Betting On Box Office Movie Hits
The Commodity Futures Trading Commission has approved new futures on the success of new movie releases. The futures, traded online, will be a way to get exposure to new movie releases and ultimately finance new box office hits.
The question before the CTFC was whether or not the new movie futures are viable investments or just merely easily manipulated speculation. However, after a 3-2 vote, it is clear that at least the CTFC believes these new movie futures will add at least some value to investors. I tend to agree, betting on a movie isn’t all that different from betting on cash settled S&P500 futures. The only difference is that it’s one movie instead of 500 companies, big deal.
The Trend Exchange and the Cantor Futures Exchange are the two clearing houses that will be created to act as a marketplace for what is expected to be filled with movie buffs. They will work like any other derivative, investors bet against each other, acting as a counterparty with “strike prices” set based on how much the movie will make at the box office. If $500 is bet that the movie will earn $50 million in theaters, and $1000 is bet that the movie won’t reach that threshold, bulls would earn 2:1 odds and bears 1:2 odds. Pretty straightforward, and for film financiers it would create an easy way to hedge a multi-million dollar bet.
Don’t Get Excited Just Yet
There is one more hurdle the movie exchange has to clear. The Senate version of the banking reform bill contains a provision that would make betting on movies illegal, and thus ending the exchange before it began. Lawyers representing the new exchange suggest they think their product will be grandfathered in, but if there is anything I’ve learned, if the government doesn’t want it to be, it won’t be.
