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Wednesday, August 21, 2013
Is EA Sports revenue worth schools' risk?

By Kristi Dosh

The future of EA Sports in the college football video game market is seemingly a work in progress. The NCAA, SEC, Big Ten and Pac-12 have all confirmed they will no longer participate in the EA Sports games. The contracts for each of those parties were up following this year’s game, with the exception of the SEC, which will appear in one more game under its current contract.

The Ed O'Bannon antitrust lawsuit, which pits former and current student-athletes against the NCAA, EA Sports and Collegiate Licensing Company, is thought to be a cause of the exodus from the game. Those former and current student-athletes are claiming player likenesses are being used in the game without compensation to the individuals. The NCAA defended its legal position when it announced it would no longer participate in EA Sports' game going forward but cited the costs of defending against lawsuits as a reason.

Individual schools, even within those conferences not participating, will each make their own decisions. It appears that some may decide the small amount of revenue they earn from the games isn’t worth the hassle. AL.com reported that Kentucky and Arkansas are on the fence in the SEC, and Washington’s athletic director told the Seattle Times he would advise university officials to end its license with EA Sports.

A source with direct knowledge of the situation says he would be “very surprised” if the College Football Playoff licensed its marks for the games, and access bowls such as the Chick-Fil-A Bowl and Orange Bowl say they have yet to make a decision.

Licensing directors I spoke to weren’t clear on the exact formula used to calculate revenue from video games like EA Sports “NCAA Football” and “NCAA Basketball” (the latter of which was discontinued in 2010), but they all agreed on several aspects. Royalties from the games are determined based on a number of factors, including a school’s ranking in the polls and appearances in either bowl games, for the football video game, or March Madness appearances for the basketball video game. The formula is on a rolling, multiyear basis, so schools were still receiving royalties from “NCAA Basketball” last year, despite the game having been discontinued.

Most of the schools we contacted generated a greater percentage of licensing revenue from EA Sports “NCAA Football” royalties than from jersey sales. Whereas jersey sales accounted for an average of 1.1 percent of all licensing royalties for Collegiate Licensing Company schools, Louisville said licensing revenue from EA Sports accounted for 5.3 percent of its licensing revenue last year. However, at Texas A&M the percentage (1.9 percent) was only slightly higher than jersey sales (1.53 percent).

A sample of revenue schools received from EA Sports licenses in 2012-2013:
With the money divided out between so many schools, and other parties involved in the game, it doesn’t add up to much for each individual school. Louisville says the revenue it generates from EA Sports is a little larger than reported, but CLC keeps 15 percent of the revenue as commission. Industry analysts told Sports Illustrated the “NCAA Football” franchise likely accounts for just 5 percent, or $125 million, of EA Sports' total revenue per year.

For the latest edition of the game, “NCAA Football 14,” EA Sports split some of its revenue with former college football players. Those players were compensated differently depending on whether or not they were current NFL players. Those not currently playing in the NFL were compensated individually. However, current NFL players were included as part of the game through the NFL Players Association’s group licensing program, which is divided between all active, eligible players at the end of the year.

The plaintiffs in the O’Bannon case want one-third of the combined video game revenue to go to student-athletes. On the high end at Wisconsin that would have meant $56,556 last year. On the lower end at Texas A&M it would have been just over $25,000. How that money would be divided and distributed between student-athletes remains to be seen.