Reportedly, Electronic Arts (EA - Analyst Report) will lose its National Collegiate Athletic Association (NCAA)branded video games after the current licensing agreement expires in Jun 2014. NCAA has declined to renew its contract with EA Sports stating “the current business climate and costs of litigation” as the reason.
The move follows the recent lawsuit against NCAA filed by former UCLA basketball star, Ed O'Bannon, and a number of former athletes. They alleged NCAA and EA Sports of using their names and playing styles to earn revenues without compensating them.
EA released its first NCAA Football game in 1998 and has been a successful franchise for the company. To date, the NCAA franchise has reportedly sold more than 23 million copies and garnered revenues of over $900 million.
Most recently, EA released the latest version of NCAA Football 14, which is probably the last installment from the franchise. The game received a metascore of 77 on Microsoft’s (MSFT - Analyst Report) Xbox and 75 on Sony’s (SNE - Analyst Report) PS3 from Metacritic.
NCAA games, despite being one of the major brands, do not contribute a significant portion of EA’s revenues. Reportedly, EA is expected to release its next college football game in fiscal 2015. Thus, the loss of NCAA is not expected to have a major impact on EA’s results.
Despite the loss of the NCAA brand, we believe that EA has ample time to make strategic partnerships for its future football games. In this regard, EA’s contract with Collegiate Licensing Company (CLC) that includes a large number of the NCAA member schools will help it to counter the situation.
Additionally, EA can now independently sign deals with different schools and players for the continuation of its college football video game franchise. However, it would be a lengthy process for the video game maker.
Apart from NCAA, EA Sports has licensing agreements with other sports associations such as Madden NFL, FIFA Soccer, National Hockey League and National Basketball Association. The licensing agreements help EA Sports to earn incremental revenues by leveraging their trademarks and logos.
However, we remain cautious on EA due to sluggish consumer spending on packaged video games, dismal video game sales and increasing competition from Activision (ATVI - Snapshot Report) .
Currently, EA has a Zacks Rank #3 (Hold).