For a few days in the summer of 2010 you could have bought a future on a Hollywood blockbuster. Then Congress made it illegal, and box-office receipts took their place beside the onion on the shortest and strangest list in American finance.
The game that wanted to be real
It began as a toy. The Hollywood Stock Exchange, which Cantor Fitzgerald bought in 2001, was a virtual game where 30,000 daily players traded “moviestocks” with play money, each dollar of the price standing for a million dollars of box office. It was good enough that two firms set out to turn it into a real market. Cantor built the Cantor Futures Exchange, ready to list a contract on The Expendables. An Arizona outfit, Media Derivatives, renamed itself Trend Exchange to shed the word derivatives during the hearings, and lined up a contract on Takers. Both aimed to open that August, and Cantor’s would take a position for as little as 50 dollars.
A real hedge, not just a bet
A studio picture is a vast, lumpy wager: nine figures spent before a single ticket is sold. A market in opening-weekend receipts would let a producer or a financier lay off part of that risk, the same service a futures contract performs for a wheat farmer. The regulator saw it that way too. On 14 June and 28 June 2010 the Commodity Futures Trading Commission approved the two contracts, finding they were based on commodities, were not readily susceptible to manipulation, and served a genuine hedging purpose. One commissioner, Bart Chilton, dissented, and gave the idea the nickname that stuck: Popcorn Prediction Markets.
Hollywood went to war
The studios fought it hard, through the Motion Picture Association and its interim chief Robert Pisano. Their central objection was that every single movie is unique and cannot be commoditised. They warned of insider trading, of executives shorting their own films and then quietly letting them fail, and they argued that since the studios themselves would never use the exchanges, the whole thing was a casino wearing the costume of a market.
Killed in the crib
They had the ear of Washington at the perfect moment. Senator Blanche Lincoln of Arkansas wrote a ban into the enormous Dodd-Frank Act then grinding through Congress. The House passed it on 30 June, the Senate on 15 July, and the President signed it on 21 July 2010. The law simply redefined a commodity to exclude motion picture box office receipts, and it did so retroactively, voiding the approvals the Commission had granted days earlier. On the cleanest reading, the contracts had been legal for about two days.
The point
Look closely at the argument that won. It was not that a film market could not be built, because it had been built twice and a federal regulator had signed off on both. The argument that won was that films are unique, and so cannot be commoditised. Yet uniqueness has never been a barrier to a market; you do not trade the film, you trade an index of its receipts, exactly as a weather contract trades an index of temperature rather than the weather itself. A cask of whisky is unique too, and it is the standardising, not the thing, that makes a market.
So the obstacle was never that the trick was impossible. It was that the people with the most to lose from an honest, public price, the studios, had the lobbying muscle to make sure no such price would exist. That is precisely what box office shares with the onion. In each case an insider class preferred no market to a market it could not control, and secured a law to enforce the preference. The empty slot on the exchange is not a verdict that the asset cannot trade. It is a monument to who had the power to stop it.
Levanter Markets publishes for education. Nothing here is financial advice.