Movies are about to join the likes of corn and crude oil with their own futures market. Cantor Futures Exchange, a subsidiary of brokerage firm Cantor Fitzgerald, is planning to launch a new online market next month where investors will be able to buy futures contracts on box-office revenues, allowing film buffs and Hollywood studios alike to place bets on how much cash movies will earn.
“There are a lot of people that have opinions on what films will make,” says Richard Jaycobs, president of Cantor Fitzgerald. “We’ve got to bring all the constituents in the marketplace together.” The contracts trade at $1 for every $1 million a movie is expected to gross in its first month, so for every million a film takes in over projections, investors can gain another dollar on their investment. It seems simple, but box-office predictions are notoriously inaccurate, which leaves a lot of potential to both make and lose cash. “There’s no question. It’s risky,” says Jaycobs.
Anyone can buy the contracts, but the market is primarily meant to serve as an insurance policy for studios that want to hedge their investments. They can sell shares of their movies to speculators, spreading the possible risks. But the trade has at least one big drawback. “This is the type of product someone could cheat with,” says University of Toronto management professor Eric Kizner. He says it will be difficult to prevent studios from over- or under-inflating projected box office numbers. Changes in advertising or a leak of bad news from on set, he says, could alter expectations, increasing possible profits for insiders. The Motion Picture Association of America has also spoken against the new market, saying it’s little more than “unbridled gambling.”
Still, both Jaycobs and Kizner feel box-office futures have potential. “It’s kind of sexy to show up at a cocktail party and talk about your shares in Avatar,” says Kizner.