Updated from 5:39 p.m. EDT

Electronic Arts

(ERTS)

announced exclusive licensing deals with the National Football League and its players after the bell Monday, dealing a setback to rival game publisher

Take-Two Interactive

(TTWO) - Get Report

.

In after-hours trading, EA shares were recently up $3.09, or 5.4%, to $60.66; Take-Two shares were off $2.38, or 6.7%, to $33.04.

Under terms of the five-year deals, EA will have the exclusive right to create video games using NFL stadiums, teams and players' likenesses. The license extends to PC, console and handheld games.

"I think it's a real big deal," said Norm Conley, a portfolio manager for JAG Advisors and a contributor to

TheStreet.com's

sister site,

RealMoney.com

. "The NFL is America's sport. It's the crown jewel for anybody that's able to lock

that license up." (Conley is long shares of EA, but has no position in Take-Two.)

The deals postdate what has been one of the most competitive seasons the sports-game space has seen in years, as Take-Two has cut into EA's market dominance by selling its critically acclaimed ESPN titles at cut-rate prices.

Although Take-Two has produced hockey, college and professional basketball games that compete with those by EA, its NFL football title has been its best-selling sports game.

The increased competition has forced EA to cut its own prices, hurting its bottom line. Because Take-Two is offering the ESPN games at discount prices, the games haven't done much for the company's own bottom line. But some analysts were already expecting the games to start adding to Take-Two's earnings next year.

The agreements with the NFL and its players had more to do with what the league and the players were looking for than did competition from Take-Two, said EA spokeswoman Trudy Muller. Earlier this year, the NFL asked for proposals from various video game publishers for its licensing rights.

"This is something we thought was important for our brand, so we put in an offer," Muller said.

Take-Two is counting on its sports games to help diversify its lineup, the company acknowledged in a statement. While arguing that the deals are a "tremendous disservice" to consumers, leading to higher prices and less choice, the company downplayed their significance to its own financials.

"The licensed NFL game we distributed on behalf of

Sega

this year was not a material contributor to our profitability to date, nor was it expected to be a meaningful contributor in the upcoming year. We remain committed to continued diversification of our product portfolio, including sports," the company said.

Take-Two representatives were not available for comment.

Known for its popular

Grand Theft Auto

franchise, Take-Two has been struggling to diversify its games lineup. Many analysts have considered the company's sports titles a key part of that effort.

The deals are the latest development in the ongoing battle between EA and Take-Two in the sports-game segment. Until this past year, EA was the dominant player among sports game publishers. But after teaming up with Sega to co-publish its ESPN line of sports games, Take-Two has taken a significant cut into EA's market share.

While EA typically offers its new sports games for about $50 each, Take-Two has priced its ESPN games at about $20 each.

EA has responded to

Take-Two's moves by slashing prices. The video game giant launched its NBA basketball title at a price that was $10 less than its normal charge. It followed with a promotion that

offered a free sports game to customers who bought two of its sports titles. Most recently, the company last month

slashed the prices of a number of its sports games by about $10 each.

EA signed separate agreements with the NFL and Players Inc., a subsidiary of the National Football League Players Association. The parties did not disclose the financial arrangements of the deals.

But the cost to EA is ultimately what will determine whether this was a good move, said Joe Spiegel, a fund manager with Dalek Capital. The NFL has recently been renegotiating its television licenses and other deals for significant amounts of money, he noted.

"The NFL is out to make money. They're not doing EA any favors," Spiegel said. "I'm sure this cost a pretty penny."

An NFL representative declined to discuss how much EA paid for the licensing rights. Doug Allen, president of Players Inc., also declined to discuss the financial specifics of the deal but said that the company was looking for more than just the highest offer.

"We made it clear that this was not going be a high-bid process, that we would choose the proposal that made the most sense to us," Allen said.

Without the competition from Take-Two, EA will likely be able to raise its price for its flagship

Madden NFL

title and likely won't have to spend as much money on development as it might otherwise, said Spiegel. And because it has exclusivity on a number of platforms, it will be able to spread the cost of the deal across a number of games, he said.

"They'll have some room to pay this extra money," Spiegel said.

While EA's move does take away Take-Two's top sports game, it may not be such a bad deal for Take-Two. It won't have to pay through the nose for the NFL license, and for now it can focus its efforts on its other sports titles.

"I think people are going to overreact and make this more of a positive for EA and more of a negative for Take-Two than it really is," he said.

But the bigger danger for Take-Two is that the other sports leagues may follow the NFL's lead, said Conley.

"What's to stop the NBA, major league baseball or the NHL from doing the same thing?" Conley said. "If they do that, Electronic Arts is by far the biggest

player. It puts them in a good position if other leagues are going to offer this exclusivity."