Updated from 12:45 p.m. ESTTake-Two Interactive ( TTWO) struck back at Electronic Arts ( ERTS) on Monday, reaching an agreement that could lock its rival out of the baseball game market. Take-Two has reached an agreement in principle with the Major League Baseball Players Association that would give Take-Two the right to market and develop games based on players' names and likenesses for seven years. While the deal would leave open the possibility that console manufacturers such as Sony ( SNE) and Microsoft ( MSFT) would also be able to develop such games, it would bar other third-party developers such as EA from the market. "The upcoming change in technology makes this the perfect time for us to implement our plan for growing the business, and we have no doubt that Take2's proven creativity and innovation ... will add real excitement and depth to the video game marketplace," saidJohn Olshan, category director for interactive games for the MLBPA, in a statement. A Take-Two representative did not immediately return a call seeking comment. The two sides did not give any financial details on the deal, which will begin in 2006, although the Wall Street Journal reported on Monday that the deal is worth between $80 million and $150 million. The deal is "mildly positive" for Take-Two, one that should allow it to turn a modest profit, Wedbush Morgan Securities analyst Michael Pachter said in a research note on Monday. However, he noted that the deal will have no material effect the company's near-term earnings. (Take-Two has not been a recent investment banking client of Wedbush Morgan.) Because the tentative deal is with the players union and not with Major League Baseball, other game publishers could ostensibly develop games based on team names and logos, if not their players. But Take-Two is reportedly working to close that loophole. The company is currently in negotiations with MLB, according to the Journal.
MLB representatives did not immediately return calls seeking comment. The deal with the baseball players association follows two high-profile setbacks that EA dealt Take-Two in the sports game market. Last week, EA
wrested the rights to the ESPN name from Take-Two and its partner Sega, signing an exclusive 15-year deal with the sports media company. And last month, EA signed exclusive five-year deals with the National Football League and its players association. EA was in discussions with the baseball players association, but chose not to go forward with a deal, said Jeff Brown, a company spokesman. Baseball is one of its less important sports titles, with smaller sales than its football, basketball, soccer, PGA golf and NASCAR racing titles, he said. Additionally, while Take-Two touted the deal as an "exclusive" relationship with the baseball players association, it is anything but, Brown noted. Because the deal will allow console manufacturers to make baseball games using players' names and likenesses, it's possible that one of them may be able to use that loophole to bring in another third-party developer such as EA, he said. "This is not a deal that we would have signed. We do not think it would have made good business sense," Brown said. "Paying a premium price for a non-exclusive deal is not something we would do." Until last year, EA had dominated the market for sports games. But Take-Two cut into EA's lead after it teamed up with Sega and offered Sega's line of critically acclaimed ESPN-branded games at prices that were less than half that of EA's comparable titles. The move forced EA to slash the prices on its own games. Take-Two's move into the sports game market was seen as a critical piece of a strategy to diversify beyond its core stable of violent, adult-themed games such as its Grand Theft Auto and Max Payne franchises.
"Recent announcements from Electronic Arts caused a decline in Take-Two's share price, as investors apparently thought that one avenue of future growth had been foreclosed," Pachter said in his note. Monday's news "suggests that Take-Two intends to continue to develop and market team sports games," he added. In recent trading, Take-Two's shares were off 6 cents, or less than 1%, to $33.72. EA's stock was off 11 cents, or less than 1%, to $58.15.