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CFTC Hearing: Heated Debate on Box Office Futures

Hollywood sign
Mark Ralston | AFP | Getty Images
Hollywood sign

Hollywood is in the spotlight in Washington D.C.: today the CFTC hosted a hearing on controversial box office futures.

Should people be able to trade expectations of box office performance just like they trade pork bellies or orange juice futures?

The CFTC already approved two futures exchanges designed to trade box office derivatives; next month it faces deadlines to approve the proposed contracts.

The CFTC hearing's three panels were packed with more proponents of the exchanges than there were critics. Richard Jaycobs, president of Cantor Exchange and Robert Swagger, CEO of Trend Exchange defended their products as a way to bring billions of dollars of film financing into the industry and for independent financiers to hedge their risk. They were supported by a range of experts who have consulted on the exchanges- including entertainment attorney Sky Moore and movie content valuation expert Clark Hallren.

A rare studio voice in favor of the futures contracts, Lionsgate Vice Chairman Michael Burns testified in support, saying that his studio would use the contracts to mitigate their risk, just as they use foreign pre-sales.

But the CFTC Commissioners still seemed to have a range of unresolved concerns. What exactly is the underlying commodity being traded if it's the performance of a creative product rather than a physical product itself? Do these futures lend themselves to manipulation, and how could they be monitored? Do they provide value as a hedging device? And one question the CFTC rarely asks that was front and center: is there a true economic value to these derivatives?

The Motion Picture association led the criticism of box office futures, equating them with the complicated derivatives that brought down the mortgage industry. MPAA interim CEO didn't mince words, saying that these contracts are far more similar to gambling than they are to futures. Scott Harbinson, representing the International alliance of Theatrical and Stage employees as well as the Directors Guild of America said that box office speculation could put middle class workers out of a job while Wall Street profits.

Today's debate may be moot: a provision prohibiting box office futures could be enacted into law before the CFTC completes its evaluation process. The Senate's Fin Reg bill includes an amendment banning this particular type of futures trading. If the House adopts the same amendment and it's signed into law, then the CFTC won't have an opportunity to regulate these contracts.

At the start of today's session Commissioner Bart Chilton expressed an opinion I've heard quite a bit. He said it's "kinda cool, but that cool doesn't necessarily mean it's a business. We'll see what the House and the CFTC decide--all of Hollywood is waiting for the third act of this drama to play out.

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