Justice Department, Activision Blizzard Settle Esports Antitrust Lawsuit

The U.S. Department of Justice (DOJ) and Activision Blizzard, the publisher of “Call of Duty” and “Overwatch,” agreed to settle an antitrust lawsuit filed Monday over a quasi-salary cap rule previously enforced in two of its esports leagues. 

The DOJ filed the lawsuit in Washington, D.C., federal court on Monday and immediately submitted a consent decree, signaling that the two sides had agreed to a settlement pending a judge’s approval. Fines were not predetermined in that filing, but Activision Blizzard will be forced to institute antitrust practices within its company as part of the settlement, including a commitment to never impose a luxury tax in its esports leagues. 

The settlement marks the end of one of Activision Blizzard’s four major ongoing legal battles. 

The DOJ began investigating Activision Blizzard in late 2020 for what the company called a “competitive balance tax,” which discouraged excessive spending on player salaries in the Overwatch and Call of Duty leagues. 

That tax penalized teams that spent more than a set amount on player compensation each season by requiring them to pay one dollar into a pool for each dollar spent over the limit. Money contributed to the tax pool would then be distributed among the non-offending teams. 

The Justice Department argues that the tax violated the Sherman Act, the United States’ most thorough piece of antitrust legislation, by suppressing the earning potential of Overwatch and Call or Duty league players. Despite the settlement, Activision Blizzard said in a statement that it stands by its argument that the rule was not a violation of antitrust law. 

“We have always believed, and still believe, that the Competitive Balance Tax was lawful, and it did not have an adverse impact on player salaries,” Activision Blizzard said in a statement to the media on Monday. “The tax was never levied, and the leagues voluntarily dropped it from our rules in 2021.” 

The Jacob Wolf Report is a reader-supported venture. Free and paid versions are available. The best way to support us here is by taking out a paid subscription.

Central to the Justice Department’s argument is the lack of a players union for either of the esports leagues. In traditional U.S. pro sports, the MLB has a broad exemption from antitrust legislation, while the NBA and NFL have more limited exemptions. Each of those leagues has a corresponding players union as well, which gives players a voice at the bargaining table and dissuades additional antitrust criticism. No players union exists for the Call of Duty or Overwatch League.

News of the tax first broke on Twitter in September 2018, when then-London Spitfire manager Susie Kim tweeted about a salary cap and luxury tax. The DOJ probe began more than two years later, with the agency interviewing several former Overwatch League players, ex-employees and others, sources familiar with the investigation told The Jacob Wolf Report. 

While the case it faced from the Justice Department is over, Activision Blizzard is still at the core of three other major legal battles. 

The first involves its impending merger with Microsoft, valued at $68.7 billion, the most of any gaming merger or acquisition deal. That merger faces intense scrutiny from regulators in the U.S., the United Kingdom and the European Union, but there’s increasing optimism that it will get done, according to multiple reports. 

Activision Blizzard is also the defendant in a California lawsuit brought by the state’s Civil Rights Division, which alleges the company was aware of rampant sexual harassment and gender discrimination and did not act proactively. Activision Blizzard resolved a similar dispute with the U.S. Equal Employment Opportunity Commission, agreeing to pay $18 million in a settlement.

Finally, Activision Blizzard is also at odds with its Overwatch League team owners, who hired a British law firm to advocate for the teams and seek economic compensation from the publisher. Those team owners, who originally agreed to pay anywhere from $20 to $35 million in franchise fees over time, allege that Activision Blizzard has continually failed to meet its promises regarding revenue and growth within the league. 

Thank you for reading The Jacob Wolf Report. This post is public so feel free to share it.