Madden NFL Deal Change May Portend Bad News for Pro Football Fans

Electronic Arts’ renegotiated deal with the NFL may be the best prognosticator of how the NFL/NFL Players’ negotiations are going.

At the end of 2004 Electronic Arts announced to the world its exclusive licensing arrangement with the National Football League and the players, through its Madden NFL franchise.  In 2008 it extended that arrangement, to 2012.  Now, as part of a deal to protect EA in the event of a canceled season, Sports Business Daily is reporting EA gets a one-year extension and a $30 million dollar discount from the contracted royalties (Madden NFL 2011 has already sold 5.5M copies, and Madden SuperStars is on Facebook, a part of the fast-growing digital division).

A review of licenses involving the NFL in the ktMine database offered by BVR reveals a median royalty on License Net Sales of 9%.  If applied to data in this press release, it means revenue relief of over $300M.  Is this a “tell” the League believes the negotiating gap between owners and players is insurmountable?  If so, it's not a good sign for professional football fans. 

Eric Brown, EA’s EVP and CFO said EA is prepared for the worst:

"In terms of the NFL, I can tell you that our base assumption going into the plan is a very conservative one. Of course, we, like you, are looking forward to the NFL and the PA [Players Association] resolving their differences and starting the season on time this year. But in terms of the planning assumption, which is also baked into the limited guidance we provided, which was double-digit growth year over year in EPS, we've baked in, at least in our thinking, the most conservative assumption, meaning no season. We're optimistic it can be better than that and generate further upside.