SBJ/Feb. 14-20, 2011/Leagues and Governing Bodies

NFL gives EA a break

Fees reduced next season, year added to deal

The NFL has restructured its lucrative licensing and sponsorship contract with Electronic Arts to account for the sport’s uncertain future, significantly reducing the video game maker’s contractual obligations next season but adding a year to the deal, according to several well-placed sources. The contract now runs through 2013.

The league is believed to have so far rebuffed pleas for fee reductions from other licensees and sponsors, many of which, like EA, find it difficult planning for the next season under the threat of a work stoppage. The league’s collective-bargaining agreement with the players expires March 4, and the two sides are far apart on reaching a deal.

EA, however, is a special case, with its iconic “Madden” video game title. The licensing deal it agreed to with the league in early 2008 is believed to be worth well into nine figures in guarantees and royalties over its original five-year term. That stands as one of the most, if not the most lucrative non-TV contract the NFL enjoys.
The NFL Players Association, which signed a companion EA deal for rights to the players, reaps regularly between $30 million and $40 million annually, according to the union’s annual filings with the Labor Department.
 
The league deal allows EA to use team colors, names and logos.

“For one of our core partners in a difficult environment, we say let’s look at this, and maybe it makes some sense to extend something out longer and give our partner some relief in the short term but gain something on the back end,” said Jacksonville Jaguars owner Wayne Weaver, chairman of the NFL’s business ventures committee.

EA’s games allow for continuous updating during a season to account for weekly player performance, so lost games in an NFL season could impair the video game’s attraction.

Weaver, like the sources, declined to say how much relief EA is gaining. The Wall Street Journal in October reported that the game maker requested a $30 million reduction in its scheduled payments because of the labor uncertainty. Weaver also declined to detail the contract restructuring.

The league and EA, which declined to comment, reached their accord recently, several months after the California-based company sought the financial relief. But on a conference call with analysts earlier this month, EA’s chief financial officer, Eric Brown, said, “In terms of the NFL, I can tell you that our base assumption going into the plan is a very conservative one ... we’ve baked in, at least in our thinking, the most conservative assumption, meaning no season. We’re optimistic it can be better than that and generate further upside.”

The union did not respond for comment on the status of its own EA contract. The NFLPA since last summer has been notifying league sponsors that beginning March 4, absent a CBA deal, the rights to players through NFL deals will no longer exist (SportsBusiness Journal, Aug. 16-22, 2010).

EA is not in that boat because it already has the separate NFLPA deal for players’ rights though 2012. But the same problem would exist for EA with the players that it has with the league: If there are lost NFL games in 2011, the market could shrink substantially and devalue the licensing contracts.

If the season is uncertain, asked Wedbush Securities analyst Michael Pachter, “Why would EA do TV pre-buys [and] advertise the hell out of the ‘Madden’ game, which presumably they have to commit to before the launch of the game, which is around Aug. 10? They have to put the game out in the market, and that is why they are getting relief.”

EA programmers are actively preparing for the August release of “Madden NFL 12.” “Madden NFL 11” last year was EA Sports’ second-biggest selling title on a global basis, with more than 5 million units shipped, trailing only its soccer title, “FIFA 11.”

Another year of an exclusive NFL license is significant for EA. The company’s first deal in 2005 gave the publisher sole rights to league and player marks and intellectual property, eliminating vibrant competition from 2K Sports’ “NFL 2K” series. That ushered in a wave of full- and semi-exclusive deals in sports video game licensing.

Staff writer Eric Fisher contributed to this report.

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