Mr. Swagger Goes To Washington
Gird your loins! Robert Swagger, CEO of Trend Exchange is fighting mad at the Motion Picture Association of America (MPAA), now that his company’s Opening Weekend Motion Picture Revenue Contracts (box office futures/options) were approved earlier today on a 3-2 vote by the Commodity Futures Trading Commission (CFTC).
In a press conference (by phone) that followed the good news for Media Derivatives, Swagger took the gloves off, repeatedly referring to the MPAA as a self-serving special interest that needs to be stopped. He’s traveling to Washington D.C. Thursday to begin the fight.
When pressed by one reporter, Mr. Swagger said he believes that Trend Exchange can go forward with its movie futures products even if the Financial Regulatory Reform Bill (Wall Street Reform Bill), currently in a Senate-House Conference Committee, ends up including the language Blanche Lincoln (D-Arkansas) placed in the Senate version to ban box office revenue contracts. Swagger believes that CFTC approval before the final bill gets passed has the effect of grandfathering Trend Exchange in.
Swagger also announced that Trend Exchange has a plan to fight the MPAA’s attempt to ban box office futures, including removal or alteration of the language in the Senate bill. He referred to the language as “abusive”.
Swagger’s closing comments characterized the fight ahead as “David and Goliath”, with the MPAA playing the role of Goliath, trying to destroy a small business owner and entrepreneur who has followed all the rules. Whether Mr. Swagger has a slingshot in his hands that can fell the giant, or is just engaged in so much swagger, remains to be seen.
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{ 15 comments… read them below or add one }
If the MPAA is a “self-serving special interest” what the hell does that make Swagger. He’s the principal, if not sole beneficiary in this cockamamie scheme. The MPAA (IFTA and theater owners) represent 95% of the industry. Adding the unions- I don’t see how you could get a much broader constituency. This is now and has always been about Swagger and Jaycobs designing a new vehicle to line their pockets.
Swagger is the personification of a self-serving special interest. It’s laughable to suggest that he is serving some broader public or industry need. He’s a bookie, making money on both sides of the bet.
Perhaps some can educate me on why Swagger thinks he will be “grandfathered”. To suggest that pretty much awards him a monopoly. If contracts are approved on an on-going basis, doesn’t prohibiting movie futures contracts mean that existing ones can move forward but future ones will be illegal?
Skeptic – given the MPAA have not allowed truth, common sense and reason to get in the way of their attempts to destroy these exchanges, I don’t think you can expect Swagger to behave any better.
The ‘self interested’ special interest allegations are more to do with the MPAA’s tactics of ignoring anything to do with this issue that contradicted their position: Denying studios are interested in hedging (ignotring the fact they already do with other methods), denying anyone would use the products (when people outside the MPAA have already said they would), denying anything is priced off box office receipts (when others testify such pricing happens). Plus showing a complete disregard for the process: ignoring public comment periods, ignoring opportunities to cooperate and shape products together, lobbying senators and congressmen to write letters littered with factual inaccuracies….
The fact is the MPAA did not prove their case, and the contracts have been approved by an independent regulator – the fact this was achieved in the face of the deafening opposition from the MPAA (and therefore unprecedented scrutiny from the regulator) is quite impressive and if anything proves that Trend Exchange were in the right all along and many of the MPAA’s concerns had no basis. Quite rightly the guy is feeling a little vindicated – as he points out, he has followed the legal process to the letter every step of the way: its hard to argue that he doesn’t deserve a fair hearing – if you dont agree with that you dont agree with democracy.
I thought America admired people like this guy: innovators putting their money on the line, pursuing their dreams? You cant blame him for expecting a fair process whether or not you agree with the products in question.
Why would the studio-controlled trade organization assert that the studios weren’t interested in hedging with these instruments if they were in fact interested? That makes no sense. I heard no testimony about anyone outside of the MDEX/Cantor extended family assert that they were interested. Surely they could have found ONE person outside of the family to at least write a letter or show up and say so on the record.
The vote was 3-2, hardly a rout; and not unexpected given the fact that the case was made to a group that is all about promoting commodity futures trading. Given the flabby standards of a law largely authored in the 1930′s and the understandable bias of the staff the result is hardly a “vindication”.
Round One goes to Swagger.
I do believe in democracy. I also believe that the democratically elected lawmakers see this sleight-of-hand for what it is. I predict that Swagger won’t find a single friend on the Hill who will step up and challenge the inclusion of Lincoln’s language in the final bill. Being cozy with Wall Street is the political third rail in DC right now and everyone but Swagger knows it.
Finally I’m still interested in the “grandfather” theory. If Swagger thinks that he’s going to use that concept with lawmakers to obtain a de facto monopoly for MDEX and Cantor; he’s sadly misinformed. That will never happen.
Am sure you are right about Swagger’s futile trip to Washington: I do disagree that upholding the principle that the CFTC be left to rule on matters that legisaltion says they should rule on and that they are the experts on, should be considered ‘being cozy with Wall Street’. However, I think you are spot on about politicians self preservation instincts prevailing and them wanting to be nowhere near supporting the exchanges for fear that the public can not be trusted to draw the distinction.
Look at the rest of Jabcat’s page: there are dozens of people that have come forward: Lionsgate, film finance companies, independent producers and retailers have all said they are interested: you can not dismiss all of these people as Cantor/Veriana extended family: That’s exactly the ‘sensationalism over truth’ approach that the MPAA have relied upon. You could just as easily criticise the MPAA for not putting one derivatives expert infront of the panel to support them in their claims the products could not be used for hedging. You could also criticise the MPAA for dragging that trade union guy along to each hearing who clearly had not idea about the products, how they worked or how they could be used.
You can not ban something because people say they wont use it straight away: as with anything, anyone bringing something new to the market should be allowed time to prove its utility to possible users, as futures contracts have required through history.
And I do see this as complete vindication of their efforts: most futures markets certify their own contracts and get on with it, these guys faced months of opposition and unprecedented scrutiny and political inteference. How easy would it have been for the CFTC to give in and reject these contracts – no one would have criticised them? Its quite persuasive the CFTC backed them, even if only by a majority – you cant allege they are corruput or failing just because you dont like the answer.
Not sure about the basis for the Grandfather claim.
1. Lionsgate’s guy is the one who sold the technology to cantor. He’s family
2. The only film finance companies I’m aware of were those referred to or represented at the table by the Nutty Professor… also family.
Perhaps I am not aware of all of the others but the breadth of the market represented by the MDEX/Cantor family was a tiny fraction of the breadth of the motion picture represented in the hearings.
The film industry is union from top to bottom. The unions are justifiably concerned when profiteers from outside the industry introduce an unknown variable into an equation that may lead to job losses or instability.
As far as the panels go, the CFTC did the choreography. And the 6-2 ratio says a lot about the bias of staff and the chair toward the ultimate result. The MPAA could easily have lined up the former CFTC counsel who is now a UMD law professor who has repeatedly blasted movie futures contracts. But the deck was stacked 6-2.
I think the reason this matter drew this level of scrutiny is that there is much wrong with it on its face. Certainly the MPAA raised the profile but even Mr. Magoo can see that this is a very different animal than corn or soybeans.
The fight in Congress will be very different. Swagger and Jaycobs were operating in friendly turf before the Ag Committee and the CFTC. There’ll be no inside poker when this is played out before the conferees.
It should say something Skeptic when groups like NATO, who only support the MPAA to the extent they sign whatever the MPAA places in front of them, refuse not only to make a public statement against these products, but outright refuse to accompany the MPAA to help defend their position at these hearings.
The MPAA is not fighting this fight with a massive army behind them. They are a very powerful and intimidating entity within their industry, and through arm-twisting and outright fear, they have managed to align most of the industry behind them. Potential customers such as theater chains, talent, and divisions within the big 6 studios are only hoping that the MPAA could go away so that they can resume discussions with these exchanges. Note “resume” discussions.
The MPAA has not been able to outline one scenario where the trading of these products will result in either job losses or the detriment of the entertainment industry as a whole. Not one. And repeating it over and over like a mantra doesn’t make it any more real or true.
If you are unaware of the “breadth” of support for these products, perhaps you should visit the CFTC web site and review all of the comment letters in support of these products.
The big six studios ARE the MPAA. They are the sole members, they set MPAA policy and direct the efforts of the executives and staff. If the big six we interested, why on earth would they send the entity they control to try and prevent it?
To the best of my knowledge NATO was invited to the CFTC hearing. Swagger and Jaycobs- not unlike the Beverly Hillbillys- packed up the family and moved to DC. Staff and the chair control who testifies and how many. And the bias is evident to anyone who can count.
That’s Ok though. The next round will have the MPAA with home court advantage. Swagger is in for an epic beatdown. Perhaps he can get a job with Cantor Gaming in Vegas which better suits his interests anyway.
Skeptic: none of that (even if it is true, which frankly I am not convinced by: not once mentioned by Pisano or the trade union guy? odd…) changes the fact the MPAA simply didn’t prove their case well enough on the key points of: hedging utility (its not enough to say we wont use them), susceptible to manipulation, unreliability of Rentrak numbers, commodity defintion. It probably didn’t help the MPAA’s case that they basically got caught out making up stuff they couldn’t prove on the Rentrak number issue and their claims that no contracts were based on box office receipt numbers.
I still think you are correct about the outcome of the Financial Reform Bill and Swagger’s efforts to delete the wording – that doesn’t make it right though.
Just out of interest, having noted you are very passionately against this. Absolutely your right to be so, but what is your main issue with these exchanges? Please try and be more specific than Mr Pisano though!
City: To clarify my earlier statement, it should read that NATO was NOT invited.
As far as hedging utility goes, when the organization representing 95% of the industry refutes hedging utility by stating it’s members won’t use it- that casts serious doubt on such utility and public/industry benefit.
The ones interested in making the market are driven by the desire to profit from taking both sides of the bet. The fact is that no one knows whether this will be a negative on the industry. The only certainty is that MDEX and Cantor make money on both sides of the bet. The likely users are star-struck gamblers looking for something more interesting than jai lai or horse racing to bet on.
Two of the commissioners opposed it vigorously. Chilton ridiculed it as a first step toward contracts on terrorism or UFO’s hitting the White House. While I’m sure you can make some esoteric technical and legal argument that these instruments meet the definition of a commodity, it still doesn’t pass the smell test. That is the test that really matters. A narrow 3-2 victory is not a ringing endorsement. In fact, it really portends the future once the matter is taken up in the financial reform bill. If you can’t get a unanimous endorsement by the CFTC and you have commissioners openly ridiculing the concept, Congress is unlikely climb on board.
We could go round in circles on this forever…
I have always acknowledged that there might be unique issues with the contracts/exchanges that require extra thought: but as you yourself note, no one knows whether they will be negative on the industry and equally no one knows whether they will be positive. What if they could help the industry?
What we do know is that every time a new futures product has come to a new industry it has thrown up its arms in opposition only to be using the products in a few years time. This instance could be no different.
My biggest problem with the MPAA’s opposition has been its manner and style: totally understand their scepticism, but I would loved to have seen these guys postpone the CFTC process to allow everyone to get round the table and iron out issues and craft something that does work.
It has never been explained to me why the MPAA chose another path when that one was open to them. Surely this idea was worth exploring? Their reasons for saying they wont use them are emotional rather than technical.
As an aside, I do not think the idea of politicians taking a piecemeal approach to legislation and undermining the approved regulatory process after the event, passes your smell test either.
I appreciate hearing your logical, industry perspective of the virtues of these contracts. I can only suppose that when credit default swaps were being sold, the guys with the vested interest in selling them made them sound as appealing and necessary as Swagger and Jaycobs aver their products to be. The end result was a disaster. So the question many people ask is whether the potential benefits outweigh the risks. Swagger and Jaycobs face little risk compared with the overall industry. Like bookies, they make money on both sides of the transaction. Given the tremendous difference between these contracts and those for soybeans, the risk is poorly understood. We’ve both acknowledged that no one knows what the outcome will be- whether positive or negative. But we do know where that risk lies. Substantially with a motion picture industry that wants no part of it.
That is the insurmountable summit for Cantor and MDEX. That is why the only meeting they can get on the Hill are with low level staffers in the hallways. The politicians see it as gambling- right or wrong. And further see the risk dropping into the lap of an industry that wants no part of it. If I was Swagger, I’d be working on my resume. Jaycobs can always walk across the hall and work for Cantor Gaming. This thing is dead and there’s no grandfathering about it. Otherwise there’d be a small number of onion futures traders who were grandfathered in the 1950′s still working today.
Like I said…round in circles…
You criticise the proponents of these exchanges for their ‘technical, esoteric’ justifications and explaining the ‘logical virtues’ of the contract (as if that was a bad thinng!) but at least they offer that much…those opposing the exchanges rely on speculation and guess work (because that is all they have), and you are no better. And referring everything back to credit default swaps? are you seriously that short of decent arguements? You are aware that the current, most aggresive version of the financial reform bill proposes not that credit default swaps be banned (because contrary to popular sentiment, even US politicians see they have benefits and are necessary) but that certain derivative products be made more transparent and traded on regulated exchanges?…just like these movie futures…
Following your (and the MPAA) approach to life (deny any possible benefits, focus entirely on the negatives), all things in life would fail the risk/reward test.
How does any substantial risk really lie with the studios? I know the MPAA don’t feel the need to actually give an answer to this, but please try….
I would say the real risk lies with TrendExchange and Cantor – having invested millions of dollars setting these exchanges up, if they fail, they lose out. And by fail I mean through lack of use rather than anything else.
Like you said, around in circles. I understand that I’m not going to change your opinion and you’re frustrated that I am unpersuaded by yours. Your position is bolstered by three commissioners, mine by only two. I get it.
The one thing we agree on is that with the ultimate authority vested in Congress; Swagger and Jaycobs are Dead Men Walking. It’s over for them and movie futures gambling.
…I am not frustrated you are unpersuaded by my arguments, I am frustrated that you and the rest of the opposition to these exchanges base your objections on nothing more than speculation and sensationalism rather than evidence and truth. I am frustrated with a system that cares not for reason and justification but lobbying potential.
It is sad congress made up their mind a long time ago, it is sad that they feel willing to interfere in a regulatory process, it is sad that they care little for the accuracy of the claims they are repeating on behalf of their puppet masters.
CH: Your contention that these instruments will be benign or even beneficial is just as much speculation as my position that they will not.
Twisting the definition of what constitutes a commodity for the purpose of creating something new- over the objection of the purported beneficiary- seems vastly out of line. The only voices heard shouting for these things are the guys who stand to collect a commission (and their extended family, of course). Quite frankly, if it had been up to the House Ag. Subcommittee they would have killed it right then and there at the hearing they held. The only supporter was Pomeroy and he was fairly tepid. This thing is a piece of crap and almost everyone in Washington other than three of five CFTC commissioners knows it. The CFTC answers to a higher authority. They have since before you were born. It is part of our democratic system. Railing about the injustice of its decision being overturned by Congress is as stupid as vilifying the Supreme Court for overturning a lower court’s ruling. And before you start hopping up and down about the “independent” judiciary, know that lots of lame agency decision end up being dealt with by a new law. This one happened to torpedo your pet program. Would you feel the same if the CFTC voted the other way and Congress resusitated it? I doubt it. At the end of the day, most of us care far more about the result than the process. Maybe you are one of those folks for whom the process is Number One. If that’s the case, you must really hate reading the newspaper every day.