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IEM Research Used to Both Support and Oppose Box Office Futures Contracts

The U.S. Commodities Future Trading Commission (CFTC) on Monday voted to approve a movie futures exchange run by Media Decisions, with both supporters and opponents of the proposal backing up their case using evidence from The University of Iowa’s Iowa Electronic Markets.

The IEM, operated by the UI’s Tippie College of Business, has operated a real-money movie box office prediction market since 1995 as a research and education tool. A study from IEM researchers Thomas Gruca, professor of marketing, and Joyce Berg, professor of accounting, was cited as testimony before the CFTC.

A number of motion picture industry groups—including the Directors Guild of America, the Motion Picture Association of America, and several studios—opposed the plan for numerous reasons. Among them was that box office futures provide no public interest, and that prices are arbitrary and could be subject to manipulation. As evidence, they quote a 2008 study by IEM researchers Gruca, Berg, and Michael Cipriano, an assistant professor of accounting at the College of Charleston and a Tippie College alumnus, that was published in the Journal of Prediction Markets.

“The research…provides empirical evidence of the arbitrariness of motion picture box office futures pricing,” the groups wrote in a letter to the commission. They cited Gruca’s work that found the IEM missed box office receipts by an average of 38 percent, and that an existing play-money box office market—the Hollywood Stock Exchange—missed by an average of 31 percent.

They also cited IEM research suggesting that using real money does not improve the accuracy of the market’s prediction.

However, Robert S. Swagger, chairman and CEO of Media Derivatives, testified that Gruca’s research simply showed that offering a real-money futures contract tied to a particular level of box office receipts does not influence how well the movie actually performs in theaters.

In the end, the CFTC voted to approve the futures contract in a split 3-2 vote. It is due to rule June 28 on an application for a similar market proposed by Cantor Fitzgerald.

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