In response to the flurry of news about the Cantor Exchange today, some folks — including our friends at Abnormal Returns — are wondering why regulators are allowing movie betting, but won’t allow sports betting (or politics betting, in the case of InTrade).
Unfortunately, you’re never going to get a good, philosophically coherent answer, because in fact the outlawing of sports gambling online (or elsewhere) is total nonsense.
But here’s what the Cantor Exchange (and the CFTC) would say.
Movie futures serve a very clear business purpose.
Studios have a legitimate need to hedge the risk of a flop, given the massive upfront costs, and the high uncertainty of return.
This isn’t necessarily the case with other similar markets. For one thing, politics isn’t supposed to be a business (ha!), though obviously it is.
In sports, the dynamic isn’t quite the same. The need to hedge isn’t quite the same for a sports team. They might want to, for example, hedge the amount they spend on a monster salary, but even then… shelling out for a guy like Alex Rodriguez is way more certain than shelling out for Tom Cruise or Mel Gibson, even if Rodriguez may not live up to the expectations of brutal New York sports films.
In film, despite what you might think, the connection between returns and star power is very dicey, and megaflops are a real possibility. Basically: film returns are wildly unpredictable.
There’s also the fact that it’s relatively easy to shave points of a specific game, whereas it’s pretty tough to shave a few million of a four-week box office haul.
Bottom line: the CFTC was convinced in the case fo the Cantor Exchange that the market served a legitimate business purpose. End of story.
Addendum: If you want to gain a deeper appreciation for the random nature of box-office returns, we simply ran’t recommend this NYT feature enough. Just take 15 minutes and browse through it, and you’ll get the idea.
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