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Take-Two Inks a $1 Billion Deal With the NBA

Take-Two Interactive Software (NASDAQ: TTWO) and the National Basketball Association (NBA) this week announced "a significant, multiyear global partnership extension," according to the press release. This expands on the existing agreement that has made the NBA 2K video game "the top-rated and top-selling NBA video game simulation series for the past 17 years." Take-Two also said the franchise sold more than 86 million units worldwide.

The deal continues the partnership between the two organizations, which could result in Take-Two paying the NBA as much as $1.1 billion over the next seven years, depending on the future success of the game, according to a report in The Wall Street Journal.

This agreement expands on a long and fruitful history between Take-Two and the NBA.

NBA 2K19 continues a long history of excellence. Image source: Take-Two.

Game on

This year marks the 20th anniversary of the NBA 2K video game franchise, which has been a lucrative one for Take-Two. The NBA 2K18 version set a series record, selling 10 million copies. The success has extended to NBA 2K Online and NBA 2K Online 2, which boast a combined 40 million registered users, and is the No. 1 PC online sports game in China. The franchise recently expanded with the release of NBA 2K Playgrounds 2 and NBA 2K Mobile.

Take-Two has parlayed the success of the franchise into additional opportunities. In early 2017, Take-Two and the NBA announced the launch of the NBA 2K eLeague, based on the hit gaming franchise -- and the first official esports league operated by a U.S. professional sports league. Each of the teams in the NBA will operate a team of five to six professional esports players and follow a familiar format: competing head-to-head throughout a regular season, participating in a bracketed playoff system, and concluding with a championship matchup.

The debut season came to a close in Aug. 2018, with Knicks Gaming winning the Inaugural NBA 2K League Championship, in the best-of-three matchup with Heat Check Gaming. At the conclusion of the season, the league announced it would expand from the initial 17 teams to 21.

Show me the money

Take-Two wouldn't cough up that kind of money if it wasn't worth it to do so. NBA 2K19, the latest installment in the franchise, was the No. 1 selling sports game -- and third-best-selling game in any genre -- in the U.S. last year through November, the latest month for which data is available. Its predecessor was also the top seller among sports games in 2017, and second-best seller of the year, behind only Activision Blizzard's (NASDAQ: ATVI) Call of Duty WWII.

Beyond just the game itself, Take-Two makes money from recurrent consumer spending -- which includes virtual currency, add-on content and the sale of in-game items -- and that's now a growing portion of the company's revenue. In its fiscal 2019 second quarter, which ended Sept. 30, 2018, recurrent consumer spending grew to 49% of net revenue of $493 million. It also didn't hurt that NBA 2K19 and NBA 2K18 were among the largest contributors to net revenue during the quarter, though the company doesn't break out the exact financial performance of specific games.

Grand Theft Auto anchors a growing stable of hits. Image source: Take-Two.

A growing stable of hits

Once upon a time, Take-Two was known for its Grand Theft Auto franchise and little else. In recent years, however, NBA 2K has joined a growing list of top sellers. Red Dead Redemption 2 boasted near-perfect reviews and scored "the biggest opening weekend in the history of entertainment, with over $725 million in retail sell-through during its first three days." The game also sold more units in its first eight days than the original version sold in eight years.

If you'll pardon the pun, Take-Two's got game.

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Danny Vena owns shares of Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool has a disclosure policy.

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