Outgunned by studios, brokers hope to change derivatives bill
Outmuscled by the deep-pocketed film industry lobby, two weary proponents of motion picture box office futures trading hope Congress will gallantly ride to their rescue this week when it considers legislation that would bar them from enacting their business plans.
Robert Swagger, CEO of Media Derivatives, and Richard Jaycobs, president of the Cantor Exchange, have so far won their cases before the Commodity Futures Trading Commission. The CFTC last week approved Media Derivatives’ plans to trade B.O. futures contracts and is expected to do likewise for Cantor before June 28 (Daily Variety, June 15).
But whether that victory will give them the necessary traction to overcome a legislative death sentence is the subject of speculation in D.C. Standing in their way is a tiny provision in the Senate version of the massive financial reform bill that would bar the trading of film box office futures. It was inserted at the request of a Hollywood coalition headed by the Motion Picture Assn. of America, which claims B.O. trading will harm the film industry and that it represents nothing more than “unbridled gambling” at their expense.
The language remains part of a section on banking derivatives that is expected to be considered by a House-Senate conference committee on Thursday, barring any delays. Swagger and Jaycobs hope lawmakers will embrace a sense of what they see as justice, not politics, by respecting the views of the commission, which dismissed the MPAA’s arguments in its 3-2 vote.
While “gambling” is a dirty word in the futures trading biz, even Swagger and Jacobs concede that the odds against their success remain steep.
Just how much money is being spent by the coalition on its impromptu lobbying effort has not yet been reported. But MPAA interim CEO Bob Pisano said that the studios and each member of its coalition, including the Directors Guild of America, the National Assn. of Theater Owners, IATSE and the Independent Film & Television Alliance, have had representatives feverishly working the Hill.
“We’ve spoken with virtually everybody who has a say in this,” Pisano said. “We’ve made our case to both the Senate and the House, including ranking and majority members of the agriculture committees. We’ve also had contact with banking and financial services committees to say we don’t need ‘synthetic derivatives.'”
In an impressive demonstration of its influence, the MPAA earlier this month released a letter from 40 House members to the chairman and ranking member of the House Agriculture Committee, which has authority over the commission, declaring that the proposed film futures “serve little or no price discovery function.” They also noted that the commission’s authority to block the establishment of the two exchanges was prohibited by statute, giving extra reason for Congress to act.
By contrast, the lobbying campaign being waged by Jaycobs, Swagger and a handful of colleagues is, by most accounts, far smaller. According to lobbying disclosure records, Cantor enlisted the powerhouse firm of Patton Boggs in early May for its efforts.
The studios have the MPAA as well as their own inhouse representatives. According to disclosure reports, in April, the MPAA enlisted the lobbying help of K&L Gates’ Charles Mills, an expert on securities and derivatives enforcement, and Michael Torrey, a lobbyist with a specialty in repping agriculture industry clients and experience working as a legislative staffer on Capitol Hill. He was an assistant to a CFTC commissioner and a deputy chief of staff to the Secretary of Agriculture. In addition, according to reports filed through the end of March, Viacom had enlisted lobbying help from PCT Government Relations’ Marla Grossman, and Sony had reps from the Smith-Free Group.
Jaycobs and Swagger said they have found resistance in their attempts to meet with key lawmakers. Swagger said Senate Agriculture Committee chairwoman Blanche Lincoln (D-Ark.), who inserted the provision into her financial and derivatives reform bill, has spurned his overtures, although he has met with top aides. Jaycobs claims the joint committee members “have been cordial to us for the most part, but many are not open to discussion.”
Of course, the two exchanges also have had unfortunate timing, coming during a debate over how to rein in financial products. Box office trading is just a tiny part of a derivatives reform bill that, because it was tougher than expected, may have made the difference in Lincoln’s overcoming a strong primary challenge earlier this month.
Swagger contends that the commission’s approval of its box office futures trading has opened the eyes of many in Congress to MPAA’s misrepresentation of its product. For example, he said, its depiction of B.O. futures as online “gambling” presented a steep obstacle for its exchange to overcome. “There’s nothing online about us. We’re a traditional brokerage model,” he said.
Swagger wants lawmakers to know that both the MPAA and B.O. futures advocates have the same goal — to protect the arts. “The MPAA sees it from a marketing perspective, and are fearful of the unknown, while we’re looking at it from the financial perspective, with a new tool to help the arts,” he explained.
Jaycobs said the commission’s vote has provided valuable traction, but “whether it’s enough to overcome the political pressure that’s been applied, I can’t say. The CFTC addressed and dismissed every one of the concerns brought up by the MPAA, and so we’re encouraged. But politics is politics.”
(Ted Johnson contributed to this report.)