Saturday, February 5, 2011

Revisiting Electronic Arts' Exclusive Contract with the NFL and NFLPA

Back in 2004, I wrote about Electronic Arts snagging an exclusive licensing contract with the NFL and NFLPA to develop, publish, and distribute football video games featuring NFL players and teams. The 5-year, $400 million contract--the exclusivity of which resembles the exclusive NFL-Reebok contract that precipitated American Needle v. NFL--meant the end of other third-party publishers making NFL video games. Most notably, it meant that Sega's popular/arguably better and substantially cheaper NFL 2K series would be discontinued while Electronic Arts' John Madden Football would become the only NFL game in town.

Since then, the exclusive contract has been extended to 2012 and John Madden Football has been published each year, with annual updates to player rosters and, some would argue, only modest enhancements to game play. Nonetheless, each year's iteration of Madden Football tends to attract reasonably favorable reviews and sell quite well.

I wrote about this topic and related litigation in my Yale Law Journal article "American Needle. v. NFL: An Opportunity to Reshape Sports Law":
Although Electronic Arts' NFL games have sold well since 2004, they have attracted criticism for lacking innovation. Prices for Madden NFL games have also risen in the absence of competition from other NFL games. Those and other consequences underscore a central concern of section 1: an absence of competition will lead to an inferior market. The exclusive Madden contract is also the subject of Pecover v. Electronic Arts, a class action lawsuit recently brought by disenchanted video game players. The suit contains a number of claims, including those based on the Sherman Act. While neither the NFL nor the NFLPA is a party to the litigation, their exclusive contract with Electronic Arts could eventually face a section 1 challenge similar to the one confronted by the NFL in American Needle. Plaintiffs in such a claim would likely assert that interactive football video game software is a sufficiently discrete product market - a proposition supported by the U.S. District Court for the Northern District of California in Pecover. With some level of persuasion in light of the aforementioned data on prices and commentary on innovation, the plaintiffs could also maintain that Electronic Arts's exclusive contract for NFL video games produces more anticompetitive injury than procompetitive benefit.
In an interview with RipTen, Marc Eldeman also discusses these issues. Also, Pecover v. Electronic Arts remains in litigation, with its lead attorney confident that the plaintiffs will prevail.

Fast forward to 2011, IGN's Hilary Goldstein takes a critical view of the exclusive NFL contract with Electronic Arts. Here's an excerpt of his article, which hits at two concerns antitrust law has for exclusive contracts: higher prices and diminished innovation.
I have little doubt the Madden series would be considerably better if [Electronic Arts] developer Tiburon had a competitor threatening it each year . . . Does Madden NFL 11 play better than Madden NFL 2005? Yes. There's no question that, over time, the gameplay has seen improvements thanks to better animations and smarter AI. But because there is no one else to stand up against it, Tiburon can schedule its innovations at its leisure. . . .

I don't expect Tiburon to start taking big chances and making more exciting and more substantial improvements. Why would they? And that's what sets the Madden series apart from the majority of other games. No one can rightly compete, because the NFL license is football and EA holds onto it tightly.

Sure, Microsoft owns the Halo license, but anyone has a right to make a first-person shooter and it can legitimately stand on its own. You can't make a football game without the NFL teams and players. It's an automatic fail.
To read the rest of Goldstein's article, click here.