From Hog to Film Futures, Coming Soon to a Market Near You
The cash livestock trade has alwaysbeen a verbal, handshake, word-of-mouth agreement. And so they were verycomfortable still having that personal relationship.
Nevertheless, the story noted that even livestock futurestrading has largely transitioned to computer — with more than 50% of cattlefutures traded electronically, and around 70% of hog futures following suit.
Cantor Futures Exchange, asubsidiary of Cantor Fitzgerald, expects to open an online futures market nextmonth that will allow studios, institutions and moviegoers to place bets on thebox-office revenue of Hollywood’s biggest releases. Last week, the companylearned from regulators that customers could start putting money into theiraccounts on March 15.
“I’ve worked in the futuresindustry for a long time,” said Richard Jaycobs, the president of CantorExchange, who has worked with derivative markets and the cotton exchange. “Andnone of the products has the overall appeal that this does. This just has atremendous potential audience.”
Betting on the success of Hollywoodreleases has long been a parlor game for moviegoers. In 2001, Cantor Fitzgeraldbought the Web site HSX.com (for “Hollywood Stock Exchange”), whereusers can place bets with play money on a film’s box-office success; smarttraders win little more than satisfaction. Mr. Jaycobs said that he hoped tolure a sizable portion of that site’s 200,000 active users to the real futuresexchange.
But buyers beware: if “Avatar” isany indication, the public isn’t always so wise about Hollywood fortunes. Mostusers of HSX.com predicted a flop, and if those users had placed real money onthe Cantor exchange, they would have taken a serious hit.
In the real market, contracts onthe Cantor exchange will trade at $1 for every $1 million a movie is expectedto bring in — a figure determined by traders — at the domestic box officeduring its first few weeks in theaters. So if “Robin Hood” is expected to bringin $100 million in its opening weeks, a single contract could be bought for$100 by a trader who thinks Russell Crowe’s role in the movie will drive salesfar above expectations. If that trader guesses right, and the movie sells $150million in tickets, the trader makes $50.
Mr. Jaycobs said the metric used —domestic box-office receipts — “is as simple as it can possibly be.” He hopesthe business will also attract professional and institutional investors. If amovie distributor, for example, screens a movie it has backed and thinks saleswill beat expectations, the company can take an even bigger financial stake inthe movie by buying contracts for it. The possible mix of investors — Hollywoodinsiders and moviegoers at large — creates an interesting laboratory, said P.Clark Hallren, a managing partner at Clear Scope Partners, a financial adviserto entertainment businesses who advises Veriana Networks, a company that isplanning its own futures trading operation.
Whether its movie or hog futures, it is a gamble. Iowan hog farmer Todd Wiley never knows if he will make enough moneyselling his hogs to cover the cost of their feed, so he hedges by selling futures contracts on the Chicago Mercantile Exchange. The contracts guarantee a price for his hogs, and Wileytold Marketplace:
I’m not a big gambler. Imean, we drive by casinos and my buddies say you want to stop and play a littlebit, and I say “I play every day.” Everything’s a gamble, and youmanage your risk to the best that you can.
It does bring that Oscars pool to a whole newlevel.
[Meredith R. Miller]