Futures as a (Box Office) Bomb Discovery Mechanism
The travails of Disney’s latest attempt at suicide-by-woke, the Snow White reboot, brings to mind one of the spawn of Frankendodd–the ban on movie box office futures.
In 2008, Howard Lutnick’s Cantor Fitzgerald filed to create the CX Futures Exchange to trade futures on movie box office receipts. Hollywood lost its mind, and in the post-GFC anti-derivatives hysteria and the resulting legislative response, succeeded in getting Congress to include a ban on such futures as one of the many pieces stitched together to create Frankendodd. Thus, such futures joined onions as the only thing that was otherwise legal on which it was illegal to trade futures.
Why was Hollywood so hot and bothered about box office futures? That’s what brings me back to Snow White.
Disney is in a panic because it is widely predicted that the movie will bomb epically at the box office, and in particular since it is Peak Woke, with the wokiest of actresses in the title role. As of now, those predictions are merely conjectures bandied about in the press or in online conversations, and don’t involve anyone putting their money where their mouths are.
But, if there were futures, all of that diffuse information about how bad the movie is, and how badly it will perform, would be crystalized into one number for all the world to see. And the number would have credibility, because the people behind it would have skin in the game. And it would have credibility because the futures would incentivize those with information about the picture to communicate that information to the market via their trades.
Futures would have been a box office bomb detection device.
Without futures, Disney can hope that many people won’t have heard the Hollywood chatter, or will discount it and give the movie a chance. And they can hope that woke reviewers will pump the movie.
Futures would have been a box office bomb detection device. If there were futures, there would be a hard number to communicate objective information about how bad Snow White is. Nobody would attend, and the movie would bomb.
Absent futures, Hollywood can fool enough of the people enough of the time with marketing and propaganda to at least mitigate the revenue disaster of a bad film. With futures, that would be much, much harder. Which is why they successfully importuned the authors of Dodd-Frank to strangle movie box office futures in their crib.
Crypto’s make it easy to spin up prediction markets like Polymarket. Any thoughts on such venues eating into the futures space?
Comment by Patrick — March 14, 2025 @ 1:52 pm
Closest thing I found on Polymarket is top box office for the year.
https://polymarket.com/event/highest-grossing-movie-in-2025
You can set up such a market yourself with Augur, since that is a more decentralized protocol. You will have to credibly address the “oracle problem”, so common in decentralized markets: How do you decide what is the truth /outside/ the protocol? What happens if the greyhounds actually catch the (malfunctioning) mechanical rabbit? (Saw this at a dog track once: the judges declared “no race” and refunded all the bets.) The Augur markets have been plagued by disputes over the outcome, and the decentralized dispute resolution works about as well as Wikipedia’s, which is most-obstinate-takes-all. There are some clever oracle protocols out there (staking players competing to get the median guess among them), and services to provide oracle data, but these assume thick markets, the opposite of niche betting markets.
Polymarket got hit with CFTC enforcement in 2022 and took down non-compliant markets, which shows that (a) they have a concept of a non-compliant market, and (b) the feds have an identifiable piece of meat they can lock in a steel cage to enforce compliance.
Comment by M. Rad. — March 14, 2025 @ 3:57 pm
This seems more like a conventional betting market than a futures exchange to me.
Anyone could set up a bookmaking operation, first past the post for $200 billion in a month, for example. Or spread betting on box office receipts in April.
But why would Hollywood lobby against a futures market? They have insider information, for a start. And they could hedge their exposure to turkeys for a second.
But that’s me, just a dozy dwarf not from Hollywood tossing his coin in the fountain.
Comment by philip — March 14, 2025 @ 4:51 pm
The issue is more likely that one side of the market (the ‘long physical’ movie producers and short futures hedgers) have much better information about the underlying than the long futures side. If someone is a motivated seller of that movie who in their right mind would take the other side? There would never be any depth in this market. The movie producers have different ways to hedge the risk of a movie bombing, producing sequels is in general a much less risky proposition, and they have been doing more of this than ever before.
As always the ‘woke people’ live rent-free in the prof’s mind. Are they in your room right now?
Comment by [email protected] — March 16, 2025 @ 5:28 am