Hollywood's big movie studios are trying to ensure that there's no future for box-office futures.
The Motion Picture Assn. of America, the lobbying group that represents the six major film studios, has notified the Commodity Futures Trading Commission that it objects to two planned futures markets that would let investors essentially bet on what upcoming movies will gross at the box office.
"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," said the letter, which was signed by the MPAA's interim chief executive, Bob Pisano.
One of the pending futures exchanges, run by Veriana Networks of Scottsdale, Ariz., was due to receive final notification from the trading commission Wednesday when the MPAA's letter arrived. Veriana agreed to push that deadline to April 2 to answer the movie association's questions.
"We are confident the issues raised by the trade organization are without foundation, but we are happy to readdress them with the CFTC," Veriana's chief executive, Rob Swagger, said in a statement.
The second planned market, the Cantor Exchange, backed by Wall Street firm Cantor Fitzgerald, is due to receive notification from the trading commission April 20.
Richard Jaycobs, president of the Cantor Exchange, said his company previously reached out to the MPAA to consult with the organization on the Cantor market but didn't receive a response.
"We're disappointed that this arrives at the relatively late stage of the game that it has," Jaycobs said.
Both the Cantor Exchange and Veriana view the exchanges as a tool that would enable movie studios to reduce the risk of investing in movies, similar to the way farmers swap corn or wheat futures to protect themselves against crop failures.
The MPAA's letter raised many issues that had been echoed by other critics of the exchanges. The biggest concern is that the exchanges could be subject to abuse by speculators inside the industry with non-public information. For example, a buyer or seller of a futures contract may have inside knowledge about a movie's marketing plans, thus possessing insight into its chances at the box office, critics contend.
"It will be virtually impossible for the exchanges, the commission or the studios to enforce compliance," Pisano wrote.
Jaycobs said the MPAA's assertion that inside information would prevent Hollywood insiders from trading on the market was "factually incorrect" because his company had an enforcement plan set up to deal with that issue. Veriana has said it has a similar mechanism in place.
Regardless of how the trading commission views these questions, opposition by the MPAA could deal a major blow to the planned exchanges, as both were hoping to attract Hollywood insiders. Since the MPAA represents Paramount Pictures, Sony Pictures, 20th Century Fox, Universal Pictures, Walt Disney Studios and Warner Bros., Pisano's letter is a sign that none of them wants to get involved.
"The only thing it seems to be doing is setting up a way for people to gamble on domestic box-office receipts," MPAA Executive Vice President Greg Frazier said in an interview. "That is not good for our members who first and foremost have an image and integrity to protect."
Jaycobs said, however, that he was confident entertainment industry professionals would eventually change their tune.
"When you introduce a new financial product to an industry, this is actually a very common response," he said. "We're going to address it."