What the InTrade CEO doesn’-t tell you is that luck was a factor in Bethan’-s sudden enrichment. Nothing wrong with tapping chance —-but honesty should have prompted John Delaney to mention it. And you will notice the absence of information for the x axis (the time). Marketing and honesty are 2 words that don’-t mix well in Ireland.
“-Technically, you can trade anything, because wherever there is a financial interest, there can be a market,”- said Andre Julian, chief financial officer of Option Investments Inc., an Irvine, Calif.-based independent broker for futures and options traders.
“-People love stats, and movies are something people understand, which is why it could bring some regular people into the futures markets for the first time,”- he said. “-Of course, it might be more difficult if it was launched in the middle of a bull market, when there would be no reason to look beyond stocks.”-
With a $50 trading minimum, the movie futures exchange clearly is hoping to attract a segment of retail-class investors and movie junkies, but once developed, the exchange could also become a vehicle to allow movie moguls to hedge their investments.
“-If it costs a studio $200 million to make a movie, that studio could use this exchange to protect its investment by going short the same amount, and then if they’-re losing money on the open market, they could make it back on the short side,”- Mr. Julian said. “-It all comes down to money, and there’-s always somebody on the opposite side willing to make a trade.”-
http://www.cantorexchange.com/ —- A twin site of the Hollywood Stock Exchange.
Here are my early thoughts about the “-Cantor Exchange”-. I regret to say that their “-Cantor Exchange”- website does not seem very usable. (I hope it is not a bad omen.) It is impossible for me to copy their explanations posted on their webpages (other than the 2 press releases) and to republish that material in this post.
The second thought that comes to my mind is that their offerings are not standardized (their event derivatives are described in HSX lingo), and I wonder whether the real-money traders, who are accustomed to dealing with the CME, the NYSE, or InTrade, but who are not familiar with HSX, will make the effort to adapt. We will see. (I don’-t think that the HSX play-money traders will go speculating on this real-money prediction exchange.) The collateral question is, why would the Cantor Exchange (a brand-new exchange with not a single trader, as of today) be better positioned to organize event derivative markets on movie business than, say, HedgeStreet, InTrade, BetFair, or even the CME? Obviously, Cantor Fitzgerald (a bond broker) are thinking that they can leverage their Wall Street clientele and the HSX population to branch out and start up a brand-new, CFTC-regulated, real-money prediction exchange. It’-s quite a big bet. I say “-branch out”- because starting off a real-money prediction exchange (Cantor Exchange) is quite different than running a play-money prediction exchange (HSX). Just look at how difficult it has been for HedgeStreet, which started off in 2004, and escaped bankruptcy in 2007 thanks to their rescue by IG Index. After 4 years, HedgeStreet is still not profitable, and it will probably take more years before it turns the first profit. Let’-s wish a better future for Cantor Exchange.
I will update this present post, later on, linking to the reactions from the media and the blogs. (Cantor will be holding a conf call this Tuesday, so some media coverage will pop up over the next days.)
Here is a Financial Times news article, which won’-t tell you much more than the 2 press releases re-published below.
Here’-s Variety.
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Press releases:
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CANTOR ENTERTAINMENT TO ANNOUNCE MOVIE BOX OFFICE CONTRACTS
TO MOTION PICTURE INDUSTRY AND INVESTOR COMMUNITY
Cantor Fitzgerald Files Application for Domestic Box Office Receipt Contracts
Los Angeles, CA- New York, NY – (December 8, 2008) – Cantor Entertainment, which provides various services to the entertainment industry and owns the Hollywood Stock Exchange, is pleased to announce that Domestic Box Office Receipt contracts will soon be available to the motion picture industry and investor community. Cantor Fitzgerald, its parent company, announced earlier today that it has filed an application to launch the Cantor Exchange, whose first listed product will be Domestic Box Office Receipt contracts.
Domestic Box Office Receipt contracts will offer film finance professionals and traders a new opportunity to hedge and speculate on the theatrical performance of wide-release Hollywood movies. Domestic Box Office Receipt contracts will be a next generation film-financing tool that allows market participants to hedge risk and provides them profit opportunities based on the first four weeks of a film’s box office revenues.
“It’s clear from our conversations within the industry and investment community that there is a tremendous opportunity to introduce this exciting new tool to complement existing film financing alternatives. The market for Domestic Box Office Receipt contracts offers the motion picture industry, investment funds, banks and all other prospective investors a federally regulated trading exchange dedicated to the entertainment industry,” said Andrew L. Wing, President and Chief Executive Officer of Cantor Entertainment. “Our involvement in Domestic Box Office Receipt contracts reflects our continuing commitment to expand Cantor Entertainment’s numerous services in the entertainment industry.” The first Domestic Box Office Receipt contract is expected to be listed on the Cantor Exchange in the first quarter of 2009. Cantor Exchange is subject to final approval by the Commodity Futures Trading Commission (“CFTC”).
About Cantor Entertainment Cantor Entertainment, a division of Cantor Fitzgerald, L.P., provides services to the entertainment industry. Cantor Entertainment also owns the Hollywood Stock Exchange (www.HSX.com), the world’s leading virtual entertainment stock market.
About Cantor Fitzgerald, L.P. Cantor Fitzgerald is a leading global financial services firm. The Cantor Fitzgerald franchise includes institutional equity and debt sales and trading, investment banking, private equity, as well as other businesses and ventures. For over 60 years, Cantor Fitzgerald, a proven and resilient leader, has been committed to delivering a unique brand of unparalleled product expertise, innovative technology and customer service to its clients around the world. For more information, please visit www.cantor.com.
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Cantor Fitzgerald Announces Application for Cantor Exchange
Domestic Box Office Receipt Contracts are Expected to be First Contract Market
A New Tool in Film Finance
NEW YORK–-(BUSINESS WIRE)–- Cantor Fitzgerald, L.P., a leading global financial services firm, announced today that it has filed an application with the Commodity Futures Trading Commission (“CFTC”) to launch the Cantor Exchange. Cantor Exchange intends to list Domestic Box Office Receipt contracts as the exchange’s first traded product.
“The Cantor Exchange and our intention to list Domestic Box Office Receipt contracts reflect our continuing commitment to innovation in the finance and entertainment sectors,” said Howard W. Lutnick, Chairman and Chief Executive Officer of Cantor Fitzgerald.
Subject to final regulatory approval of the Cantor Exchange application, Domestic Box Office Receipt contracts will offer film finance professionals and traders a new opportunity to hedge and speculate on the theatrical performance (ticket sales) of major film titles. Domestic Box Office Receipt contracts will be a next generation financial management tool that allows film professionals to hedge risk and provides speculative opportunities to other market participants based on the first four weeks of a film’s box office performance.
The first Domestic Box Office Receipt contract is expected to be listed on the Cantor Exchange in the first quarter of 2009, subject to final approval of the Cantor Exchange application by the CFTC.
About Cantor Exchange
Cantor Exchange is launching the first trading platform based on movie box office revenue, and expects to begin listing Domestic Box Office Receipt contracts in the first quarter of 2009, subject to final regulatory approval. Cantor Exchange is a division of Cantor Fitzgerald, L.P., one of the world’s leading financial services firms, and is partnered with Cantor Entertainment, another subsidiary of Cantor Fitzgerald, which provides services to the entertainment industry and owns the Hollywood Stock Exchange® (www.HSX.com), the world’s leading virtual entertainment stock market.
About Cantor Fitzgerald, L.P.
Cantor Fitzgerald is a leading global financial services firm. The Cantor Fitzgerald franchise includes institutional equity and debt sales and trading, investment banking, private equity, as well as other businesses and ventures. For over 60 years, Cantor Fitzgerald, a proven and resilient leader, has been committed to delivering a unique brand of unparalleled product expertise, innovative technology and customer service to its clients around the world. For more information, please visit www.cantor.com.
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UPDATES WILL BE POSTED BELOW, LATER TODAY (AND DURING THE NEXT DAYS)…-
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[T]he initiative is not for an application for a product extension of HSX. Rather it is an application for the launching of a new futures market, the Cantor Exchange, which will list Domestic Box Office Receipt Contracts. The contracts will also be known as Movie Box Office Contracts.
There are some similarities with HSX in that Movie Box Office Contracts are modeled on the MovieStock methodology of our site. For example, the contracts will be based on four weeks of a film’-s domestic box office revenue. The regulatory approval process is inherently uncertain, so it’-s a bit premature to say we are moving into real-money film trading markets just yet, but that is our intent.
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That is from Alex Costakis, MD of HSX.
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Here’-s the Cantor Exchange project leader: Richard Jaycobs.
He seems to be a man open to suggestions.
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CNBC on Cantor Exchange —- Via Jason Ruspini
Fox Business on Cantor Exchange –-
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Financial Times:
All eyes on Hollywood futures
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Previously: Should the Hollywood Stock Exchange become a real-money betting exchange? – 2007-10-04
It’-s “-pretty clear”- that the prediction markets on political elections aggregate information from the polls —-and from the political experts.
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Previously: #1 – #2 – #3 – #4 – #5 – #6
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It’-s “-pretty clear”- that:
InTrade has been over-selling the predicting power of its prediction markets.
The prediction markets are information aggregation systems —-not magical tools.
The main benefit of a prediction market is to express an aggregated expected probability. Most of the times, this is of low utility.
In complicated situations, this aggregation will contrast well with a poor reporting. In these instances, the prediction market is a useful source of information.
According to Alan Abramowitz, John Tierney has been “-greatly exaggerating the accuracy of the betting markets.”- “-They follow the polls. That’s it.”-
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My comment to Alan Abramowitz and John Tierney:
“-They follow the polls. That’s it.”-
Yes, they follow the polls. No, that’-s not it.
Traders also dig the news of the day and make anticipations about the outcome. For instance, towards the end of the 2008 Democratic primary, the polls and the mass media were still giving Hillary Clinton a very good standing, whereas the prediction markets (informed by a bunch of political experts who did the counting of the delegates and super-delegates) were telling us that she was as toasted as Lehman Brothers in the middle of the credit crunch crisis.
Are prediction markets useful? If John Tierney wants to answer this question, he should pick up a prediction market and put it in the social context of that day. Some prediction markets are more useful than others. In the case of the 2008 Democratic primary (a complicated matter), the prediction markets sided with the best informed political experts against the mass media and the polls. So to speak, they were an umpire. In that case, we see the emergence of a social utility. We now have the case for the media citing more the probabilities of the liquid (play-money and/or real-money) prediction markets.
InTrade and HubDub got lucky that their 2 mistakes (so to speak, in a non-probabilistic way) on Missouri and Indiana (both with 11 electoral votes) canceled themselves perfectly. IT WAS PURE LUCK. If their 2 mistakes had been made in the same direction (say, betting on Obama with the outcome going eventually to McCain), and/or their 2 mistakes had been done on 2 very dissimilar states (say, one with 6 electoral votes and the other one with 27 electoral votes), then we would have had reporters and bloggers bashing the prediction markets for the whole month of November.
InTrade got it [almost] spot on because they were wrong on Missouri (which was predicted to go for Obama but went to McCain) and wrong too on Indiana (which was predicted to go for McCain but went to Obama) —and those 2 opposite mistakes canceled themselves because those 2 states have the exact same number of electoral votes (11). Hence, I disagree with your method.
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APPENDIX:
Here’-s a visual post-mortem of the 2008 US presidential elections.
Pay attention to Missouri and Indiana.
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A) InTrade, on November 5, 2008 (screen shot taken at 2:00 am):
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Prediction Markets &- State Polls, on November 4, 2008:
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B1) Prediction Markets (on November 4, 2008)
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InTrade (screen shot taken at mid-day ET, November 4, 2008):
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InTrade (screen shot taken in the morning, November 4, 2008):
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BetFair (screen shot taken in the morning, November 4, 2008):
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HubDub (screen shot taken in the morning, November 4, 2008):
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B2) State Polls (on November 4, 2008)
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Karl Rove (on November 4, 2008):
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CNN (on November 4, 2008):
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Pollster (on November 4, 2008):
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Electoral-Vote.com (on November 4, 2008):
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Nate Silver (on November 4, 2008):
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PREDICTION MARKET PROBABILITIES
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Explainer On Prediction Markets
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A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative represents the imputed perceived likelihood of the partially uncertain event (i.e., its aggregated expected probability). A 60% probability means that, in a series of events each with a 60% probability, the favored outcome is expected to occur 60 times out of 100, and the unfavored outcome is expected to occur 40 times out of 100.
Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism —-with or without an automated market maker.
Prediction markets enable us to attain collective intelligence. Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that the traders bring when they agree on prices. The event derivative traders are informed by the primary indicators (i.e., the primary sources of information), like the polls, for instance. These informed speculators then execute their transactions based on their anticipations about the future —-anticipations that will be either confirmed or infirmed.
The value of a set of prediction markets consists in the added accuracy that these prediction markets provide relative to the other forecasting mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining these prediction markets, relative to the cost of the other forecasting mechanisms. According to Robin Hanson, a highly accurate prediction market has little value if some other forecasting mechanism(s) can provide similar accuracy at a lower cost, or if very few substantial decisions are influenced by accurate forecasts on its topic.
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More Info:
– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts
– Prediction Market Science
– The Midas Oracle Explainers On Prediction Markets
– All The Midas Oracle Explainers On Prediction Markets
It is impossible for any InTrade trader to know whether the financial accounting of InTrade is sound or not. Any commercial company surrounds itself with secrecy. Let alone an Irish company that illegally (from the DOJ’-s standpoint) exports its services to Americans.
UPDATE: See the comment #1 there.
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It was impossible for the InTrade traders to divine whether Yahoo! CEO Jerry Yang would step down.
(In passing, note that InTrade has expired this contract hours after the breaking news hit the wires.)
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It was impossible for the InTrade traders to divine whether Unlawful Internet Gambling Enforcement Act of 2006 would be voted and enacted.
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The InTrade predicton markets on the viability of InTrade won’-t reveal ANYTHING about the future of InTrade. It will just aggregate InTrade’-s PR output.
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As for the “-business development initiatives”- planned by the InTrade executives, I wish them the best of luck. However, I remain skeptical, since I don’-t see what can replace the 2008 US elections in terms of attractiveness —-now that the SuperBowl has been sacrificed.
My post about the sudden closure of TradeSports was the #2 most downloaded webpages, yesterday —-even though that post was published late yesterday. And this morning, I am receiving tons of e-mails from the InTrade and TradeSports traders (they are often the same people).
My reasoning:
InTrade is the twin site of TradeSports.
The closure of TradeSports was sudden.
The TradeSports owners have closed shop less than 2 months before the SuperBowl —-the biggest $$$ drawer.
Now that the 2008 US presidential elections are over, the InTrade heyday is over. No more liquidity. No more media coverage. See you in 2010 and 2012.
If TradeSports couldn’-t survive the Unlawful Internet Gambling Enforcement Act of 2006, I don’-t see how a lean InTrade could do.
InTrade CEO John Delaney is not a truthful person. It is unlikely that any statement from him about the viability of InTrade should be taken seriously.
Midas Oracle used to received many daily server requests from the InTrade-TradeSports team in Ireland. The recent web stats show a sudden drop. This might signal that some key employees are in vacation —-or have been laid off.
UPDATE: They seem now unable to expire a contract in the evening, Irish time.
TAKEAWAY:
The InTrade traders should prepare themselves for the worse —-the sudden closure of InTrade.
