Yesterday the CFTC approved futures contracts on box office receipts for movies. Although these derivatives make it legal for now for speculators to bet on a movie’s success and for production companies to hedge their risks in making films, the financial regulation reform bill currently under consideration in Congress could include a ban on the derivatives.
Last month Reuters blogger Felix Salmon defended the use of derivatives for box office receipts in the New York Times. He explained how such contracts would work:
The proposed contracts are simple: they would allow traders to bet on the total box-office receipts of movies in their first four weeks of release. A contract on “Iron Man 2,” for instance, might be trading at $390, meaning that the market is expecting the film to gross $390 million in its first four weeks. If you think it’s going to make more than that, you would go long, or buy the contract; if you think it’s going to make less, you would go short, or sell it. At the end of the four weeks, the contract would expire at whatever the four-week gross is. If you went long at $390 and the film ended up earning $450 million in its first four weeks, then you’d make $60 for every contract you bought.
This would be good news for movie makers and for moviegoers. Unfortunately, the only people who would stand to lose, entrenched producers who can trade on their influence in Hollywood, are the same ones who might be in a position to get attention from a senator working on the financial regulation bill.