What an NFL Lockout Could Mean for 'Madden' Maker EA
As the Green Bay Packers and Pittsburgh Steelers clean out their lockers and the nation debates which Super Bowl commercial was the best, there’s a big cloud hanging over the 2011-2012 NFL season.
A work stoppage is looking increasingly likely — and the effects of that could reach far beyond the gridiron. One company that’s undoubtedly monitoring the situation closely is Electronic Arts .
As the exclusive rights holder of NFL video games, EA relies heavily on its long-standing “Madden” franchise to make its numbers. Regardless of the situation on the field next year, there will be a new installment of “Madden,” but the company isn’t holding out much hope that we’ll see a lot of real world action.
"In terms of a planning assumption ... we've baked in the most conservative assumption, meaning no season," said John Riccitiello, CEO of EA in the company’s most recent earnings conference call.
There are a couple schools of thought on how a work stoppage in the NFL could affect EA. On one hand, “Madden” will be the only game in town — and could see a boost from fans who are eager to have some sort of NFL action on their TV. On the other, fans could be turned off from the sport entirely as the battle of egos among players and owners reaches titanic proportions.
Analysts seem to think the latter is the more likely scenario.
Michael Pachter of Wedbush Securities says he expects sales of “Madden” will be down 50 percent if the season is cancelled completely, but will see no negative effects if the season starts within two or three weeks of its normal start time.
“It depends upon the venom of the debate,” he says. “If the player and the owners … come across as greedy pigs, it hurts them more. I don’t know how either side takes the moral high ground here.”
“Madden” is the workhorse of the EA franchise stable. It is consistently one of the best-selling games of the year and has a loyal following of fans. It’s also one of the industry’s few annual titles that has a long tail in stores. Traditionally, there’s a big push for the game when it’s released, then another sales bump as the holidays (and NFL playoffs) draw near.
Despite the game’s long history, though, it has never had to weather a labor issue in the league. The first Madden game came out in 1988, one year after the ’87 season, which saw a three-week strike, where replacement players briefly took to the field.
Meanwhile, critics and fans regularly gripe about the publisher only making incremental changes from year to year, while still charging a premium price. Should there be no season, the changes to the next version of the game will be the subject of intense focus.
“The newness of the game comes with the changing of the season,” says Billy Pidgeon, senior analyst with M2 Research. “They’ve got to [demonstrate] notable game play evolutions or improvements to show gamers why they should buy this.”
While it’s an important part of EA’s lineup, “Madden” doesn’t come cheap. Beyond the usual $9 per copy royalty payments to console manufacturers Microsoft, Sony and Nintendo , EA has to give a portion of each sale to the NFL (as part of its exclusivity deal) and the NFL Players Association. And that’s after retailers get their 20 percent of the sale.
Wholly owned intellectual properties, such as “Dead Space” or “Need for Speed,” are much more profitable when they succeed. That’s why the company maintains such a diverse portfolio — something that could work to its advantage if there is no 2011-2012 NFL season.
“One of the appealing things about EA is they have a better breadth of product offerings than most companies,” says Pachter. “They have family-friendly stuff; they have shooters; they have an MMO (massively multiplayer online game) coming out; they have RPGs (role playing games); and they have sports. They’re also very active in the mobile and social spaces. I think EA is very interesting in having the broadest possible offerings.”