US betting on box office

A divided Commodity Futures Trading Commission approved the proposed futures contracts for the new Trend Exchange. That means the movie futures trading can proceed; it is expected to begin sometime in the third quarter.

Major Hollywood studios strongly oppose the idea. They say rival studios could sabotage films by betting against them.

In giving its approval,the CFTC said it found that box-office receipts fit the law8217;s definition of a commodity,that the Trend Exchange contracts aren8217;t 8220;readily susceptible8221; to manipulation,and they provide a way of managing risk.

The agency8217;s vote was 3-2. Two CFTC commissioners,Democrat Bart Chilton and Republican Jill Sommers,voted against approving the contracts for the Trend Exchange.

8220;Popcorn prediction markets would serve no national public interest8221; and don8217;t meet the law8217;s requirements on how commodities are defined,Chilton said in a statement.

Chilton said he also was troubled by whether the new futures trading would provide a legitimate way for the movie industry to hedge against risk,since the agency8217;s approval limits the use of the new contracts by movie studios.

Allowing future box-office receipts to be traded like crude oil or pork bellies would give people who finance movies a way to make money even when a film doesn8217;t. It also could be used for speculation.

The first proposed contract for the Trend Exchange is for opening-weekend receipts for 8220;Takers,8221; being released Aug. 20,with Matt Dillon.

Trading would be based on the amount of money a movie takes in during its opening weekend. The exchange would set the initial odds for contracts,but those odds would change based on bidding of investors. An investor who buys a contract with longer odds takes on greater risk and the potential to earn more money.

For example,an investor thinks a movie will make at least 75 million in its first weekend. The exchange finds an investor who thinks the movie will fall short of that mark and the two investors enter the contract together. When the movie receipts come in,the one who is correct gets a percentage on top of his investment based on the odds received. The other loses his investment.

The CFTC previously approved the establishment of the Trend Exchange and the Cantor Futures Exchange. The proposed futures contracts,establishing rules for trading,have now gained the agency8217;s approval for the Trend Exchange. For the Cantor exchange,the deadline for approving the contracts is June 28.

Supporters,led by investor groups that put up the money to make films,say the concept would help generate new capital for the movie industry. A tougher economy has made it harder to finance films and trading futures on box-office receipts would help offset risk.

Opponents,led by big Hollywood studios,warn that complex trading brought down the housing market and this idea could do the same to the movie industry.

In Congress,the Senate version of the financial regulatory overhaul would ban futures trading on movie revenues. It8217;s unclear if that ban will survive House-Senate negotiations on the final legislation.

The studios8217; lobbying group,the Motion Picture Association of America,urged Congress Monday to put the ban in the final bill that will be signed by President Barack Obama.

8220;It is unfortunate that the CFTC has now given the go-ahead to a new gambling platform that could be plagued by financial irregularities and manipulation,8221; MPAA President and interim CEO Robert Pisano said in a statement. The new box-office contracts 8220;pose real possible economic damage to an industry that employs over 2.4 million men and women working in virtually every state in the country,8221; he said.

Also opposed are the National Association of Theatre Owners,the Directors Guild of America,and the Independent Film and Television Alliance.