Electronic Arts Lands Body Blow

When it comes to their fight over the sports portion of the video game market, Electronic Arts has given Take-Two Interactive (TTWO - Cramer's Take - Stockpickr) part two of a one-two punch.

On Monday, EA announced that it has signed a 15-year deal with ESPN to publish titles using the sports media company's brand, programming and personalities. The deal follows a similar long-term, exclusive pact with the National Football League that EA signed last month.

With the latest agreement, which takes effect in 2006, EA will displace Take-Two as ESPN's partner -- and effectively knock out its smaller rival from the sports market, analysts say.

"The moral of the story is don't [mess] with EA," said one hedge fund manager, who asked not to be named.

Shares of EA were recently up $2.34, or 3.9%, to $62.18. Take-Two was down $1.20, or 3.4%, to $33.64.

Take-Two had the right idea to take on EA in the sports game market, but the way it went about it -- by getting into a price war -- was a strategic blunder, added the fund manager, who doesn't have a position in either stock.

"Basically what they did was woke a sleeping giant," the fund manager said. "It's great if you make a big hit. But if the big kid on the block is going to come in and basically destroy you, it hurts your business."

In a statement, Take-Two said that it thinks it can continue to compete with EA, even without the ESPN or NFL licenses.

"The ESPN license was principally a branding tool and as such does not have a meaningful impact on game play," Take-Two said. "We spent a great deal of time evaluating the potential of working with ESPN longer term. In the end we believe we can continue to publish great sports games by focusing our dollars and creativity on enhancing the gamers' experience."