Take-Two Stays in the Game

Electronic Arts (ERTS) is still the undisputed champion of the sports video game market, but Take-Two Interactive(TTWO) clearly intends to stay in the ring.

On Tuesday, Take-Two announced that it has acquired from Sega the video game studio behind the ESPN line of sports titles the two companies co-published. The announcement came one day after the Major League Baseball Players Association said that it and Take-Two had reached an agreement in principle for Take-Two to license the rights to players' names and likenesses.

The one-two punch followed a similar flurry from EA. Many thought the video game industry giant had delivered a knockout blow to Take-Two's sports aspirations when it signed long-term, exclusive deals with the National Football League and ESPN. Those deals took the legs out from under Take-Two's most popular sports title -- ESPN NFL 2005 -- and took away the brand it had placed on its sports line.

While EA representatives on Monday shrugged off the baseball deal, analysts on Tuesday were cheering Take-Two's moves. Take-Two paid about $24 million in cash to acquire Visual Concepts Entertainment and its subsidiary Kush Games. That's a cheap price to pay for a talented studio, said Michael Pachter, an analyst with Wedbush Morgan Securities, in a research note on Tuesday.

"We view this news as positive for Take-Two (and goes along with yesterday's MLB players license news)," Pachter wrote, adding that he expected the sports deals to contribute to the company's earnings over the "longer term."

(Neither Take-Two nor EA has been a recent investment banking client of Wedbush Morgan.)

In addition to purchasing Visual Concepts and Kush, Take-Two acquired all of the intellectual property associated with their sports games and the rights to the "2K" brand. All of the sports titles developed by Visual Concepts had the present year in their name.