Electronic Arts Teams Up With NFL For E-sports Tournament

Electronic Arts Inc. (NASDAQ:EA) and the National Football League (NFL) recently announced a partnership to organize the Madden NFL Club Championship that will involve the 32 NFL clubs. Reportedly, players above 16 years who excel in EA’s Madden NFL in the United States, United Kingdom and Germany can play the tournament.

Per media reports, the winner of this “largest competitive gaming commitment ever by a U.S. professional sports league” will get a lions’ share of the cash prize of $403,000 and two tickets to the Super Bowl 52 to be played in Minnesota.

Growing E-Sports Market – Key Catalyst

E-sports, which are live video game tournaments, are fast emerging as a lucrative business opportunity. Like traditional sports, even these are held at stadiums and televised or broadcast online. Importantly, these tournaments have alluring prize money. Per NFL Commissioner Roger Goodell, e-sports and competitive gaming are very attractive to the “younger and digitally savvy NFL audience”.

EA’s involvement with NFL to attract e-sports gamers is a significant move for the company. With continued increases in viewership, corporate sponsorships and growing media coverage, e-sports is here to stay. Thus, the company’s initiatives to strengthen its presence in the e-sports market will help drive the top line.

Per the latest report from Newzoo, in 2017, revenues from e-sports are expected to be up 41.3% to $696 million. From 2015 to 2020, revenues are likely to record CAGR of 35.6% to $1.49 billion.

We believe this will help to sustain the momentum in EA shares, which have gained 51.1% year to date, outperforming the industry’s 44.4% rally.

Stiffening Competition a Headwind

Given the sound business opportunity, competition in this space has intensified. Other video game companies like Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive Software (NASDAQ:TTWO) are also making big moves to grab a share of this pie.

With Overwatch recording stupendous success with 30 million players and counting, Activision has announced a league for this franchise as well. Activision has recorded first seven team (city-based) sales for the Overwatch league. A few days back, the company added that it has sold the London and Los Angeles teams for the league.

Activision has long been making efforts to build its presence in this arena. In fact, the company has set up an exclusive e-sports unit spearheaded by former ESPN CEO Steve Bornstein. Also, it acquired MLG, a leading e-sports player for an estimated $46 million. Activision has already established Call of Duty World League.

After treading cautiously initially in the lucrative e-sports market, Take Two has accelerated its efforts. In February this year, the company inked a deal with NBA to launch NBA 2K eLeague. This made NBA the only professional sports league to have its own e-sports league. The league will be functional in 2018. Take Two has been conducting an NBA e-sports tournament for the last two years.

Zacks Rank and Stock to Consider

Currently, Electronics Arts has a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Applied Optoelectronics (NASDAQ:AAOI) , which carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Applied Optoelectronics is projected to be 17.5%.

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