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Commentary > Game Over
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EA's big deal: Touchdown or fumble?
Exclusivity with NFL will bring windfall for video game maker - but at what price for the industry?
December 14, 2004: 10:14 AM EST
Game Over is a weekly column by Chris Morris

LOS ANGELES (CNN/Money) - In a conference call earlier this year, Electronic Arts said it would take any necessary steps to protect its flagship "Madden" franchise. But nobody was expecting this.

EA's announcement it has signed an exclusive licensing deal with the NFL and the NFL Players Association effectively removes the competition from one of the industry's most popular genres. Under the terms of the deal, no one else will be allowed to develop or publish a video game (for any system) featuring NFL teams, players, stadiums or footage for the next five years.

EA did not announce the terms of the deal, but sources told me the price tag was north of $300 million (though well below the $500 million figure some have suggested).

Assuming that's correct, at least one industry analyst feels EA (Research) might have overpaid.

"If they paid more than $200 million, then I seriously question their judgment," said Michael Pachter, an analyst with Wedbush Morgan Securities.

Sports games account for more than 20 percent of all video games sold – and football titles are by far the leader in that category. They appeal to a widespread audience and consistently top the sales charts. For EA, in particular, they've been a windfall, selling over 40 million copies over the past 15 years.

But 2004 brought competition like EA had not experienced before. Take Two Interactive teamed up with Sega and ESPN to offer "ESPN NFL 2K5," which critics said was as good, if not better, than "Madden". Beyond that, the game was priced at a rock-bottom $19.99 (which EA finally matched on Nov. 8).

Madden 2005 has faced stiff competiton this year.  
Madden 2005 has faced stiff competiton this year.

It's probable Take Two (Research) would have had to raise prices next year. What we'll never know is how many fans would have stayed with the brand – and what the long-term effect would have been on EA's business.

Take Two, naturally, spoke out against the announcement.

"We believe that the decisions of the [NFL] and Players Inc. to grant an exclusive license for videogames do a tremendous disservice to the consumers ... limiting their choices, curbing creativity and almost certainly leading to higher game prices," it said in a statement.

Wedbush Morgan Securities' Pachter agreed.

"It was flat out predatory licensing. [EA is] trying to put other people out of business. No matter what, the consumer has fewer choices and no matter what, they're paying more. There is no $20 option. It goes to $50 next year and stays there. I think consumers lose."

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(EA spokesperson Trudy Muller said "the price of next year's game will be a function of market conditions, but all three parties believe [Madden is a] premium brand.")

A bigger question, perhaps, is what happens five years down the road. Will the license be hotly contested – or has EA, in essence, bought a lifelong deal with the NFL? One of the chief expenses in sports games is the cost to render the players' likenesses - in other words, to create lifelike animated facial models, which give in-game players a photo-realistic appearance.

When the EA/NFL/NFL Players deal expires, no company will have renders of the league's 1,400 players, which would cost millions – and could discourage bidding.

"I'm surprise that the naïveté of the NFL and its players," said Pachter. "By giving a five-year license and giving EA an exclusive, they're going to eliminate all of the competition. So in five years, the license fee is going to be whatever EA decides it wants to pay."

It would, in fact, be the NFL's fault should that come to pass. Despite conspiracy theories that have sprouted up on various message boards, the league put out a call for bids this spring for the exclusive license. Among those bidders was Take Two.

While the company would not go into specifics about its bid, spokesperson Ed Nebb said the company was not surprised by Monday's announcement.

If you're keeping score at home, by the way, this makes four major sporting events for which EA Sports holds exclusive licenses. NASCAR, the PGA Tour and FIFA soccer are also under contract with the publisher.

So what about Major League Baseball or the NBA?

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Baseball would be a tough license to secure. While it hasn't done anything with it yet, Microsoft last year purchased the rights to the "High Heat Baseball" franchise – and would likely fight to keep those relevant. (And Microsoft's about the only company in the gaming space that could engage EA in a bidding war and win.)

Basketball? It'd be an easier fight. There's an ESPN NBA game and publisher Midway (Research) also puts one out – but neither would be able to match EA's price. And the NBA surely wouldn't mind getting a premium on their license fees.

EA's not talking, though.

"We're not going to speculate on what the other leagues are going to do," said Muller.  Top of page


Morris is Director of Content Development for CNN/Money. Click here to send him an email.




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.