Analysis: What A Looming NFL Lockout Might Mean For Electronic Arts

[Gamasutra editor-at-large Chris Morris talks to analysts at M2 and Wedbush Morgan to examine the possible effects on Electronic Arts -- and its signature Madden game franchise -- of an American football strike.] Football stadiums across the country might be silent next September – as the prospect of an NFL lockout grows larger by the day – but on the virtual field, the game will still be played. Electronic Arts will release its 2012 installment of the Madden franchise this year as it has each year since 1988 – but it might be doing so without the marketing force of the league behind it for the first time in the game’s history. And that has everyone from analysts to EA execs planning for the worst. “In terms of the NFL, I could tell you that our base assumption going into the plan is a very conservative one,” said CEO John Riccitiello on the company’s earnings conference call last week. “Of course we, like you, are looking forward to the NFL and the PA resolving their differences, and starting the season on-time this year." "But in terms of the planning assumption, … we backed, at least in our thinking, the most conservative assumption, meaning no season. We're optimistic it can be better than that, generate further upside.” The 2011 version of Madden sold 5.5 million copies in last year – maybe not the powerhouse that FIFA (with sales of 11.5 million units worldwide) has become, but still a highly respectable number. And while the game might not command the year-end sales charts as strongly as it used to, it’s a critical part of EA’s annual lineup. But should there be a lockout that lasts any substantial length of time, analysts expect the numbers to take a big hit. Michael Pachter of Wedbush Securities says he expects sales of Madden will be down 50 percent if the season is canceled completely, but will see no negative effects if the season starts within two or three weeks of its normal start time. “You’ve got to believe the hardcore guys will buy it because it will have all the new features,” he says, referring to fans who buy the new installment of the game each year. “But the irregular buyers [of the franchise, who only buy every few years] probably won’t.” The potential sales hit comes as Electronic Arts is still reeling from its stumble with NBA Elite last year, a move that opened the door for Take-Two Interactive Software to significantly grow its lead in the basketball space. “For so long, EA has tied up the sports category,” says Billy Pidgeon, senior analyst at M2 Research. “They’ve been chased by Virtual Concepts for some time on the NBA side – and now [that developer] virtually owns [the space]. The fact that the NFL could cause them to take a hit on the football side is troubling.” While sales have fluctuated somewhat, Madden is still one of the most dependable titles in EA’s collection. That’s due, in part, to the fact that it is one of the few annual titles in the industry that gets two moments in the spotlight each year. Traditionally, there’s a big push for the game when it’s released, then another sales bump as the holidays (and NFL playoffs) draw near. It’s not a game that comes cheap, though. Beyond the usual $9 per copy royalty payments to console manufacturers Microsoft, Sony and Nintendo, EA has to give a portion of each sale to the NFL (as part of its exclusivity deal) and the NFL Players Association. And that’s after retailers get their 20 percent of the sale. Wholly owned intellectual properties, such as Dead Space or Need for Speed, are much more profitable when they succeed. That’s why the company maintains such a diverse portfolio – something that could work to its advantage if there is no 2011-2012 NFL season. “One of the appealing things about EA is they have a better breadth of product offerings than most companies,” says Pachter. “They have family friendly stuff; they have shooters; they have an MMO (massively multiplayer online game) coming out. He concluded: "They also have RPGs (role playing games); and they have sports. And they're very active in the mobile and social spaces. I think EA is very interesting in having the broadest possible offerings."