By Jared Good, Esq.
Activision Blizzard has had a rather up-and-down past several years. Reports of a toxic workplace that led to a federal investigation, was followed by the massive purchase price from Microsoft to acquire the company and its subsequent antitrust investigation and complaint. Lost amongst these massive changes, another issue was warranting a federal intervention that likely was only aware to those who follow esports. Activision Blizzard is a major player within the esports world, as it owns and operates two separate leagues: one for Overwatch and one for Call of Duty.
Within these leagues, Activision Blizzard had attempted to enact salary limits on the participants in their esports leagues. When filing their lawsuit in the District Court of Washington, the Justice Department alleged that Activision Blizzard and the independently owned teams imposed a tax that “effectively operated as a salary cap, penalized teams for playing esports players above a certain threshold and limited player compensation in these leagues.”
The exact phrasing of the tax was:
Teams were fined if their total player compensation exceeded a threshold set by Activision each year. For every dollar a team spent over the threshold, Activision would fine the team one dollar and distribute the collected sum pro rata to all non-offending teams in the league.
At first glance, most sports fans, especially in North America, would be confused on why Activision would be subject to penalties because of this conduct. So called “luxury taxes” and salary caps are prominent in all of the major sports leagues. The tax being levied under the terms of the Activision rules, would most closely follow that of the NBA where teams that spend more than the permitted salary cap, enter the luxury tax where the money is then pooled into a league-wide pot to help supplement income for smaller-market teams to help maintain competitive parity and opportunities for success.
The difference here, however, is that the esports leagues at issue do not have a collective bargaining agreement and representation of the players. So in attempting to legislate this change, the players were having a pay limit unilaterally imposed without opportunity to content or negotiate the terms and benefits.
This tax was never actually implemented within the league. Activision dropped the plans in October of 2021. Although this never occurred, Activision has maintained that the tax would have been a lawful action that would not have adversely impacted the salaries of players.
As per the agreed terms of the settlement, Activision is required to refrain from capping and/or limiting the salaries of esports players or their teams. The settlement must still be approved by the federal district judge.
