Domestic Box Office Receipt (DBOR) Futures Contracts

What Is a Domestic Box Office Receipt (DBOR) Futures Contract?

A Domestic Box Office Receipt (DBOR) futures contract is a type of derivative product whose value is based on the future box office revenues generated from an upcoming movie. These products were briefly authorized in the United States in June 2010 but were banned shortly thereafter.

One of the main objections in banning DBOR futures was the contention that they could be used for purposes of insider trading within the movie industry. Advocates for DBOR futures argued that they would help movie studios hedge risk and enable speculators to participate in the movie industry.

How DBOR Futures Contracts Work

DBOR futures contracts are similar to other derivative products, in that they are financial instruments whose value is tied to an underlying asset. In this case, the underlying asset consists of the box office revenues expected to be generated from an upcoming movie release. Speculators who wish to profit from an upcoming movie could buy DBOR futures for that film and hope to profit if its box office receipts come in higher than expected. At the same time, movie studios could reduce their risk exposure to certain movies by selling futures contracts.

DBOR futures contracts were cash-settled, with the settlement amount calculated based on the sum of all box office receipts generated in the United States and Canada within the first four weeks following a film’s initial release. Similar to other futures products, higher box-office receipts would have pushed the futures prices up while lower box-office sales would have pushed the prices down.

While the contracts were approved briefly, they did not commence trading since they were banned shortly thereafter. Prior to being banned, the concept of DBOR futures contracts had already run into resistance from a number of parties including major movie studios, theater owners, and the Motion Picture Association of America on the grounds that the instruments could be susceptible to insider trading and manipulation.

Real-World Example of a DBOR Futures Contract

Ultimately, it was the Dodd-Frank Act, signed July 16, 2010, which caused the prior approval of DBOR futures to be rescinded. The act included stipulations that prohibited futures contracts on movie box office sales, or any index or instrument that could or would mimic such sales. While the CFTC originally voted three-to-two in favor of approving the contracts, one month later, the sweeping reform bill banned such contracts for the foreseeable future in the United States.

Prior to being banned, DBOR futures contracts were intended to be traded on two exchanges: the Cantor Exchange, now called CX Markets; and the Trend Exchange (TrendEx). While TrendEx is no longer operational, CX Markets continues to operate in the United States as a venue for trading derivatives based on weather events.