NEWS - Tuesday, February 26, 2008

What Would Happen to 2K Sports?





It’s still a bit early to speculate, but if EA does kill the 2K Sports brand, the behemoth known as EA Sports would be able to capitalize on the ever-important sports category virtually unhindered.

"Any integration starts with our respect for the teams and people that make great games. Beyond that, it’s too early to discuss plans for managing Take-Two," read an EA FAQ entry that inquired about whether EA would "kill off" 2K Sports if EA’s bid for Take-Two goes through.

The FAQ added, "It’s too early to discuss plans for managing and integrating the Take-Two team. What we can say is that EA’s new decentralized structure and Label-based model can give these teams the freedom and responsibility they need to continue making great games."

EA offered $26 per share, or around $2 billion to buy out the New York City-based Grand Theft Auto publisher on February 19. The publisher made the offer known to the public on Sunday.

While Riccitiello has been outspoken about how EA aims to preserve the talent that it acquires through buyouts, redundancies in the sports units could become a reality, as many of the sports titles overlap and streamlining such redundancies would be in the best interest of EA’s bottom line.

The inclusion of 2K Sports is one of the sweetest parts of the proposed deal, analysts say.

"It appears to us that the basis for this offer is primarily the synergies to be gained from combining Take-Two’s and EA’s sports businesses," Wedbush Morgan analyst Michael Pachter said in a research note Monday.

He said that Take-Two appears to be on track to generate $200 million in sports games sales for this calendar year.

"The mere existence of Take-Two’s sports games has caused EA to cut prices each of the last two years prior to the
holidays, while it historically held pricing until well after the holidays before Take-Two attempted to compete. Should the two companies combine, we believe that EA would grow its sports revenues by around $300 million annually," he added.

Lazard Capital Markets’ Colin Sebastian called "GTA and 2K Sports ... top attractions [that] could fill product gaps. ...Take-Two’s 2K Sports label publishes the only licensed Major League Baseball videogame, as well as a strong NBA title."

The 2K Sports label has yet to be profitable, although the unit expects to be "near breakeven" in fiscal 2008.



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