NFL Extending Exclusive License with EA Sports By One Year (PastaPadre)

[cdj]

From PastaPadre:

With the uncertainty surrounding the labor negotiations that will determine whether there is even an NFL season to come, EA Sports in October requested a reduction of around $30 million in payments related to this year’s upcoming title. The lack of an NFL season would have a significant impact on operations and potential sales and that has the company making very conservative fiscal projections as they plan for the worst and hope for the best.

According to Sports Business Journal the league has decided to reduce the costs paid for the license for the coming season and the two sides have agreed to extend the contract by one year taking it through 2013. The original deal was signed in 2005 for an initial term of three years and then extended for an additional five years in 2008. EA Sports has not responded to requests for confirmation or comment as of publish time.

The news on the restructured contract means that Madden will remain as the sole NFL licensed game on the consoles through Madden 14. As explained in the article the license is extremely lucrative for the NFL. The question shouldn’t have been, or continue to be, whether the league has the desire to proceed with exclusive deals in the future. Instead it will come down to whether a company such as EA Sports will find making such a deal to be a responsible investment.

[cdj]

So if they reduced the licensing fee by $30M, what was it before? Even if they allowed multiple publishers, I'm not sure many others could afford the costs (though they'd probably drop it some in that case). No wonder Madden NFL relies on PDLC so much with Madden Ultimate Team, Scouting, etc.

[steelerfan]

Wow.

I wonder what the impact of this will be for gamers (the cost reduction and potential lockout, not the extension).

[Details]

Such a shame.

[JeffHCross]

So if they reduced the licensing fee by $30M, what was it before?

Was originally rumored to be $300 million for the original five years.

http://www.sportsbusinessdaily.com/J...es/NFL-EA.aspx

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.

[morsdraconis]

How the hell can they afford that type of deal when they are only making ~$3 million a year on the game? That's insane...

[JeffHCross]

How the hell can they afford that type of deal when they are only making ~$3 million a year on the game? That's insane...

How do you figure? (unless you're talking $3 mil profit, which I have no way to confirm or dispute)

For PS2 games, the Publisher/Developer (in this case, both EA) split $20, or 40%. That's $24 on a $60 game. That means in August alone they made $43 million.

[morsdraconis]

How do you figure? (unless you're talking $3 mil profit, which I have no way to confirm or dispute)

For PS2 games, the Publisher/Developer (in this case, both EA) split $20, or 40%. That's $24 on a $60 game. That means in August alone they made $43 million.

Actually, you're right. I was confusing units sold with how much they were making. Obviously, they are making enough to fund that type of deal, but it just seems insane to me that $40 million a year is paid in royalties to the NFL for the license.

I mean, going by what they've sold so far this year on Madden (5.16 million copies across the PS3, 360, Wii, and PS2) and they are getting 40% of the profits (as you stated before), that's in the neighborhood of $108,360,000 total (average of $52.5 per copy at 40% of that profit equaling ~$21 per game since I'm pretty sure the PS2 copies went for $50 new and the Wii version went for $40 new), just for this year on Madden. Imagine if they weren't paying out the $40 million a year for the license, who much more money they could be spending on development for that game and other games...

Just seems nuts to me considering the fools that hate the game won't buy it anyway so it's not like they were really losing customers back when they were competing with 2k or anything. I mean, their sales increased significantly while 2k was making their NFL game as well (went from ~3.88 million to ~4.98 million to ~6.17 million during the 3 years that 2k made their game). Just doesn't sound like a sound business decision to worry about what other teams are going to make (yes, 2k5 did sell ~3 million) enough to shell out $40 million a year for a license that allows you to be basically screwed financially.

There's no way any other company would be willing to shell out that kind of money to kick EA out of the race.

[ram29jackson]

the NFl needs to rethink that philosophy and sell for a little less and get more companies involved

[steelerfan]

the NFl needs to rethink that philosophy and sell for a little less and get more companies involved

The NFL doesn't want more companies involved. They want complete control over how their product is portrayed which becomes incrementally more challenging each time they licence someone to portray them. What many people do not understand is that exclusive licencing is the NFL's idea and their ideal. EA was just willing to pony up for it.

[cdj]

More from Joystiq:

EA maintains a separate, concurrent contract with the NFL Players Association for which the players' union receives $30–40 million, annually (according to the union's Labor Department filings), for the publisher's right to use NFL players in its games. It's as yet unknown if EA has sought to reduce its fees owed to the union this year or extend the deal another year to remain consistent with the companion contract with the league.

[morsdraconis]

The NFL doesn't want more companies involved. They want complete control over how their product is portrayed which becomes incrementally more challenging each time they licence someone to portray them. What many people do not understand is that exclusive licencing is the NFL's idea and their ideal. EA was just willing to pony up for it.

But it doesn't make any sense to me why EA would be willing to pony up that kind of money. When it came to sells, they had their best sells EVER during the time that there wasn't an exclusive license in place. Just don't see what they thought they were gaining by taking out the competition when it appeared as though the competition was driving them to do better than ever before sales-wise.

[JeffHCross]

More from Joystiq:

I already posted that

But it doesn't make any sense to me why EA would be willing to pony up that kind of money. When it came to sells, they had their best sells EVER during the time that there wasn't an exclusive license in place. Just don't see what they thought they were gaining by taking out the competition when it appeared as though the competition was driving them to do better than ever before sales-wise.

Looking at straight sales numbers can be misleading though. They obviously thought eliminating the competition was the best move. I mean, we don't know how much the NFL license cost them when it wasn't exclusive. You were doing $40 million versus $0. Obviously that's not right.

[jaymo76]

This is a sad, sad day. With no competition we may well continue to see a far inferior "next gen" product as compared to say NFL 2K5 and Madden 05 on the PS2.

[steelerfan]

But it doesn't make any sense to me why EA would be willing to pony up that kind of money. When it came to sells, they had their best sells EVER during the time that there wasn't an exclusive license in place. Just don't see what they thought they were gaining by taking out the competition when it appeared as though the competition was driving them to do better than ever before sales-wise.

Jeff makes a good point. Also, EA's alternative was to make a game with no NFL teams. It really becomes a question of "will we make more money with or without the NFL licence"? Obviously, EA thinks "with" and I agree.

Don't get me wrong, I'm not a fan of exclusive licences, I'm just explaining why it would be done.

If you sold T-shirts for $25 with football helmets on them and sold 10,000 units per year at a profit of $20 per shirt ($200,000 profit) and you were offered NFL licensing for $500,000 and increased your sales to 100,000 per year (2,000,000 - 500,000 = 1,500,000 profit) it would be well worth it to pay the $500,000. 2K doesn't make a pro football game any more because they know that without real teams, it's a losing battle.

[steelerfan]

PFT write up....

http://profootballtalk.nbcsports.com...reak-for-2011/

[JeffHCross]

Here's Pasta's take, including a very good point on reading between the lines.

Based on each side’s actions it appears that the NFL is much more in favor of the deal as it currently stands than EA Sports who took a reduction on this season’s payments while tacking on another year.

The following quote from Jacksonville Jaguars owner Wayne Weaver, the chairman of the NFL’s business ventures committee, says it all.

“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.”

[ram29jackson]

pastas take isnt that valid. He is a yes man for EA . He just does it in a creative political way.

you dont need an NFL license to make a good football game. You just need decent creative guys so the uniforms dont look like a 9 year old designed the logo.

[steelerfan]

Exactly which unlicensed football game is a wildly successful one?

[JeffHCross]

pastas take isnt that valid. He is a yes man for EA.

No ... he's not. Not any more than any of the Community Day guys (who are often accused of the same thing). If you look at some of his posts on NBA Elite, it's clear he's not a Yes Man.

Whether or not it's valid, I can't say. I think he's exaggerating, certainly, because I don't see anything there indicating that EA isn't satisfied with the deal. Clearly the NFL is satisfied with the deal ... that's not a shocker to anyone.