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EA Sports, Licensing Company Settle Lawsuit Over NCAA Football Game

The agreement does not change the fundamental economics of college football. Which is really not all that surprising

By the way, this guy should still resign
By the way, this guy should still resign
Robert Deutsch-USA TODAY

This is probably how this portion of the sprawling lawsuit against the NCAA for its allegedly unfair use of players' likenesses in video games and television programming was always going to end: NCAA football video games dead for the foreseeable future, Electronic Arts and the Collegiate Licensing Co. settling with tens of thousands of players, and everyone focusing on the main event.

While the NCAA still has to maneuver the tricky legal issue of what will happen to current players who agree to be part of the settlement -- good luck to the lawyers trying to figure that one out -- the video game portion of the lawsuit was never really the game changer for the NCAA. Victory for the plaintiffs meant the end of the franchise, regardless of what their lawyers might be saying now.

"I'm disappointed in that because there should be a game," said plaintiffs' attorney Eugene Egdorf. "All that has to happen is the NCAA allow players to be paid and there would be a game. This is Step 1 to players being paid that should.

"There will be players who play Saturday who should be paid [for their services] as they should be." [HT: SBN]

This is either mind-bogglingly naive, ignorant of the economics of the EA video game or intentionally misleading.

The issue here for EA Sports is pretty simple: If it had to pay players any kind of real money to use their likenesses, the video game would likely have ceased being profitable, or at least profitable enough to be worth the trouble. If the O'Bannon plaintiffs were trying to either create a revenue stream for themselves and other players in the future or demolish the NCAA's amateurism rules, the video game was a poor target.

First of all, while the NCAA game is a big seller, it's not a linchpin for EA Sports.

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.

Which is still a pretty big deal. That's revenue, so the profits are even less, but the profit margin on $125 million is probably a lot of money, regardless of how big a share of your revenue it represents. But wait, there's more. I'm not a huge Darren Rovell fan, and I doubt many of you are, but he did some interesting back-of-the-envelope math here that gives a ballpark of how much EA might have to fork over if it were to, say, give each player $1,000 a year for their likenesses.

And while the law might not be a guide to how much each player would get in a negotiated deal, let's just assume for a moment that $1,000 is on target. That would be at least an $84 million hit each year, even if EA didn't use historical players. If the marketing and development budget for NCAA Football isn't substantially less than $40 million -- think of all the commercials and production costs, the cost of the current licensing deal with colleges, etc. -- then it isn't worth it for EA Sports to make the game. And that's just FBS players.

That figure might not be far from true, either. From 2006-11, before the lockout and other anomalies started to make a mess out of the numbers, the NFLPA received an average of $32 million from EA. The NFL has about 1,700 players on an active roster at any time. College football likely has around 8,500 or more. So even with a substantial cut from NFLPA rates for a future NCAA players' organization, the fees would be more than enough to take a big chunk out of EA's profits on the game.

That meant the likely outcome of the portion of the lawsuit dealing with EA Sports was always either an NCAA win or the death of the game. With the damages that they're likely to pay -- if each player gets $1,000 from the settlement in exchange for EA avoiding the trebling of damages, it would be equivalent to one year's revenue from the NCAA franchise -- there's no reason for EA to keep going. Particularly if the precedent is set that players will have to be paid to use their likenesses.

The bigger, more important part of this case is the push for players to get TV revenues. That is not affected by today's settlement. If that part lawsuit were to be decided against the NCAA, we would be talking a real danger to the current college athletics model. The NCAA's television revenues from events like the basketball tournament would have to be split with players, and lawsuits against the conferences' deals with networks and ESPN wouldn't be far behind.

That could fundamentally alter college sports in a way that I don't think would be for the better, but we can agree to disagree about that. All this settlement does is prove that the case against the NCAA Football video game franchise won't directly lead to a steady stream of revenue for current and future college football players. Given the little-understood economics of that franchise, there was never really a chance that it would.