Fuzzy Math

While I’m big on the EA-hating bandwagon over the last six months, I found the text linked in this article to be… how can I say… in poor familiarity with reality.

According to the Complaint,3 EA responded to competition from Take Two by
reducing the price of Madden NFL 2005 from $49.95 to $29.95 for most platforms. After signing the exclusive licenses, EA allegedly raised the price to $49.95 when Madden 06 was released. Subsequent iterations of Madden, including the most current Madden title, were initially priced at $59.95 for most platforms. Based on the prices presented in the Complaint, when TakeTwo was able to compete unhindered, Madden NFL’s competitive price was in the range of $19.95 to $29.95. I assume for this exercise that these would have been Madden’s prices but-for the alleged acts. Thus, for the purpose of this declaration, I assume the overcharge was in the range of 50-66% of actual prices.

Madden‘s competitive price was never between $20-$30. When T2 released their game at $20, this was intended to be a loss leader for them. It was unsustainable and used simply to get Madden players to try their title. Even when T2 released theirs at $20, Madden was released at $40, just $10 less than the standard price of games during that generation. To assume that T2 could keep their price at $20 and continually fund the same level of development as Tiburon to keep competitive is difficult to believe. Even with the significant cost advantage, consumers still chose Madden 2005.

Games for the Xbox 360 and PS3 (with some exceptions) have retailed for $60, a $10 increase over the “equilibrium” price of Xbox/PS2 games. He never takes this into account and instead rides the $19.99 figure into the ground as if Madden would sell for $20 when every other game in the system’s library is selling for $60.

In order to estimate the potential magnitude of damages, I multiply each product’s total units times the average introductory price of the product and the assumed overcharge percentage. If I assume a 50% overcharge and add across all relevant versions of EA’s games, damages would total $701.5 million. Assuming a 66% overcharge would yield damages of roughly $926 million.

Average introductory price? Sports games are heavily discounted after the initial burst of early sales. Why assume the highest selling price was the average selling price unless you were deliberately trying to juice the figures?

To be fair, on page 14, he asks the court for better data on which to do a better analysis. So really, I should just be pissy at GamePolitics for purposefully creating an inflammatory headline to get my eyeballs (and they did). This entire case is likely to be thrown out if the Supreme Court rules in favor of the NFL on their licensing monopoly case, which is also not mentioned in the GamePolitics article.

If it is ruled that EA used monopolistic tactics, the damages should only be in the $10-$20/unit range (rather than $30-$40) and only for the units sold for the Playstation 2, Xbox and Gamecube consoles as these are the only markets with comparable data for what Take2’s pricing scheme would be. This would be considerably less than the high range quoted in the document.

Also: using vgchartz.com as a source in a legal document? I say this without facetiousness that even Wikipedia would be a better source.

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