Betting on movies may be coming

A betting man

In the not too distant future, we might be able to place a bet on whether a new movie’s debut at the box office will do better or worse than expected. Two companies, Veriana Networks and Cantor Fitzgerald are hoping for government approval for their plan to launch new financial securities that do just that. They have many opponents that do not like this idea, including virtually all of Hollywood but, for those outside the movie industry this idea looks like an interesting way to look at the movie business and try to make money from it.

The thinking on this idea is that a movie would be given $1 for every million dollars it is expected to earn in revenue during the first few weeks in theatres. The investor, either institutional or the public would be able to buy and sell these instruments and also buy the instrument called a short which is basically betting the movie will do worse than expected. Once the movie actually comes out and is given the few weeks to generate revenues, the investor will make money, lose money or break even on the investment or bet.

Here is a simple example of how this would work:

Superman vs. Lex (fake movie I just made up) is scheduled to be released on June 4 and is expected to earn $150 million in the first 3 weeks. I happen to think that the movie will do better than expected so I buy a futures contract for the going rate of $150 and wait until about the third week of June to see how my bet did.

At around June 25, the waiting period for this bet is done and this movie reports revenue of $166 million over that time period. By these figures, I made $16 for every futures contract I purchased which is not bad. On the flip side, if the movie was a flop and only brought in $70 million then I would have lost $80 per contract and that is the risk.

There are a lot of obstacles before this idea becomes a reality like having rules for people in the movie industry that prevents them from purchasing these futures contracts due to a conflict of interest or having large investors try to generate hype about a new movie to try to beat expectations, as well as, other potential pitfalls. However, if the problems can be addressed satisfactorily then this looks like something that many people who do not usually participate in the purchasing of futures contracts might try their hand at it.

Currently, there are futures contracts that can be purchased for just about anything from the cost of orange juice to the weather. However, because movies are so popular and ingrained in our culture with everyday people thinking and being critics and experts, it is easy to see how an average person with no financial or investment background might be interested in participating in these investments.

I hope the issues with this idea are fixed so that this becomes a reality and who knows maybe I will try my hand at it once in a while (after I do A LOT of research on every investment first).