Electronic Arts Inc. shares surged to an all-time high in Tuesday trading, a day after the top U.S. video-game maker said it scored exclusive licensing deals with the National Football League and its players' association.
The agreements give EA, publisher of "Madden NFL 2005" and "NFL Street," exclusive rights to use NFL teams, stadiums and players in its football video games from 2005 until 2009.
More importantly, the pact lets EA break away from other players in the intensely competitive video-game arena. That includes one of the company's chief rivals, Take-Two Interactive Software Inc., whose "ESPN NFL 2005" title has played underdog to "Madden" since the latest versions of the games were released this summer.
In recent trading, shares of EA jumped 5.4 percent, or $3.11, to $60.68 on nearly three times its average volume, shooting past a record high of $58.90. Meanwhile, Take-Two slipped 5.8 percent, or $2.07, to $33.35, with more than twice the normal volume of shares changing hands.
"This contract should allow EA to eliminate competition in the pro football category, hold premium pricing next year and raise prices for the next console cycle," Pacific Crest Securities analyst Evan Wilson wrote in a research note. "It should also alleviate some of the pressure to re-sign John Madden's contract at the end of the year."
Although EA did not disclose financial terms of its deal, Wilson said it is "likely" that EA has doubled its royalty payment to the NFL from an estimated 5 percent of net revenue.
"While the increased payment could pressure 'Madden's' margins, the increased revenue and gross profit should offset it and have a positive effect on earnings," the analyst wrote.
Wilson, however, cut his rating on EA to "Sector Perform" from "Outperform," saying potential growth from the NFL agreement is already reflected in the stock's price and that he cannot justify a price greater than $63.
Michael Pachter, an analyst with Wedbush Morgan Securities, also lowered EA to "Hold" from "Buy" and said he believes there is limited upside from current levels despite the company's "superior" growth prospects.
The analyst said while both EA and the NFL will profit from the arrangement, the company _ which has exclusive deals with FIFA, NASCAR and the PGA _ may not come under enough pressure to spur rapid development of newer releases.
"It is our belief that competition drives innovation, and we are concerned that without competition from Sega/Take-Two, Microsoft, Sony, Atari and Midway, EA will have less incentive to continually improve its franchise," Pachter wrote in a note to clients.
Elsewhere in the sector, shares of Activision Inc. added 1 cent to trade at $18.66, while THQ Inc. added 3 cents to $23.51 on the Nasdaq.