Movement in the Collegiate Sports Legal Battle

Posted by Marty Brochstein on September 27, 2013

Shortly after EA Sports announced yesterday that it won’t develop its licensed college football game beginning next year – a major development in its own right – came the really big news that settlement papers had been filed in U.S. District Court in Northern California in the lawsuit by a raft of former collegiate athletes against EA Sports and the Collegiate Licensing Company (CLC) over those companies’ use of the athletes’ likenesses and identities in creating videogames. That settlement would leave the National Collegiate Athletic Association (NCAA) as the sole remaining defendant in the players’ suit.

The NCAA and some conferences had already said they wouldn’t let EA use their marks for next year’s game, though EA had earlier said it would forge ahead with licenses from individual universities. But increasingly, it was becoming apparent that major schools essentially had done a cost/benefit analysis, coming to the conclusion that the costs (PR, legal, etc.) outweighed the revenue and promotional benefit.

Particularly for the large schools (schools got royalties on a sliding scale based on performance criteria such as national rankings, bowl appearances, etc.), the royalty revenue that’s going away is significant, but not overwhelming. (According to results of LIMA’s 2013 Annual Licensing Industry Survey, video games are the second largest revenue producing merchandise category in collegiate licensing, though trailing apparel by a large margin.)

In announcing its exit from college football, EA Sports portrayed itself as having been “been stuck in the middle of a dispute between the NCAA and student-athletes who seek compensation for playing college football. Just like companies that broadcast college games and those that provide equipment and apparel [our italics], we follow rules that are set by the NCAA – but those rules are being challenged by some student-athletes. For our part, we are working to settle the lawsuits with the student-athletes. Meanwhile, the NCAA and a number of conferences have withdrawn their support of our game. The ongoing legal issues combined with increased questions surrounding schools and conferences have left us in a difficult position – one that challenges our ability to deliver an authentic sports experience, which is the very foundation of EA Sports games.”

That italicized segment is extremely important to keep in mind. As one executive very familiar with collegiate licensing pointed out, the videogame portion of the legal battle only involves part of a much larger pie. The athletes are looking also at the huge revenues from broadcast rights, as well as the common practice of marketing collegiate licensed apparel with popular players’ numbers (but not their names, which would be a violation of NCAA regulations).

Neither CLC (or its parent IMG) or EA Sports has commented on the settlement proposal, and no details of the agreement have been made public. It’s been widely reported that the settlement figure is $40 million, though there was no indication how it will be split among the plaintiffs and their attorneys.

Meanwhile, this is yet another aspect of the many forces roiling the video game business these days as the industry manages the transition to new platforms, and business models are adjusted to deal with the encroachment of inexpensive (or free) games for mobile devices and tablets. The millions (or, in some cases, tens of millions) of dollars in guarantees that used to be attached to a major film video game license have been scaled back radically.

But sports-licensed titles continue to one of the standout segments of the console-based business – at EA Sports, titles such as FIFA soccer and Madden football are reported to well outsell the NCAA football game, for example. And the good news for EA and other video game publishers is that those mainstays are based on professional sports.