UPDATES WORST IDEA EVER? Wall Street Plans Futures Exchange Tied To Box Office

wallStreetBack in December 2008, Nikki reported that a leading Wall Street brokerage house, Cantor Fitzgerald, was seeking permission from U.S. regulators to set up a futures exchange to trade contracts on the expected weekend box office of major motion pictures. Now the Cantor Futures Exchange is about to launch and and begin taking these bets in what she called it the “Worst Idea Ever” since studios can make bets on their own movies to increase total revenue or hedge losses. Now I can tell you that, in a system that could have come right from Las Vegas, contracts will trade at $1 for each $1 million of box office business, for  making over and under bets on gross estimates worked out months in advance. I agree with her: I just don’t how turning the film industry into a cousin of sports betting is constructive, but I do see how it could lead to bad things in a business already fraught with conflict of interest issues.

The plan has been in the works for almost five years, I’m told. That predates the near collapse of the financial system, some of which was blamed on short-selling and the preoccupation with creating wealth while not actually building anything. How is this different? The notion that film financiers, even studios, can hedge their investments by betting against estimated box office gross is a little chilling. Baseball’s hit king Pete Rose was thrown out of the sport and denied entry into the Hall of Fame for betting on his team. What is a star or director going to think if he discovers his film financier or studio bet against the film they worked so hard to make?

Will there be temptation by a hedge fund that backed a slate of movies to find out about test screening results to inform wagers? Filmmakers have trouble enough keeping their test screenings off the internet. In the new betting system, whispers about early reaction to a film becomes valuable currency, the way that early injury reports are to sports bettors.

So how is this good for moviemaking?