Take-Two pays out to Rockstar

While the company publishes a wide array of products through labels like 2K Sports and 2K Games, it's no secret that Take-Two Interactive's fortunes of late have been made on the trials and triumphs of its Grand Theft Auto series. But how much is it worth to Take-Two to keep the brains behind the series content and under contract? The company's latest quarterly report suggests it was worth $25 million.

In Take-Two's annual report (issued in late January), it listed a dependence on key personnel as a risk factor that could hurt its financial performance in the future.

"In particular, we are highly dependent on the expertise, skills, and knowledge of certain of our Rockstar employees responsible for content creation and development of Grand Theft Auto and other titles," the company's filing read, before noting that the publisher had reached a three-year incentive agreement in principle with those Rockstar employees to keep them around.

In the company's latest quarterly report, filed with the Securities and Exchange Commission yesterday, that statement of risk had changed to indicate that the agreement was a done deal, "but there can be no assurance that we will be able to continue to retain these personnel at current compensation levels, or at all."

The quarterly report also makes mention in a separate section of $25 million in restricted common stock to be granted "to certain Rockstar employees responsible for product development," $14.8 million now and an extra $10.2 million to be issued over the next three years.

In a note to investors this morning, Wedbush Morgan Securities analyst Michael Pachter suggests the deal could come back to hurt Take-Two. He suggests that the next two console versions of the series will debut in fall of 2007 and fall of 2009, meaning the three-year agreement will only see one true console sequel to the series through to completion. Between $25 million in increased expenses plus whatever increase was made to Rockstar's royalties on the series (Pachter assumes the new agreement includes a higher royalty rate), Pachter thinks the company will have a harder time meeting expectations for its 2007 and 2008 fiscal year.

Take-Two has not announced a name or release date for its next console sequel in the Grand Theft Auto franchise, but it has said that in fiscal year 2007 it "anticipates a strong next-generation lineup from Rockstar Games, including sequels to several of Rockstar's most successful franchises."

A Take-Two representative did not immediately return requests for comment on this story.