Real Money Movie Futures Market to Launch

Big news for prediction market junkies such as yours truly. The CFTC looks like it will give final approval next month to a real money movie futures market run by Cantor Fitzgerald. Cantor currently owns hsx.com, where one can bet paper money on box office results. Industry insiders frequent the site to see which way the wind is blowing, and to see the market reaction to new trailers and so forth. It's a fascinating site, but it's all pretend.

(For a more in depth look at prediction markets including hsx.com, see my post from October 2009.)

The way the Cantor Exchange will work is one can "bet" $1 per $1 million of movie gross. So, for example, let's say the upcoming Robin Hood movie is trading at $100. This means the market says the film is likely to gross $100 million (domestically). If you buy at $100, and the movie actually grosses $125, you make $25. Very straightforward, and very cool.

This market will likely draw an interesting combination of industry insiders and punters. It will give production companies the ability to hedge their bets if they don't like the way a movie is coming along, the way an orange juice grower can use the futures market to hedge weather risk. It will also give other production companies a way to participate in films they were shut out of.

I am curious as to what insider trading regs will apply here. For example, let's say a producer has just learned that his leading man has a serious drug problem and it's interfering with production. This is knowledge the general public does not have. Can he then use this information for profit? I suspect under current regs he can, and I don't think this is necessarily bad. But punters should know that if they're not at the table, they're on the menu.

All in all, this is potentially great news and I hope we see the CFTC consider other areas as well.