiny. Sommers at the May 19 hearing said she wanted to know whether the contracts can be useful hedging tools, and can be manipulated.

Commissioners “want to be assured there’s actually a commercial market for these things” and don’t want to “be approving a whole bunch of speculative gambling contracts,” Dan Waldman, a former CFTC general counsel who is head of the derivatives practice in Washington at Arnold & Porter LLP, said in an interview.

The agency must approve the applications unless it finds the proposed instruments would violate the law governing futures contracts, Richard Shilts, director of the commission’s division of market oversight, said May 19.

The agency’s staff review focused on whether contracts were susceptible to manipulation, including how box-office reporting company Rentrak Corp. compiles its numbers, Shilts said.

Greater Investments

Futures contracts could bring greater investments in films, Clark Hallren, managing partner of the Los Angeles-based entertainment advisory Clear Scope Partners, said at the May 19 hearing.

“Volatility” has caused “a substantial withdrawal of capital from the industry” and “a meaningful reduction in the number of films,” Hallren said.

The Motion Picture Association represents Viacom Inc.’s Paramount Pictures, Sony’s filmed entertainment division, News Corp.’s Twentieth Century Fox, General Electric Co.’s NBC Universal, Walt Disney Co. and Time Warner Inc.’s Warner Bros. Pictures.

--Editors: Steve Geimann, Romaine Bostick

[clevfan]

Tue., Jun. 15, 2010, 4:00am PT

Opening bid on film futures

Biz hopes for D.C. kibosh on box office trading

By TED JOHNSON, PAUL HARRIS
Variety.com

Federal regulators on Monday approved a plan for trading of box office futures. But its prospects remain uncertain as the battle shifts to Capitol Hill, where studios are seeking to ban the trading as part of financial reform legislation.
Another proposal for box office futures trading, from the Cantor Exchange, will come before the commission on June 28, and the body is expected to approve it as well.

The ban on box office trading was placed in the Senate version of the financial reform legislation after vigorous lobbying by the MPAA and other industry groups. That bill must be combined with the House version of financial reform, which does not contain the ban on trading. President Obama is hoping to sign the legislation by July 4.

In a statement explaining its decision, the commission said that it "found that the contracts are based on commodities, are not readily susceptible to manipulation and serve an economic hedging purpose."

Studio lobbyists had argued the opposite.

Commissioner Bart Chilton, who opposed the box office contracts, shares that view and said in a conference call, "Congress never intended that we would do this type of thing.

"This is more like a gambling arcade than a serious hedging opportunity," said Chilton. In a written dissent, he argued that the majority was taking too broad of a reading of the Commodity Exchange Act. He wrote that "we could approve terrorism contracts, contracts on whether a certain movie star will die or become disabled, or contracts on the likelihood of UFOs hitting the White House. Each of these events could have economic consequences, but it is hardly appropriate under the Act to deem them consequences."

The Trend Exchange will rely on data from Rentrak, and the commission gave the box office data service its blessing. It cited the company's ability to independently gather box office data and noted that it has a "reputation as a reliable source of revenue information."

To win approval, Media Derivatives agreed to a number of conditions that are designed to address concerns about market manipulation. The intent, the commission stated, is to ensure that "knowledgeable parties" cannot intentionally release or misreport data that would have an impact on the trading or settlement of the B.O. contracts.

Among them is a rule that will require "entities and individuals who control a film's marketing budget, release date or opening screen number" -- in other words, a studio and its top executives -- "to provide the Exchange with information regarding such decisions whenever that entity or individual holds a position of 1,000 or more contracts."

In addition, no employee of a distributor who is responsible for the gathering of box office data will be able to trade "any motion picture contract on any motion picture released by such distributor for any account." Employees of companies that gather data, like Rentrak, also will be restricted from trading.

Studios and distributors also would have to agree to submit copies of "firewall" procedures to the Trend Exchange before they are granted access to trade. Among the "firewall" criteria are a physical separation of groups within the company; separation of reporting lines for each group of at least one management level within the organization, and a periodic review of the firewall policy.

The Trend Exchange also will be responsible for reviewing each application to trade to make sure the applicant is not on a list of those restricted from trading.

Operators of Media Derivatives Inc., which plans to begin trading on its Trend Exchange later this year with a set of films including Sony's release of "Takers," are hoping the greenlight from the Commodity Futures Trading Commission will help convince lawmakers. The commission approved the plan on a 3-2 vote.

In a conference call with reporters, Media Derivatives CEO Robert Swagger conceded that his company faces an uphill battle in Congress against "the powerful MPAA lobby," but said he was delighted that the commission's staff and a majority of its members "recognized the legitimate economic risk management benefits that the products will provide to the entertainment industry."

"At the same time, we regret that a special interest group of Hollywood industry insiders chose to politicize the issue," he said. "We will fight all attempts to overturn this decision in Congress." He said he would announce details of that effort later this week during a Washington, D.C. press conference.

Swagger called the proposed ban on box office futures in the Senate-passed legislation pending before a conference committee "the best handout that members of Congress have given to Hollywood in years." He said it represents "pure special interest politics," with 54 words that don't belong in the 1,974-page financial reform bill. He also said the attempts by the Motion Picture Assn. of America and a coalition of opponents to short-circuit an open regulatory process is a cautionary tale for any entrepreneur who runs afoul of special interests on Capitol Hill.

In a response to the commission's decision, the MPAA again argued that the box office futures trading will amount to gambling. It criticized the agency's decision to "permit wagering on motion picture box office numbers," and described the futures plans as "no more than over-under bets on a movie's performance."

Interim CEO Bob Pisano repeated assertions that the Media Derivatives and Cantor proposals serve no public interest, and would significantly harm the motion picture industry by imposing costs that don't exist today. He said the proposed contracts fail to demonstrate that they serve the public purpose futures contracts should serve, and are highly susceptible to manipulation.

Read the full article at:
Opening bid on film futures - Entertainment News, Film News, Media - Variety