SBJ/December 19 - 25, 2005/Other News

NHL and union clash on rights for video games

The NHL and NHL Players’ Association have spent the last few months staring each other down in a clash over economic issues and an all-important contract. No, this is not a flashback from a year ago, but instead a description that applies to the video-game business and a tussle over whether to have an exclusive licensee.

Shortly before the end of the lockout, the NHLPA reached exclusive deals in the video-game and trading-card categories, with Electronic Arts and Upper Deck, respectively. According to a memo that NHLPA executive director Ted Saskin sent to players dated Aug. 17, Electronic Arts will pay the players’ association $44.2 million over six years, while Upper Deck will pay $25 million over five years.

Both deals, Saskin said in a subsequent interview, are exclusive. With video games, that means that starting in 2006, EA will be the only third-party software company that will have rights to NHL player names. (Sony, a hardware manufacturer, will still be able to produce its own game.) Upper Deck’s exclusive in trading cards has already begun.

The league supported the Upper Deck exclusive and cut its own deal with the company. But the EA deal immediately drew the ire of the league brass, who felt all parties were better off with multiple licensees, especially because the NHL 2K series of games from Take-Two Interactive Software Inc. has generally been better received by the gaming community.

The fact that the union had commanded a premium for exclusivity, with none of that extra revenue going to the league, also did not go over very well. In the video game category, leagues and players associations traditionally split royalties of 14 to 16 percent down the middle. But by being first to the table with EA, the NHLPA positioned itself to collect the majority of revenue from the category.

Things did not end there, though.

Refusing to let the players’ association unilaterally decide to keep the category exclusive, sources said the league used the leverage it still had and refused to extend EA’s license unless Take-Two was allowed to get an NHLPA license as well.

It also pursued an extension of Take-Two’s licensing deal, which expires after this season.

Faced with having to eat the poison pill of having two separate games, one with no player names and one with no league or team trademarks, all of the parties came back to the table. The league now says it is close to announcing deals that will keep both Take-Two and EA as licensees, with the union’s participation.

“We remain confident we will have a video game category that will have multiple partners supplying software to the new consoles,” said Brian Jennings, group vice president, consumer products marketing, at NHL Enterprises “We feel pretty confident we have basically reached in-principal understandings.”

But in an interview earlier this month, Saskin said he has had talks with Take-Two but only will strike a deal if it’s beneficial to both the NHLPA and to EA.

“To the extent you wanted to bring in third-party licensees like Take-Two, there would have to be adjustments made,” he said. “It would only be in situations that made sense for EA and the players’ association and the category.”

The league’s position is that having competition is the only thing that makes sense for the category.

“I think choice is important,” Jennings said. “We were not comfortable going with an exclusive model. We think having two highly motivated partners in this space, three with Sony, means more compelling games for our fans.”

The battle between EA and Take-Two took shape a year ago when Take-Two cut prices on most of its 2K Sports titles to $19.99, stealing share from EA and forcing EA to cut prices as well.

Reacting largely to Take-Two’s price slashing on its NFL football game, EA negotiated a five-year, $300 million exclusive agreement with the NFL last December, making its best-selling Madden game the only NFL title through 2009. Take-Two quickly followed with an MLB agreement that locked EA out.

But Take-Two has still spoken out against exclusives in the video-game category, carrying that stance through to the NHL.

“The best thing for me to say is we’re currently in negotiations with the [NHL] players’ association,” said Steve Glickstein, vice president of licensing at Take-Two. “The more people competing in the space, the better the games are. When you look at certain deals that are exclusive out there, the quality of game tends to come down.”

An EA spokesperson would not comment on its agreements with the NHL and NHLPA, other than to say that nothing has been announced to this point.

Interestingly, the NHL and NHLPA concur that an exclusive license is the best model for trading cards.

“In a category that had been a troubled category, we were looking and seeking a bold move,” Jennings said. “There was an over-proliferation of brands.”

The Topps Co. had a deal that expired before the lockout and was not renewed. In The Game, a smaller hockey-only company, issued a set of cards during the lockout but was not granted a license this year and will likely go out of business, said its owner, Brian Price.

An Upper Deck executive said being the only licensee in the marketplace has had a clear impact on sales and how much the company invests in marketing.

“Right now I think we’re on target for this to be our best year probably since we’ve had a [hockey] license,” said Kerri Stockholm, senior marketing manager for sports at Upper Deck.

The company will issue more sets of hockey cards than ever this year, as many as 20, and also is running three new retail promotions in the United States and Canada. “As the only company producing hockey cards, there are more opportunities for us,” Stockholm said. “We know everything we spend comes back to us in a much more complete way.”

When it comes to Upper Deck and its exclusive, the main thing the league and union can’t agree on is who had the idea first. Jennings said the league had been talking to Upper Deck about an exclusive as far back as last February or even the Christmas season of 2004.

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