Crispy Gamer

American Needle Pokes a Hole in the NFL Gaming Biz

 

In 2005, Electronic Arts secured one of the most lucrative exclusive deals in the history of gaming: the right to become the only company to use NFL licensing. The move seemed to have paid off, as in 2005, Madden sales jumped to record highs. (While sales have slowed down since that time, that is usually indicative of customers not purchasing more than one madden game per console or every two years). The deal to maintain the NFL rights was originally slated to last until 2009, but the success of the deal convinced both parties to extend to 2012, giving Madden the ability to continue to dominate the football gaming market.

American Needle, an apparel company, might have just changed that. In 1963, the NFL teams created the National Football League Properties (NFLP). It was the NFLP's job to handle marketing decisions involving the intellectual properties of the league's teams. Up until 2000, the NFLP granted numerous non exclusive licenses to vendors, doling out pieces of the NFL revenue pie.

In 2000, however, the NFLP granted an exclusive apparel license to Reebok, shutting out other vendors such as American Needle. American Needle sued, citing that the action violated section 1 of the Sherman Anti-Trust Act. American Needle lost in the lower courts, but when the case went to the Supreme Court, the NFL did not complain, as they wanted to use the court decision to gain wide ranging Anti-Trust protection for the league.

Be careful what you wish for. In a nutshell, not only did the Supreme Court overturn American Needle's loss, but also ruled that the NFL is not a single entity, but rather 32 independently owned teams. This means that the NFLP cannot grant licenses, as it is a separate entity. Oops.

 

This ruling, while having the potential to unravel Madden's vice grip on the market, will most likely have little effect in gaming. Yes, the NFLP can no longer speak for the league's teams. Big deal. The only difference now is that Electronic Arts will have to negotiate 32 individual licensing deals with each team, something the gaming giant will be more than happy to do. However, there are other scenarios (unlikely as they may be) that could unfold, so let's analyze them all.

Electronic Arts secures 32 exclusive rights to each team's license. I get the feeling that while going this route provides EA with exactly the same licenses as it had before, it would cost significantly more to get it. Imagine an owner for a popular team, say the Cowboy's Jerry Jones, argues that since customers play as his team more than a small market team (like the Jaguars, Bills, etc.) the Cowboys exclusive licensing will cost EA more money. A fair argument. However, when negotiating with the Jaguars' owner, he claims that unless he gets the money the Cowboys got, he wont grant the rights, leaving EA with an incomplete roster, which would be unacceptable to the fans. This back and forth could drastically increase licensing fees, and force EA to…

Electronic Arts secures 32 NON exclusive rights to each team's license. In this scenario, the door is opened for other developers to make NFL licensed games. That said, I believe this is the most likely outcome. EA knows that the Madden moniker is as synonymous with football video games as Kleenex is to tissues. While they do stand to lose some of their market share to competitors, their advantage of having the brand name product will keep their sales well above the competition. Factor in that EA will have to pay a fraction of the cost on licensing, and this outcome seems the most likely.

Another company pays for 32 exclusive rights to each team's license. As popular as Madden is, the franchise lives and dies by the NFL itself. If customers can't play as their favorite teams, they will find a game that lets them. However, there are numerous reasons why this wont happen. First off, I doubt that any other developer has the funds to make a serious run to get those licenses. Second, the NFL's owners are smart people, they know how successful Madden has been over the last 5 years, and I'll be damned if they hand an exclusive license to anyone else. Third, and probably most important, even with an expensive exclusive license, sales will be down in the first few years. Getting loyal gamers (and the lucrative "bro" market) to suddenly start purchasing non Madden football games will a challenge without being a name brand. Those first years will be critical for the success of the developer, and the down sales coupled with the ridiculously expensive licensing fees could kill the studio, making the endeavor a risky one at best.

 

Theoretically, this could lead to lower prices for NFL, NBA, and NHL licensed games, but chances are near zero. In an op-ed for the New York Times, it was reported that when Reebok made their exclusive rights deal with the NFL, the prices of official apparel had increased. Now that other companies will have a crack at the license, they suggest that game prices could come down. What it doesn’t consider, however, is that the game companies themselves set the price of their games, not the leagues. Game prices will stay the way they are. MLB licensed games are not included in this as they have been awarded anti-trust exemption.

Ultimately, Madden will continue to dominate the gaming landscape. While the American Needle case certainly opens the door for other game companies to get into the NFL licensing mix, it is beyond highly unlikely that EA will be pushed out of the picture, as the Madden franchise is just too big. While the "evil empire" of sports games will continue to exist, there is some light on the horizon. If Madden does get competitors, EA will have to have to get off the couch they've been sitting on since 2005. Competition brews ingenuity, and if other companies join the NFL race, Madden's quality is sure to increase.

Maybe my receivers down-field will finally learn how to run block.

Comments

It's true that the American Needle oraganization holds the decision whether Madden should still stay or it's the time to have a new person to be in his position. American Needle truly set the door to let the other companis to get into licensing mix. - o2 Media

Great article Alex. I think you're right that Madden will still be around forever, regardless of the American Needle decision. However, from a legal angle, I think a few of your assumptions about the impact of American Needle could be challenged.

First, NFLP likely can speak for teams in the league -- it just can't do so in an unreasonably non-competitive way under the Sherman Act. For instance, I think under the decision that NFLP can still issue licenses, it just can't grant exclusive licenses to one entity to the exclusion of all others. [Well, technically, it can -- it would just now be very likely to lose a suit challenging that activity.] I don't read anything in the opinion prohibiting NFLP from granting collective licenses to numerous video game companies, or apparel companies, etc.

Second, I don't think that individual team-licenses are the only option now. As above, I think, as Professor Marc Edelman has argued, that EA's exclusive agreement still remains in play, but that another party now could sue them after they are denied a license that they seek. (On the other hand, one could also probably challenge the activities of a video-game maker who monopolizes 32 exclusive licenses to the exclusion of all other video-game makers as unreasonably non-competitive under the Sherman Act.)

As Edelman argues: "After the American Needle case, a video game maker who has been excluded from the right to purchase the trademark of any individual NFL team by NFL Properties, or all the NFL teams overall, would step into similar shoes as American Needle. However, that does not mean that a company that is excluded from the video game market would have the immediate legal right to license these trademarks. Rather, much like American Needle, the Supreme Court’s recent ruling would merely allow them to sue for this right and get beyond the point of the case’s dismissal on single entity grounds, and to the point where the conduct could actually be reviewed on the merits to determine whether it’s more pro-competitive or anti-competitive." http://www.ripten.com/2010/05/28/sports-antitrust-law-professor-explains....

On a purely non-legal angle, this article made it clear that I obviously have not played Madden games in a long time. In the older Madden games, run blocking was totally irrelevant -- because you could just run around the entire defense easily with any RB with decent speed. The Detroit Lions were unstoppable in Madden '94 -- because they had Barry Sanders. As were the Bills (Thurman Thomas); Giants (Rodney Hampton); Cowboys (Emmit Smith); etc.

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