Trading futures in film blockbusters? Students can bet on it
But pop culture? That I get better than most. And as a result I guessed, for instance. that "Clash of the Titans" would top the box office last weekend -- mostly as a salve for the "Avatar" hangover effect -- despite scads of awful reviews. Big whoop, right? I certainly didn't expect anyone to hand me a check for my motion picture prescience.
As of this week, though, all signs indicate that I'll soon find a new website willing to do just that.
On Friday, the Commodities Futures Trading Commission approved a request from Veriana Networks (over strong objections from some film industry bigwigs) to create a market for film futures contracts--basically, a futures exchange that bets on movies. That exchange, the Trend Exchange (TrendEx), should open for business in the near future (pending another approval of the site's initial offerings of options and futures contracts) after the CTFC's favorable ruling, and it'll work just like a regular futures exchange, except that a film contract's value will come from its box office receipts versus its expected gross. If you invest in, say, "Kick-Ass", and the market thinks that "Kick-Ass" will rake in $40 million during its first few weeks, you'll make money on everything it takes in over that.
However, Chicago-based Veriana plans to gear TrendEx towards "serious" investors only: You need an account with a broker just to get involved, and the minimum contract will start at around $100,000. So chances are if you're reading this blog, you're not sitting on those sorts of fat stacks wondering where to burn them--so why should you care?
Well, Veriana isn't the only game in Tinseltown. Cantor Fitzgerald, a New York City financial services firm, also submitted an application for its own movie futures exchange, the Cantor Exchange (CX). Cantor Fitzgerald already owns the Hollywood Stock Exchange (HSX), the fantasy-game precursor to the new real-money film futures exchanges. Unlike TrendEx, the Cantor Exchange is designed to appeal to potential investors of all financial stripes. Big-time players can throw down millions on CX if they want, but amateur cinephiles can open up an account without a broker and start betting on box office successes and flops with a contract as small as $50.
Which is where you, Money College cinephiles, come in.
My take on the story so far: I'm cool with the concept, but seriously: "The Cantor Exchange?" The name evokes some Reconstruction-era precursor to the NASDAQ more than a cutting-edge start-up market.
In order to enable such low barriers to investors, contracts on the Cantor Exchange will reflect big box-office figures on a much smaller scale, trading contracts at $1 for every $1 million a movie is expected to make. So, let's say traders predict that "Kick-Ass" will pull in $100 million in its first few weeks at the box office. (Not likely, but humor me here for the simple beauty of round numbers.) If you invested $100 in "Kick-Ass" and the movie pulls in an extra $10 million, you just made $10. It's basically that simple, at a fundamental level.
Cantor Fitzgerald won't hear back on its own application until next week, but, given the CTFC's approval of TrendEx, I'm willing to bet that the development team and staff over at CX just breathed a collective sigh of relief. (A media relations representative for the Cantor Exchange declined to comment, saying that the company isn't participating in news stories until after next week's hearing.)
Here's the question, then: Just because anyone can get involved, does it mean they should? Could, say a poor film student with no investment experience make some money on the side with $100, some pluck and a lot of passion for the cinema? Or is predicting box office returns a little (or a lot) harder than it looks?
The answer contains little bit of both, according to Bill Bonfanti, the box office analyst and film reviewer for (and owner of) FilmGo.net, a site that combines the "art" and "science" departments of the movie industry by offering movie reviews, trailers, box office predictions and trading tips for Hollywood Stock Exchange players (and now CSX and TrendEx investors as well). Bonfanti, a movie lover who's been following box office trends for most of his life, tells Money College he plans to dive right into the new exchange after years of practice at the play-money HSX, and he thinks that amateurs such as our fictional film major have a fighting chance to succeed in the new market as well.
"A good portion of any speculative investment is luck," he says, "but there's a method to the madness for sure. You really don't even need that much investment background to get started -- all you really need to know about trading is, you want to buy it low and sell it high. And when it comes to figuring out how a movie is going to perform at the box office, sometimes it's as simple as, 'Do I want to see this? And how bad?'"
Bonfanti adds he's been heating up the practice site Cantor Fitzgerald set up for hungry cinephiles in anticipation of the real exchange's approval, and that his portfolio climbed to 150 percent of its initial value in the past six months. He expects similar positive results at the real-money exchange as soon as it opens up. But the secret behind his (practice) success mostly boils down to one simple tip he provided for wanna-be film futures traders: Go to the movies.
"It's relatively easy to get a good indication of how the new Vince Vaughn comedy is going to perform," he says. "You can look at the track record of his past films and other stuff, of course, but if you go to a film and see a trailer for 'Couples Retreat,' and everyone in the theater's laughing their heads off, then that's really a pretty good indicator right there."
Still, as you'll notice if you take this graphic tour of the practice site, there's a lot of intimidating possibility here for someone with no background in investment. When you sit down in front of the site's interface, it still pretty much resembles the wall of numbers you'd find at, say E*TRADE. And, just like traditional futures markets, making bets on runaway hits only comprises half the equation - you can short sell stock in a film if you think it's shaping up like an over-hyped bomb, and thus make money on flicks that under-perform as well.
When I talked to Christopher Ballew, a.k.a. "The HSX Dude," a veteran top player at the Hollywood Stock Exchange and the owner of one of the most popular HSX player resource blogs about the complexity involved in trading movie futures, I posed him a question: if a movie and culture junkie with no investment experience (hey, he sounds like me!) went head-to-head with a battle-hardened day trader who couldn't care less about cinema, who would fare better trading film futures with the same capital? Ballew responded by comparing those competitors to two people trying to drive a manual-transmission car: one who can't drive stick, and another who doesn't know the route to his destination.
"A background in trading will help you execute deals faster and understand the market," Ballew adds, "but you'll most likely miss out on opportunities because you don't know the product. Somebody who loves movies might spot the available opportunities, but might not know how to profit from them."
Perhaps our intrepid film student, then, should consider teaming up with an economics buddy from his gen-ed business class. However, when I asked Bill Bonfanti the same question, he came down for a clear winner.
"The film lover is going to be better in this market," he says. "You can really pick up the basic investment principles with just a little quick study, but if you come in without a real love for movies, you'll never have the instincts you need to make money at this."
Bonfanti also adds that, despite claims from some big-name Hollywood interests that futures contracts on films could turn into self-fulfilling prophesies and actually influence box office numbers, he believes that the Cantor Exchange will benefit movie lovers and makers in the long run, whether your taste leans toward no-budget indies or big-name vehicles.
"People are going to start taking a greater interest in new films," he said, "and actually learning about development processes and how the industry works. And if it gets us talking more about movies, then I think it's going to be great for the film industry."
Steven Kent is the Dollar Store Dilettante, a blase lad who knows more about saving a buck and stoking his hipster credentials than all his editors combined. His Money College column runs Sundays; send tips and best MP3s of Pitchfork bands to Steven at email@example.com.