The Rise & Plunge of Movie Futures Trading

A decade and millions of dollars in the making, how a plan to create a film derivatives market lived through 9/11 but couldn’t survive the MPAA

One month after Congress passed a sweeping finance reform bill that, among many things, banned Wall Street’s ability to establish box-office futures trading in Hollywood, one question comes to mind:


Just five months ago, two financial firms were sailing through to what seemed like slam-dunk federal approval for markets that would allow the public to trade on the predicted box-office performance. One of those firms, Cantor Fitzgerald, claims to have had over 10,000 traders signed up and ready to go.

(See accompanying timeline: "10 Key Moments in the Life of Movie Derivatives."

Then the Motion Picture Association of America stepped in, launching what would become one of the most effective — and, at times, hyperbolic — lobbying efforts in the history of the 88-year-old trade organization. And in just 90 days, the prospect of establishing movie derivatives in the U.S. — a gambit that Cantor alone had spent a decade and about $25 million pursuing — slipped away.

What happened is a tale that wraps 9/11, politics and the movie business into a single storyline.


On Sept. 4, 2001, Cantor Fitzgerald announced plans to launch a movie-derivatives market based on the model of the Hollywood Stock Exchange. The popular web 1.0-era multi-player gaming site lets users bet on the box-office performance of movies with play money.

Founded by a couple of former stock traders in 1996 — one of whom is Lionsgate vice chairman Michael Burns — HSX had just been purchased by Cantor in the spring of 2001 to serve as the blueprint of a real-money futures market. (See accompanying story: "HSX to Live On, Cantor Insider Says.")

Given the regulatory climate at the time, federal approval for such a market wouldn’t have been a problem. The Republican-led Congress had just passed the Commodity Futures Modernization Act of 2000, the laissez-faire law that ultimately led to the formation of credit default swaps and the other exotic trading instruments that were behind the 2008 Wall Street meltdown.

But once again, 9/11 changed everything. The infamous attacks on the World Trade Center killed 658 Cantor Fitzgerald employees. Save for CEO Howard Lutnik and a few other company operatives who were off-site at the time, Cantor’s New York operations were effectively destroyed.

Cantor spent the next five years in recovery mode. It wasn't until 2006 that Lutnik, who company officials describe as having a special proclivity for the movie business, was in a position to re-approach the film-futures issue. And it wasn’t until late 2007 that derivatives specialist Rich Jaycobs was hired on to move forward with getting regulatory approval.

At about the same time, Rob Swagger at Veriana, a Chicago-based derivatives trading firm, began independently working on another movie-futures market through an offshoot called Media Derivatives.

The whole process of creating the markets and getting their approval was supposed to take a little over a year. But like the ill-fated crew of the Andrea Gail, racing blindly out to the North Atlantic in search of crabs, Swagger and Jaycobs couldn’t have known about the extreme political weather they were heading into.


Dan Glickman — a former Senate Agriculture Committee chairman who now sits on the board of the Chicago Mercantile Exchange — officially left his post as chairman and CEO of the MPAA on April 1. Org COO Bob Pisano remains the interim replacement.

Under Glickman's watch, two CFTC public commenting periods on the proposed futures markets came and went in 2009 without MPAA opposition. Glickman has yet to take a public position on the movie-futures matter, but officials for both Cantor and Media Derivatives think they know where he stands. They think they know where Pisano stands, too.

“Glickman understood what we were doing, and he didn’t have had an issue with it,” Swagger said. “We think Bob Pisano conducted a power play in order to become the permanent head of the MPAA.”

Pisano insists that his motivation for vigorously opposing the markets was in no way political.

"There was a principle involved," he told TheWrap. "Should the public be able to invest in a very synthetic instrument that's susceptible to insider trading and manipulation? And the answer is simply, no."

As for the timing of the MPAA assault, Pisano said he simply had no reason to track the CFTC in the way that he monitors, say, the FCC. He claimed that he and other MPAA officials first began hearing anxieties about futures trading from their constituents at the movie-theater-owners convention ShoWest in mid-March. Not only did Cantor have an exhibition of its new trading system parked right next to the show floor, the New York Times ran a story outlining the new market.

“That got it on our radar screen,” Pisano told TheWrap.


On March 23, a day before Media Derivatives was set to gain CFTC approval to begin setting up its market, the MPAA began its campaign. (Money phrase: “Movie futures is nothing more than legalized gambling.”)

By mid-May, the org — which claimed backing from every major constituency in Hollywood — had dozens of lawmakers on its side, too. Most notably, it had convinced Senate Agriculture Committee chair Blanche Lincoln, D-Ark., to introduce the a movie-futures ban in the huge Wall Street reform bill.

While Lincoln — whose sister, Mary Lambert, works in the movie business — didn't respond to TheWrap's inquiries, trading-firm executives say her decision stemmed from a request from Senate colleague Dianne Feinstein, who had earlier backed the MPAA in a public letter.

“It was just a simple Hollywood handout,” Jaycobs told TheWrap in June. “They just thought they’d stick it into the bill, and it would be innocuous.’"

"She didn't know the facts of the situation," added Swagger, who was called into meet with Lincoln and her staff after blasting the Congresswoman in the press.

Swagger said the meeting went well — he was able to make the case that movie derivatives were nothing like the infamous credit default swaps they were being erroneously compared to. "Her chief of staff said he wished they'd never put it in the bill in the first place," he explained.

But Lincoln couldn't take it back. "By the time Blanche Lincoln realized what she had done, movie futures had already become the poster child for everything that had gone wrong on Wall Street," Swagger said.

That's not to say that Jaycobs and Swagger didn't try to get the ban lifted out of the bill. Meeting individually with more than 100 members of the House, the executives pleaded for more time and dialogue.

Empathetic lawmakers told the executives that they'd like to help. But facts and nuances be damned, fancy new financial products of any kind were, in the words of one lawmaker, the political equivalent of “nuclear waste” on Capital Hill. Meanwhile, dissonant themselves to the overall reform bill, Congressional Republicans told Cantor and Media Derivatives executives merely to “get in line” with their other unhappy constituents.


Detractors say Canter and Veriana experienced the late push-back from the MPAA simply because they didn’t make enough inroads into Hollywood. “This is a story of arrogance,” said HSX co-founder Max Keiser, who can be credited with the original inception of the movie-futures concept in the mid-1990s. “They didn’t understand the market they were attempting to to enter.” 

However, both Swagger and Jaycobs claim to have had numerous productive meetings with top studio officials in 2009 to lay out there plans and seek input.

But as Pisano sees it, Cantor and Media Derivatives just weren't communicating with the right people. “They didn’t talk to the CEOs in person,” he said. “I did, and they told me that this is a very serious problem.”

Certainly, just as Pisano describes it, there was lot of top-level grumbling right around the time of ShoWest in March, with one studio chairman telling TheWrap, “These numbers will take on a life of their own, which will take on their own weight, which will require more manipulation."

With the digital revolution already roiling the industry, a transparent Wall Street derivatives market would have brought added complexity to a rather Byzantine finance model that's notorious for turning $1 billion global box-office hits into $170 million money-losers on its books.

And with the financial bill set to steamroll through Congress, the studio chiefs might have saw great opportunity to kill the whole futures gambit with one shot. If they waited to discuss things with Cantor and Veriana after they got their markets approved by the CFTC, they would have lost that opportunity.

Whatever the motivation for the studios and their MPAA representatives, the matter is decided. "It was a victory for the industry," Pisano told TheWrap.