BetFairs Mark Davies (the Prince of betting exchange PR) has just gotten a second omelet in the face.

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First, the Financial Times &#8212-and, now, Freakonomics.

The journalistic rule should be that, if you cite one prediction exchange, you should cite the one that is the most liquid on the market you are writing about. For UK politics, it is clearly BetFair.

BetFair has clearly a PR problem.

Cantor Exchange in the New York Times

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Richard Jaycobs uses the adjective &#8220-tremendous&#8221-. But here&#8217-s what the journalo says:

But buyers beware: if “Avatar” is any indication, the public isn’t always so wise about Hollywood fortunes. Most users of HSX.com predicted a flop, and if those users had placed real money on the Cantor exchange, they would have taken a serious hit.

http://www.cantorexchange.com/

http://www.hsx.com/

BetFair is the best innovation that happened to horse-race betting.

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#1 innovation of the decade = Peer-to-peer wagering

&#8220-In 2000 two men who liked to play card games and make a bet or two created the Ebay of betting –- an exchange where players could bet with each other.&#8221-

Nate Silver: InTrade is dumb. We need serious exchanges for event derivatives.

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Nate Silver:

But Intrade, although it&#8217-s a product I greatly appreciate, has some problems when it comes to efficiently pricing futures. It&#8217-s hard to get money into the site. The exchange falls into a legal gray zone. Transaction fees are comparatively high. And Intrade is stingy about paying interest on deposits, which adds a cost to having your money tied up. Not that many people have heard of Intrade, moreover, which isn&#8217-t true for the stock market. And because of network effects, it&#8217-s likely that volume/liquidity is somewhat nonlinear with respect to the number of participants in the market. So if these encumberances reduce the number of participants by, say, a factor of 10, it&#8217-s likely that trading volumes are depressed by some multiple of that.

CFTC-regulated, real-money prediction markets about movie box office – Cantor Exchange

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Cantor Exchange

http://www.cantorexchange.com/ &#8212- A twin site of the Hollywood Stock Exchange.

Here are my early thoughts about the &#8220-Cantor Exchange&#8221-. I regret to say that their &#8220-Cantor Exchange&#8221- 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&#8217-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&#8217-s quite a big bet. I say &#8220-branch out&#8221- 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&#8217-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&#8217-t tell you much more than the 2 press releases re-published below.

Here&#8217-s Variety.

Press releases:

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.

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&#8211-(BUSINESS WIRE)&#8211- 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.

UPDATES WILL BE POSTED BELOW, LATER TODAY (AND DURING THE NEXT DAYS)&#8230-

[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&#8217-s domestic box office revenue. The regulatory approval process is inherently uncertain, so it&#8217-s a bit premature to say we are moving into real-money film trading markets just yet, but that is our intent.

That is from Alex Costakis, MD of HSX.

Here&#8217-s the Cantor Exchange project leader: Richard Jaycobs.

He seems to be a man open to suggestions.

CNBC on Cantor Exchange &#8212- Via Jason Ruspini

Fox Business on Cantor Exchange &#8211-

Financial Times:

All eyes on Hollywood futures


Previously: Should the Hollywood Stock Exchange become a real-money betting exchange? – 2007-10-04

After the demise of TradeSports, questions (re-)surface about the viability of InTrade.

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My post about the sudden closure of TradeSports was the #2 most downloaded webpages, yesterday &#8212-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:

  1. InTrade is the twin site of TradeSports.
  2. The closure of TradeSports was sudden.
  3. The TradeSports owners have closed shop less than 2 months before the SuperBowl &#8212-the biggest $$$ drawer.
  4. 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.
  5. If TradeSports couldn&#8217-t survive the Unlawful Internet Gambling Enforcement Act of 2006, I don&#8217-t see how a lean InTrade could do.
  6. 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.
  7. 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 &#8212-or have been laid off.
  8. UPDATE: They seem now unable to expire a contract in the evening, Irish time.

TAKEAWAY:

  • The InTrade traders should prepare themselves for the worse &#8212-the sudden closure of InTrade.

Chris F. Masse