Take-Two's Bad Call

Shares of Take-Two closed the regular session off 15 cents, or 0.8%, to $19.71 Tuesday. The stock has been up about 8% in the three months since Jan. 23, and up about 18% in a year.

The sports genre of video games, while lucrative, is also a difficult business. Getting exclusive licenses to games can be expensive, and most of the top-selling categories have been cornered by Electronic Arts(ERTS Quote - Cramer on ERTS - Stock Picks), a formidable rival in the segment.

That's why Take-Two could be better off cutting 2K sports loose and instead focusing on other genres where it can actually have a shot at success, says Michael Pachter, an analyst with Wedbush Morgan, which does not own shares of Take-Two and EA or have an investment banking relationship with either company.

"Take-Two is competing for a very small slice of the overall market," Pachter says. "Activision(ATVI Quote - Cramer on ATVI - Stock Picks) has a stronger balance sheet, and it chose to pass on sports. But Take-Two took on a fight they couldn't win."

Take-Two declined to comment.

New York-based Take-Two has about 300 people working on its sports titles and has invested $200 million on sports titles since 2004, former CEO Paul Eibeler said during the company's quarterly earnings call on Feb. 28.

Roughly $60 million has gone into the acquisition of development studios, $50 million into software development, and more than $80 million has been spent in licenses and IP for products.

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