Horror in Hollywood over regulator's decision to approve box-office futures

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The Independent Online

Hollywood studios are making a last-ditch appeal to the US Congress to halt the trading of "box office futures", which will allow speculators to bet on the success or failure of movies in the financial markets.

The Motion Picture Association of America (MPAA) reacted with horror to news that the derivatives industry regulator has approved trading in a new futures contract linked to box office takings at a film's opening weekend. It is demanding that a ban be included in the Wall Street reform bill, which is being drafted on Capitol Hill and which could be signed into law next month.

The Commodity Futures Trading Commission decided late on Monday that it would allow a new company called MDEX to offer a futures contract based on the box office receipts of the forthcoming Hayden Christensen film Takers, which is due out in the US in August at the height of the summer blockbuster season. MDEX says other contracts will soon follow.

"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," the MPAA's president, Robert Pisano, said yesterday. The new box-office contracts "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".

The National Association of Theatre Owners, the Directors Guild of America, and the Independent Film and Television Alliance also lobbied the CFTC heavily against approving the start of trading. They argued that there was no economic benefit to the creation of these kinds of contract, and that it could tempt distributors or even movie stars into betting on a film's failure – and then acting to sabotage the opening weekend. The price of the futures contract in the run-up to a film's opening could also affect the "buzz" and might affect how many people go to see it.

The CFTC decided it had no rules to allow it to ban the idea and, by a majority vote, agreed with MDEX that there could be some economic benefit to the contracts, since minority investors in a movie's production or distributors could use them to hedge their risks.

The CFTC decided the contracts were akin to "buying insurance to cover weather conditions and cast uncertainties or obtaining a bond to guarantee the completion of a film".

In a dissenting view, the commissioner Bart Chilton said there had to be some limit to what could be turned into a financial derivative. "Unless some sensible judgement is exercised, we could approve contracts on the likelihood of UFOs hitting the White House," he added.

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