EA Cleared of Fraud Charges

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Reportedly, U.S. District Judge Charles Breyer has ruled out Robin Antonick’s ‘fraud’ claims against Electronic Arts (EA). Antonick was a former programmer with EA and wrote the program of the earlier version of Madden NFL videogame.

Earlier, Antonick had alleged that EA used his code for successive versions of Madden game without paying him any royalty. EA last paid royalty to Antonick in 1992. The programmer filed a lawsuit in 2011 and sought damages worth $16 million and approximately $200 million from the profits that the game earned for EA before 1996.

Though the ‘fraud’ claim brought in by Antonick has been refuted, the trial related to EA’s breach of 1986 contract with the programmer and its compensatory damages will start from Jul 9.

However, EA has denied using Antonick’s codes for the later versions of Madden NFL game. The results of the trial are particularly important for EA as the company has raked in more than $4 billion in revenues from the franchise by selling in excess of 85 million copies.

Moreover, EA has announced Madden NFL 25 will release on Microsoft’s (MSFT) and Sony’s (SNE) consoles, including the upcoming upgrades - Xbox One and PlayStation 4, respectively.

We believe that any adverse ruling will dent EA’s cash flow. However, we note that trials of this kind tend to linger over a period of time. Hence, we don’t see any near-term concern for EA.

Nonetheless, we believe that EA’s high-quality titles and a robust product pipeline along with increasing online exposure and traction in the social and mobile gaming market will boost its top line over the long term.

However, we believe that EA faces a number of headwinds that include a soft video game industry performance, particularly due to weakness in retail sales amid an aging console system lifecycle. Additionally, competition from Activision (ATVI) and other gaming companies are the near-term headwinds.

Currently, EA has a Zacks Rank #2 (Buy).

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