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Box Office Bomb: The Short Life of Popcorn Prediction Markets

Once upon a time, box office futures could have changed Hollywood. And for two short days, they sort of did. But—in the midst of the financial crisis of 2008—lawmakers in Washington, D.C., had other ideas.

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“If somebody told me several months ago or a month ago we would have the Motion Picture Association of America and the Directors Guild in front of the Agriculture Committee, I would have thought they were kidding. But here we are …”

—U.S. Representative Jerry Moran (R-Kansas), 2010

In May 2001, the financial firm Cantor Fitzgerald made a simple purchase: the Hollywood Stock Exchange. Everyone has strong opinions about movies, and for Cantor, this was a way of turning those opinions into money. For the HSX, it was a way of capitalizing on the data generated by its 30,000 daily users. On, anyone who signed up and logged in was instantly handed $2 million to invest in the success or failure of Hollywood films. The primary mode of investment was called a Moviestock, and the value was based on the first four weeks of a film’s box office revenue.

The Princess Diaries was released August 3 of that year. Let’s say you were an early believer in Anne Hathaway. You saw the Diaries trailer in July, your eyes wetted, and you knew that if anyone with half a heart remained in America the movie would be a hit when it came out in a few weeks. You bought 5,000 The Princess Diaries Moviestocks—symbol: PDIAR—at $51.03 apiece. That price reflected the HSX market’s belief that the film would make $51.03 million in its first four weekends at the box office, plus the weekdays in between. Each dollar in the Moviestock price represented $1 million in real box office revenue.

Four weeks after the movie opened, you were rolling in dough, because Hathaway rolled to $82.39 million domestic in that time period. Your profit was $31.36 per share. Not bad for an August release. One problem: It was play money. All you could do with the Diaries profit was shop more on the HSX and brag about it on a pre-Reddit forum.

Cantor Fitzgerald, under a London-based branch called Cantor Index Holdings, wanted to turn the HSX into something real. To create a real-money version of the fake-money website, where everyday schmoes could buy Moviestocks—box office futures—and make or lose real money off them. That summer of 2001, living in Manhattan and earning just enough to eat tuna straight out of a can for dinner, I was broke. But I did have an account with the HSX and I was pretty damn good at it. (Though I haven’t made a transaction in 15 years, my current HSX portfolio value is $325 million.) I loved the idea of investing money in the box office, even if I had none with which to do so. To someone like me, obsessed with the box office, Cantor’s idea would have been an incredible opportunity.

Then 9/11 happened.

Cantor Fitzgerald was headquartered on five of the highest floors of One World Trade Center, and 658 of the firm’s employees lost their lives. No company was hit harder that day. Appropriately, box office futures became an afterthought.

Box office futures returned at the worst possible time. Five and a half years later, Robert Swagger—an Arizona-based entrepreneur—would be the next to give the idea a shot. In 2006, Swagger spoke at a conference in California about methods for managing risk in the energy sector—how to hedge against unpredictable regulatory or technological changes that suddenly made a form of energy less popular. Someone at the conference approached Swagger and asked if that kind of risk management could be applied to other sectors. It turned out the guy was a consultant in the movie business.

In April 2007, Swagger formed Media Derivatives Inc.—known as the MDEX—with the goal of creating an electronic futures exchange for contracts based on box office results. Swagger believed his background in risk management could help Hollywood financiers—the studios and their investors—reduce losses in an inherently unpredictable business, where for every massive hit like The Sixth Sense there was at least one flop like Gigli.

“Our products will allow a host of parties with financial interests in the movie production and revenue chain to hedge the enormous risks associated with producing, distributing, financing, and insuring major motion pictures,” Swagger said. Among the groups he named as possible hedgers: original screenplay owners; investment banks syndicating a financing slate; film talent; theater owners, distributors, marketing partners, and independent and major film studios, including the “Big Six”—Disney, Paramount, Sony, 20th Century Fox, Universal, and Warner Bros.

The idea was that if a studio like Disney invested $150 million to bring a big-budget film to theaters, and wanted to guarantee a certain amount of return, the studio could recoup a percentage of that investment by shorting its film on the exchange. The studio could short, say, $30 million against those individual or institutional investors who believed the film would do better at the box office than the market expected. If the film did not meet expectations, then the studio would at least have a $30 million guarantee. The MDEX was supposed to be a risk-reducer for Hollywood and an investment opportunity for individuals normally unable to contribute financially to the films they went to theaters to watch.

But at the same time that MDEX was forming, the country was seeing the first signs of a global financial crisis—driven by excessive risk-taking by banks, notably in the subprime mortgage market in the U.S. In April 2007, a company called New Century Financial declared Chapter 11 bankruptcy after too many of its borrowers defaulted on their mortgages. By the end of the year, the U.S. would experience two consecutive quarters of declining growth, and a year later Bear Stearns and Lehman Brothers would be not investment banks, but cautionary tales. The housing sector collapsed, and millions of Americans lost their jobs. Once again, the silly little idea of box office futures was up against a historic, world-changing catastrophe.

But MDEX plowed ahead anyway. By the time the Great Recession was in full swing, Cantor Fitzgerald, under its subsidiary the Cantor Futures Exchange, had rejoined the race. Cantor hired Richard Jaycobs, who had been the CEO of the Clearing Corporation, a clearinghouse for U.S. futures markets, and, like MDEX, began investing heavily to become the first to bring box office futures to market.

Cantor and MDEX had slightly different ideas of how their exchanges would initially work. Cantor’s was more straightforward, following the HSX pricing structure as demonstrated earlier by The Princess Diaries. Four weeks after a “wide release”—defined as a movie playing in at least 650 theaters—had been showing, the “final settlement price” would be set, with the exact numbers determined by Rentrak, a company that collects the vast majority of box office receipts nationwide (even from theaters that send them in by fax or call them in). The minimum amount required to invest in a Cantor future was only $50. If buzz for The Princess Diaries proved positive as the movie got closer to release, the price of the stock would naturally go up, and the purchaser could sell to a willing buyer at any point, or wait until the final settlement price for a payout.

MDEX proposed two types of investments: a “binary option contract” and a “collared futures contract.” The binary option contracts cost $5,000 each and were tied to a “strike price” of a movie’s revenue after the first weekend (or first few weekends, depending on the film). So if you bought 10 binary contracts for $5,000 each for Harry Potter and the Deathly Hallows: Part 1 at a strike price of $118 million for its opening weekend—November 19-21, 2010—you would have doubled that money, because the movie opened to $125 million. But if the strike price had been $130 million, you would have lost it all. The binary contract was essentially an over/under for opening weekend.

The collared futures contracts also cost $5,000 each but had a more complicated structure. They were collared in the sense that there was a maximum loss and gain built in. Let’s say that the range of opening weekend box office revenue for Inception, released in July 2010, was set by the MDEX at $25 million to $125 million. If it opened at $22 million, you would have lost all your money. If it opened at $135 million, you would have doubled your money, but no more. Inception opened to $62.79 million, so for each $5,000 contract you bought, you would have received $1,887.50 (62.79 minus 25, times 50) in profit.

The first contract proposed by MDEX was for the movie Takers, starring Matt Dillon, Paul Walker, and Idris Elba. (I’ve followed the box office for more than 20 years, and when I first read about MDEX, I had zero recollection of Takers, though it made a decent dent in the box office.) Three weeks later, Cantor requested approval to trade derivatives contracts based on box office numbers from The Expendables, the Sly Stallone ensemble action flick. Both films were scheduled for August release dates, the month when studios typically open weak summer action films. Two bad action movies were unwittingly involved in a race to become the first futures contract to go live.

But in early March 2010, word of the exchanges found their way to the media. Jaycobs was featured on CNBC, and he and Swagger were quoted in Business Insider and Reuters about how their exchanges were just a few steps away from regulatory approval. “I’ve worked in the futures industry for a long time,” Jaycobs told The New York Times. “And none of the products has the overall appeal that this does. This just has a tremendous potential audience.”

The coverage found its way to players at the major studios, and though they hadn’t voiced opposition earlier, they weren’t happy. On March 23, 2010, Robert Pisano, interim CEO of the Motion Picture Association of America—which represented the Big Six—sent a letter to the chairman of the Commodity Futures Trading Commission, the independent agency tasked with regulating futures markets. The letter outlined a list of concerns about the two exchanges being considered by the CFTC. “The reputation and integrity of our industry could be tarnished by allowing trading in the movie futures contracts in a manner which allows them to be viewed as the economic equivalent of legalized gambling on movie receipts,” he wrote.

At the same time, the MPAA turned to lawmakers who were in the midst of drawing up the Dodd–Frank Wall Street Reform and Consumer Protection Act, an epic bill created in response to the financial crisis, with the goal to “promote the financial stability of the United States by improving accountability and transparency in the financial system.” Dodd-Frank was basically a giant piece of financial regulation and the MPAA wanted to slip box office futures into the bill.

All of a sudden, Cantor and MDEX—and the very concept of box office futures—were met with a foe more powerful than subprime mortgages. They would have to team up if they were going to defeat a more cunning foe: Hollywood lobbyists.

What, exactly, does it mean to trade against the future? A futures contract is an agreement between two parties to, respectively, buy and sell a commodity at a predetermined price at a specified time in the future. Commodities are often agricultural, like wheat, corn, and soybeans, but can also be metals, livestock, or energy products like crude oil and natural gas. You can also buy futures contracts based on less tangible things like snowfall and temperature, and consumer price indexes.

The point of futures is generally to help hedge against wild price swings in the future, so farmers, for example, can plan for the future and not get screwed by the plummeting price of cotton after a weather event or other unpredictable factors. On one side of the contract are the hedgers, the farmers or oil drillers who want to lock in a certain price in their investment, and on the other side are the speculators, who are betting they can make money on the price swings the hedgers are guarding against. So if a farmer would be satisfied with a price of, say, 80 cents per bushel of wheat a year from now, they may promise to sell their crop at that price, and the speculator would buy it, hoping the price is at least slightly higher at that time. Either way, the speculator has an obligation to buy the wheat at that price in a year.

The movie Trading Places is essentially a hysterical lesson in futures trading. Based on a false crop report on oranges, the bad guys—Randolph and Mortimer Duke—buy frozen orange juice futures contracts at an inflated price. Meanwhile, the good guys—played by Dan Aykroyd, Eddie Murphy, and Jamie Lee Curtis—sell the same contracts based on knowledge from the real crop report. When it turns out the Dukes are wrong, their futures contracts lose them millions and they’re forced out of their lavish lifestyle and onto the street (until Coming to America).

Banning these types of futures contracts in the U.S. has long been a failing prospect, as they serve the economic purpose of mitigating risk in key industries. During the Civil War, Congress passed the Anti-Gold Futures Act, which was meant to stabilize the value of Union greenbacks in comparison to gold. The act was repealed two weeks later when it instead led to the accelerated decline in value of those greenbacks. Congress introduced 200 futures regulation bills between 1880 and 1920, but none passed.

The CFTC was formed in 1974 to regulate commodity futures markets, and it has rarely disapproved contracts since then. Their regulations prevent futures contracts based on terrorism, assassination, war, and gaming, but the CFTC works closely with companies like Cantor to make sure other contracts are always in shape to be approved. In 1977, Senator Frank Church of Idaho tried to ban the trading of potato futures, claiming abuse in the market that hurt his state’s most famous product. “Time and time again, potato producers from across the nation have indicated that they have no desire to have trading in futures,” he told The Washington Post in support of the Potato Growers of Idaho and the National Potato Council. “They are tired of being the innocent victims of economic power plays by … speculators.” But the CFTC didn’t budge and Church’s potato futures bill went nowhere.

There is one major exception: onions. In the mid-1950s, two men successfully schemed to corner the country’s onion market, storing millions of pounds of onions in giant warehouses so that they could control prices. At one point, one of the men admitted to owning 98 percent of the onions in the United States. They then flooded the market and shorted onions in the futures market as the prices dropped to near-zero. Their plot made them millions, but crashed the onion market and bankrupted a lot of farmers. “If it’s against the law to make money,” said Vincent Kosuga, known as the Onion King of Pine Island, “then I’m guilty.”

Naturally, onion farmers didn’t like two men making a huge fortune at the expense of the rest of the onion industry. In 1958, then-Representative Gerald Ford proposed, and President Dwight Eisenhower signed, the Onion Futures Act, which banned futures trading in onions. While some onion growers were happy, E.B. Harris, the president of the Chicago Mercantile Exchange, was not. He said, “We submit that burning down the barn to find a suspected rat is a pretty drastic remedy.”

History has proved Harris correct. In a six-month period in 2006 and 2007, onion prices rose by more than 400 percent before crashing 92 percent just five months later. “The volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings,” wrote Jon Birger in Fortune. “The volatility has been so extreme that the son of one of the original onion growers who lobbied Congress for the trading ban now thinks the onion market would operate more smoothly if a futures contract were in place.”

But 60 years later, the ban on onion futures is still in place.

In order to avoid the fate of onions, and rather than risk having no market to fight over, MDEX and Cantor joined forces. Swagger and Jaycobs walked the halls of Congress together for weeks. Between them, they saw maybe 100 members of Congress, taking the little time they were granted to convince the politicians that a ban on box office futures was an unnecessary regulatory overreach. After all, no futures commodity had been banned since 1958, not a single one since onions, and not only was that before the CFTC was formed, but that had proved a costly mistake for the onion business. But as much as they tried to get their message across, the lawmakers were distracted by a much bigger issue: how to prevent another great recession. Swagger said it was awkward bouncing around Congress “like a hot potato” when his exchange meant almost nothing to the people he was speaking with.

“Our economy is in a meltdown, the housing market crashed, and here’s these people who are talking about movie box office performance,” Swagger said. “For us to expect to have a lot of time and attention from any member of Congress during that time would have been challenging.” Still, it seemed to Swagger that at least some of the lawmakers they spoke with understood what they were trying to do and even seemed sympathetic to their cause. (Jaycobs, who still works for Cantor Exchange, was unable to comment for this article.)

Meanwhile, the MPAA was going around the same halls, presenting the opposite case: that box office futures were a potentially catastrophic gamble the country couldn’t afford to take on in the wake of the housing crisis. The executive vice president of the MPAA, Greg Frazier, had previously been a staffer on the House Committee on Agriculture, which had jurisdiction over the CFTC, so Hollywood had a knowledgeable, connected lobbyist on its side.

In addition to their work behind the scenes, MDEX and Cantor also presented their cases in two public hearings, one in front of the CFTC and another in front of the House Committee on Agriculture’s Subcommittee on General Farm Commodities and Risk Management. By that time, each of the exchanges had spent months working with the CFTC to make sure their paperwork was in order and on track for approval. Swagger compared the process to getting a drug approved by the FDA. “It takes a lot of time. It takes a lot of money. It takes a lot of patience. It takes a lot of educational processes,” he said. “It’s years and years worth of work and millions of millions of dollars.”

The MPAA, along with the Directors Guild of America, spoke at both meetings as well. The way the MPAA presented it, box office futures pitted Hollywood versus Wall Street. And given the recent economic crash, it was a good time to be against Wall Street. The MPAA introduced four primary arguments in favor of banning the exchanges.

The first was that Rentrak was not a legitimate enough source of box office revenue to act as a guide for futures contracts. The argument against Rentrak was dubious since the company was, and continues to be, the primary source of box office tracking in the industry. Rentrak’s numbers were already accepted enough by the studios back in 2010 that the numbers would be used to market their films. For example: “Dear John is the no. 1 movie in America!”

The second was that box office receipts were not a commodity, like wheat or corn (or onions) and therefore should not be approved by a commission that regulates commodities. Pisano said, “I’ve heard the term commodity, and I understand the popular view of what a commodity is. The only analogy I can think of, and analogies are dangerous, is that this would be like taking a contract out on Farmer John’s spotted cow because every single movie is unique and you can’t commoditize them. And if you do try to commoditize them, you will fail.” Scott Harbinson, speaking on behalf of the International Alliance of Theatrical Stage Employees and the Directors Guild of America, added, “It’s hard for us to conceive how the CFTC can allow a motion picture—which is in fact an experience, not a commodity—to be monetized and treated like Grade A wheat.”

But the definition of “commodity” had long been interpreted broadly enough to account for things beyond physical goods. The definition of a commodity, by the language of U.S. law, included “all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.”

The MPAA also argued that the exchanges would serve no economic purpose because nobody in the film industry would use them as a hedging instrument. Since the MPAA represented the six studios that produced 95 percent of all wide-release films in the United States and they were saying they wouldn’t use it, then who was it actually serving except people who wanted to gamble on the box office? (Part of the MPAA’s argument was that if the stars and directors of their movies discovered the studios were shorting their own movies, it would cause irreparable damage to the studios’ reputations.)

But the exchanges had a counterargument. First off, 95 percent of wide-release films is not the same as 100 percent of wide-release films. Michael Burns, the vice chairman of Lionsgate, wrote in a letter to the House Committee on Agriculture: “As an industry leader, we are excited by the prospect of a futures market in box office receipts.” Lionsgate was then releasing about 15 movies per year—like the Saw series, Tyler Perry films, and the Academy Award–winning Crash. The company was also on its way to becoming an even bigger player. Over the next few years, it would produce the Hunger Games, John Wick, Expendables, and Now You See Me series.

Burns said that Lionsgate was already hedging its bets, for instance, by selling the foreign rights to its films. He said that using the exchanges, Lionsgate could potentially sell 10 percent of the budget of a $50 million film on the exchange (by shorting) and use that money for print and advertising money. If the film earned $100 million, then the investors who bought shares would double their money. “I think this is just one other tool that we, Lionsgate, could use, and ultimately all the major studios could use to mitigate risk,” Burns told the CFTC commissioners. But Burns, as one of the founders of the HSX, had at least indirect financial ties to Cantor.

Another argument in the exchanges’ favor was that studios were far from alone in financing their films. And they brought in a dynamic Hollywood player to prove that point. Schuyler Moore was a partner in the corporate entertainment department of the law firm Stroock & Stroock & Lavan and an adjunct professor at the UCLA School of Law. He was also author of the book The Biz: The Basic Business, Legal and Financial Aspects of the Film Industry and he had worked in the entertainment world since 1981. “I have done this for a living for 29 years. That is what I do—film financing—and I represent the money coming into Hollywood,” he told the CFTC. During his career, he said he had helped the film industry short $25-30 billion of risk. “Coproductions, split rights transactions, presales, slate financing. In the last eight years alone, there have been over $10 billion of slate financing and every single one is a way for the studio to get off risk and unload the risk on investors.”

Based on his experience, hedging Hollywood risk in every possible way, Moore said that these exchanges, too, would be used by the studios, even those crying wolf in the room that very day. “They always resist what is new. They resisted television. They resisted video. They resisted video on demand,” he said. “When they figure it out, when they understand it, they will do it and they will do it in droves.”

Last, Pisano and his studios were concerned about the potential for insider trading and manipulation. What if a studio executive knew of an actor’s drug problem and decided to encourage it and tell TMZ so that the executive could short the film and make a fortune? What if someone working in craft services decided to spread a false rumor on Facebook that the hot young director was sleeping with a 15-year-old? What if an agent held back promotion by a client—say, pulling Russell Crowe from The Daily Show—for a film so as to up the value of a short contract?

In order to counter manipulation fears, Cantor and MDEX worked with the CFTC to set firewalls between certain employees at the studios and the exchanges. But the firewall was limited to those studio employees that helped tabulate the final box office numbers (based on Rentrak’s tracking). The firewall was more of a distraction than a solution anyway. After all, insider trading is sort of the point of futures, which are meant to help insiders legally reduce risks. For example, it’s legal for a grain company to buy futures before announcing that it has a huge new deal with a foreign government.

“[The Commodity Exchange Act] does not prohibit insider trading by market participants in the commodity futures and options markets, based upon the premise that barring insider trading would defeat the market’s basic economic function of allowing traders to hedge the risks of their commercial enterprises,” Swagger wrote in a prepared statement for the House Committee on Agriculture subcommittee. “In other words, virtually every commercial hedger has some amount of inside information.”

Moore took it a step further. “Insider trading is a bugaboo,” he said. “There is no legal impediment on insider trading on a commodities exchange, period, or a farmer wouldn’t be able to trade corn futures.”

The argument that seemed to have the strongest effect on the agriculture subcommittee was almost an emotional one. The exchanges symbolized Wall Street and economic risk, and given that the country was just beginning its recovery from a recession that most felt was caused by Wall Street and risk, it was a bad time to be symbolizing either.

“It looks very much like the Wall Street guys are trying to do for the motion picture industry what they did for the real estate and mortgage banking industry, and we don’t want it. We don’t want any part of it,” said Harbinson, who was representing 110,000 technicians, artisans, and craft persons in the entertainment industry, as well as 14,000 directors and members of their directorial teams. He was not used to being on the same side of the argument as the MPAA, but on this topic labor and corporate saw eye to eye. The exchanges were a new, unpredictable factor in an already unpredictable business. “It may come as a surprise, but we don’t have great confidence in Wall Street to create new wonderful things for our industry, particularly when we see just how variable a motion picture’s success could be.”

“To be honest, I think it would be sheer folly,” Representative Kurt Schrader of Oregon said near the beginning of the meeting. “We are in the middle of the worst derivative crisis this country has ever seen since the Great Depression. We are going to create another instrument, one that the public is going to see as, frankly, legalized gambling. I think the person who votes for this sort of thing would be absolutely insane.” He then hedged, “But maybe I could be convinced otherwise.”

On June 14, 2010, in a 3-2 split decision, the CFTC commissioners voted in favor of MDEX, which, during the hearings, actually changed its name to Trend Exchange, partly to get away from the negative connotation with the word “derivatives.” Swagger’s exchange, and its contract for Takers, was approved. A letter explaining the approval of the contract read: “The Commission found that the contracts are based on commodities, are not readily susceptible to manipulation and serve an economic hedging purpose.” Exactly two weeks later, Cantor’s contract for The Expendables was approved as well, with the commission referring to the same reasons stated in the approval of MDEX.

CFTC commissioner Bart Chilton was one of the two dissents, and he disagreed with virtually everything in his colleagues’ letter. “Approving the contract violates the law. It does so because of the following: Popcorn Prediction Markets would serve no national public interest, nor do they satisfy the fundamental federal statutory requirements relating to the definition of a ‘commodity.’ The Commission has never before approved any contract of this kind, and there is no demonstrated need nor necessity, or even a fabricated chorus call for them,” he wrote. “If we approve these types of things on the arguments posed in favor of them, we could be approving things like death pools or terrorism contracts, something Congress surely never intended.”

Although the MPAA had letters from prominent politicians like Al Franken, Orrin Hatch, Patrick Leahy, and Henry Waxman, in the end the CFTC just barely voted in favor of the exchanges. But these politicians and others had less sway over regulatory experts than they did their fellow lawmakers. Almost immediately after Cantor got authorization from the CFTC to trade in box office futures, the rug was pulled from under it.

Before the public hearings had taken place, Democratic Senator Blanche Lincoln of Arkansas wrote a provision into the Dodd–Frank Wall Street Reform and Consumer Protection Act that would effectively ban the trading of box office futures. Perhaps not coincidentally, Lincoln had a tough reelection race coming up that fall that could use support from a group of wealthy film studios. She also had a Hollywood connection; her older sister, Mary Lambert, is the director of Pet Sematary and its less successful sequel.

Lincoln’s provision was kept in Dodd-Frank and passed by the House on June 30, exactly two days after the Cantor Futures Exchange’s approval. The Senate vote followed July 15, and, six days after that, President Obama signed the Wall Street Reform Act into law, which changed the definition of a commodity to exclude exactly two things: onions and “motion picture box office receipts, or any index, measure, value or data related to such receipts.” The amendment was also made retroactive by 30 days, so that the CFTC’s approval of both exchanges would be void. All the years of work and all the millions invested gave box office futures a life span of just two days.

One half of the Wall Street Reform Act’s namesake, Barney Frank, barely remembers the box office amendment to his act. When we spoke, he said he’d forgotten all about it until I called, but told me his reaction to the exchanges would have been governed by whatever he needed to do to help pass the overall bill. “You’re dealing with a piece of legislation that has hundreds of impacts, of issues,” he said. “You cannot pass a complex piece of legislation by picking out the best intellectual, moral issue. As far as I was concerned, I went along with the forces within the Congress who had the greatest strength on this issue as long as that meant that they would be willing to support the bill in general.” Frank added that Californians and their interest groups had a major influence in the House due simply to the state’s size. In another Hollywood-level coincidence, Chris Dodd, the other namesake of the act—who swore that he would not enter the endlessly predictable revolving door and lobby after leaving politics, and whose wife worked for Blockbuster before it became a relic—replaced Pisano as head of the MPAA that March.

The second dissenting vote on the CFTC commission was Jill Sommers, who served for six years under presidents George W. Bush and Barack Obama. Now a senior adviser at Patomak Global Partners, Sommers told me it was a real surprise to the commission that the amendment ended up in Dodd-Frank. “This really didn’t have anything to do with the financial crisis,” she said. “It kind of took the decision out of our hands in the end.”

“I actually think it’s even more useful today than it was then, because there is a greater and broader effort for independent films to be released without using a studio,” said Alice Neuhauser, who consulted with Swagger at MDEX in 2010. She’s spent her career coordinating financing for hits like Terminator 2 and 3:10 to Yuma, as well as small-budget independent films. She told me that box office futures exchanges could particularly help with upfront capital for independent films. “Why would you not want to make use of financial tools that are available to you?”

The Hollywood folks tagged the two exchanges as greedy Wall Street gamblers just trying to make a buck at all costs. And at the time, it was an easy way to gain favor. You could argue that Cantor, as a firm with more than 1,000 employees, was just a Wall Street firm at heart. Not three days after Dodd-Frank got through the House, Cantor had already laid off the majority of the HSX staff. But what about Rob Swagger?

Swagger said his company spent $30 million getting authorized as an exchange by the CFTC and defending itself against the MPAA. He said what happened to the exchange was un-American, that America is about following the rules that you are given in order to succeed. But in his case, lobbyists and politicians changed the rules, ensuring that he failed. “The premise of the argument was wrong, but they were playing on the fear of what was going on in the industry at that point in time,” he told me.

“There are events that we don’t control. A catastrophic event, a terrorist event, social media stuff, the meltdown of a star. I mean, Harvey Weinstein, Kevin Spacey. Who would have ever seen all of these things unfolding?” Swagger said. “When the farmer puts their seed in the ground, they don’t know what the price of it’s going to be. Is corn going to be a dollar a bushel at harvest, or is it to be $7 a bushel? They don’t know, but they have to buy their corn today, plant in the ground, and wait for months before they harvest it. And during that period of time a lot of things can happen.”

A lot of things happened on the way to box office futures exchanges’ two-day lifetime, before they joined onions in the annals of obscure regulatory history. But Dodd-Frank is now being rolled back by a regulation-hating Republican administration. Could that mean a sequel for box office futures?

In 2010, Cantor hired Don Chance, professor of finance at Louisiana State University and an expert on financial derivatives, to write an assessment of its exchange, an assessment that happened to be positive. Chance told me that, if the ban was withdrawn, the exchanges would still be a good idea today. “I firmly believe there’s a market for products like this. People have a lot of interest in how movies do,” he said. “You never know, maybe a new generation of decision-makers in Hollywood might change their mind.”

Shaun Raviv is a freelance journalist based in Atlanta.


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