In finance, box office futures is a type of futures contract in which investors trade shares in upcoming movies based on their predicted performance.
In the United States the idea of a futures trading in relation to the success of Hollywood films dates back at least to 1996, when Max Keiser and Michael R. Burns launched Hollywood Stock Exchange (HSX) as a web-based, multiplayer game in which players use simulated money to buy and sell “shares” of actors, directors, upcoming films, and film-related options. After some attention during the dot-com bubble, HSX was bought in 2001 by the financial company Cantor Fitzgerald who planned to turn it into a real-money trading exchange, but the devastation of Cantor Fitzgerald during the 9/11 attacks put the project on hold.
In 2007, Arizona-based entrepreneur Robert Swagger formed Media Derivatives Inc. (MDEX) with the goal of creating an electronic futures exchange for contracts based on box office results. The idea behind MDEX was that it could be used by large film studios to recoup some of the money invested in failing movies by shorting its film on the exchange. Around the same time, Cantor Fitzgerald revived its plans for a real-life HSX and tried to get regulatory approval for it.
Before any actual listings or exchanges could be made, a group of film studios, which was led by Motion Picture Association of America, asked the regulatory authorities to ban the practice, stating “that box office futures would be easily manipulated and of no use to the big film companies. “ The main concern was that decisions that could dramatically change the performance of any given movie at the box office — such as the weekend in which it premiers or the number of theaters in which it runs — could easily be changed on the fly by studios in order to manipulate the outcome.
Despite initially obtaining approval from the U.S. Commodity Futures Trading Commission (CFTC), in July 2010, the U.S. Senate passed financial-regulatory legislation which included a provision banning the proposed practice. Lobbying by the film industry and anxiety caused by the global financial crisis are seen as the main factors behind the decision to ban box office futures.
Iowa Electronic Markets, a group of real-money prediction markets/futures markets operated by the University of Iowa sometimes trade in future stock dependent on the box office performance of Hollywood films. It can do so because it is not regulated by the CFTC nor by any other agency due to its academic focus and the small sums that are involved, with the markets being run for educational and research purposes.
- ^ Jump up to:ab Itzkoff, Michael Cieply; Compiled By Dave (17 July 2010). “ARTS, BRIEFLY; Bid To Trade Box Office Futures Dies”. The New York Times. p. 2. Retrieved 19 August 2010.
- ^ Jump up to:ab c d Raviv, Shaun (15 November 2018). “Box Office Bomb: The Short Life of Popcorn Prediction Markets”. The Ringer. Retrieved 6 December 2019.
- ^ Jump up to:ab Fritz, Ben (2 July 2010). “Watching a huge bet on box-office futures go sour”. Los Angeles Times. Retrieved 6 December 2019.
- ^Harris, Mark (23 July 2010). “How the Failure of the Hollywood Stock Exchange Exposed the Movie Industry’s Worst Fear”. New York Magazine. Retrieved 6 December 2019.
- ^Boorstin, Julia (29 June 2010). “The End of the Box Office Futures Business”. CNBC. Retrieved 6 December 2019.
- ^Connor, J. D. (2018). Hollywood Math and Aftermath: The Economic Image and the Digital Recession. London and New York: Bloomsbury Publishing. p. 240. ISBN 978-1-5013-1440-7.
- ^Child, Ben (2010-06-15). “US authorities give green light to box office futures market”. The Guardian. ISSN 0261-3077. Retrieved 6 December 2019.
- ^Block, Alex Ben (14 June 2010). “Boxoffice futures market gets green light”. The Hollywood Reporter. Retrieved 6 December 2019.
- ^Carter, Colin A. (2007). Futures and Options Markets: An Introduction. Long Grove, IL: Waveland Press. p. 74. ISBN 978-1-4786-0822-6.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.