Today, the World Wrestling Entertainment extended a deadline for THQ and Jakks Pacific to agree on renewing their joint venture's licensing deal for the wrestling company. According to THQ, the two companies now have until the current license expires on December 31, 2009, to renew their codevelopment deal through December 31, 2014.
The renewal notice comes as THQ and Jakks are squared off in the legal arena over the future of their WWE joint venture, which the two entered into in 1999. In July, Jakks spoke for both itself and THQ in exercising its right to renew the contract to make WWE games for five more years. However, THQ quickly responded to Jakks' announcement, filing a suit against the toy company claiming that it had not yet decided whether it would renew the WWE license.
THQ's suit further contended that Jakks could not unilaterally renew the WWE license as part of the terms of its joint venture with the toy maker. Also, THQ claimed that it is not obligated to consent to a renewal of the WWE license and that a noncompete clause preventing THQ from publishing a wrestling game for a year after the WWE agreement's termination cannot be enforced under California law.
In a note to investors today, Wedbush Morgan Securities' Michael Pachter said that the announcement gives THQ time to wrap up the aforementioned litigation with Jakks. In doing so, Pachter believes THQ intends to end its joint venture with the toy maker and enter into a new licensing arrangement with the WWE independently.
"The relevant issue involves whether THQ can unilaterally terminate the JV [joint venture], so that it can enter into a license deal with WWE on its own," Pachter said. "Jakks said in a counterclaim that a) THQ cannot terminate the JV unilaterally and b) even if the JV terminates, THQ is contractually bound to not produce WWE games for 12 months after the termination. THQ counterclaimed that a) it can terminate unilaterally and b) it doesn't have to honor the 12-month non-compete upon termination."
Pachter went on to note that the "likely outcome" of the proceedings is that THQ and Jakks' joint venture will be terminated, with Jakks cut off by 2010. Notably, in July, THQ emerged victorious in an arbitration proceeding in which the publisher sought to lower the return rate on WWE games it paid to Jakks from 10 percent to 6 percent, a $23 million savings. Pachter believes it is likely that THQ will soon buy out Jakks' interest in the game license.
"It's pretty clear to us that WWE doesn't want to deal with Jakks any more, and neither does THQ," he said. "The alternatives are to keep the deal as is for another five years (THQ and WWE unhappy, Jakks happy), terminate the JV and have no WWE games for a year (THQ and WWE unhappy, Jakks neutral), or pay Jakks something to go away (THQ and WWE slightly upset, but happy about being able to deal with one another without Jakks, and Jakks happy). We think that the third alternative is most likely, and expect THQ to make it happen in the next two months."
THQ had not responded to requests for additional comment on its ongoing dispute with Jakks as of press time.