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Plugged In

Electronic Arts Could Lose $1 Billion If College Athletes Prevail

Plugged In

By: Darren Rovell, CNBC

A class action lawsuit filed by former college athletes against the NCAA and Electronic Arts could take a huge bite out of the video game maker's revenues, should the athletes win the case.

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The Florida Gators

A California District Court judge recently denied Electronic Arts' motion to dismiss the combined case filed by former Nebraska and Arizona State quarterback Sam Keller and former UCLA basketball player Ed O'Bannon.

The case centers on whether licensees like EA unlawfully used athletes' likenesses without their consent. The case is already two years old and there's plenty more to go, but if the judge eventually rules that EA did in fact violate the players' intellectual property rights, there could be huge financial damages.

EA has not specifically disclosed any numbers related to the lawsuit to its shareholders, but the damages they could have to pay might be as much as $1 billion, which equals 25 percent of its annual revenue. EA spokesman David Tinson declined to comment on any details about disclosures related to the case.

So let me show you how I arrived at the $1 billion estimate.

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First, let's figure out how many athletes potentially could be involved.

The NCAA is located in Indiana, where games were also sold. The suit's statute of limitations is two years. The case was filed in 2009, which means that any games made from 2007 on would be covered. Counting all releases on all platforms since then, I have 20 football releases. There are 120 FBS teams and 70 players per team for a total of 8,400 players. There are a total of 125 FCS teams and there are 55 players per team for a total of 6,875 players. The law says that each player can be awarded $1,000 per likeness, per platform. That's a potential of $168 million awarded to FBS players and $137.5 million awarded to FCS players.

Then there are the college hoops games. Using the same $1,000 per likeness, per platform formula, there have been eight college basketball games published by EA on all platforms since 2007. There are 330 Division 1 teams and 11 players per team. That's a total of 3,630 players and a potential total owed of $29.04 million to players.

If all athletes are included in the class, and EA loses the case, the total cost to EA would be $334.5 million, but the Indiana publicity rights statute says that the award could be trebled if the violation was "knowing, willful or intentional." That means that a loss for EA here could mean more than $1 billion in damages.

Of course, it's not clear if every player in the game can argue that his likeness was used and any player might potentially be excluded from the class, but it should be noted that the plaintiffs have already stated that some pretty minor players, like a Kent State running back, had their likenesses used in the game. Stuart Paynter, the attorney representing the players, would not comment on any estimates of specific damages.

EA has argued that it has a First Amendment right to use the players likenesses.

UPDATE: An EA official downplayed the estimate.

"We could lose billions more if a giant meteor hits the earth," said EA spokesman Jeff Brown. "We're not planning for either outcome."

See more CNBC sports coverage at Sports Biz With Darren Rovell

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