The U.S. Department of Justice has filed a lawsuit over Activision Blizzard's "Competitive Balance Tax" in its "Overwatch" and "Call of Duty" leagues, which "penalizes teams that pay esports players above a certain threshold and and restricting player compensation in these leagues," the lawsuit alleges. At the same time, the DOJ also proposed a settlement that, if approved by the court, would end the matter as long as Activision promises not to do so again.

The lawsuit (opens in new tab) alleges that Overwatch and Call of Duty are both highly successful games, and that their respective professional leagues are "subject to franchise fees, sponsorship revenue, exclusive streaming agreements with YouTube, the Overwatch League's Disney (including its subsidiaries . brings in hundreds of millions of dollars for Activision from its television broadcast deals with ESPN and ABC," he noted. Like many other sports leagues, the Overwatch and Call of Duty leagues are made up of independently managed teams that are in constant competition to sign and retain the best players.

"From the inception of each league, Activision and the teams agreed to impose rules that had the purpose and effect of substantially reducing competition for players by restricting player compensation. Under the rule, which Activision called a "competitive balance tax," teams were fined if their total player compensation exceeded a threshold set by Activision each year. For every $1 a team exceeded that threshold, Activision would fine that team $1 and distribute the amount collected pro rata to all nonoffending teams in the league."

According to the DOJ, the agreement had several effects. It had the effect of reducing the likelihood of high bidding wars for players and lowering the annual salaries of other players for teams that spent heavily for their key players. The teams also understood that the tax would give their competitors an incentive to similarly limit player compensation, further exacerbating the anti-competitive effects of the tax, the lawsuit states."

Sports fans reading this may wonder why Activision Blizzard is being accused of imposing a salary cap that is common in other sports leagues: for example, the NBA, WNBA, NFL, NHL, MLS, CFL, NLL, and various other leagues all have salary caps, and only in North America. The reason for this, as with many other activism issues, stems from a lack of proper representation: other professional leagues have reached salary cap agreements through collective bargaining, but players in the Overwatch and Call of Duty leagues are not unionized and caps were imposed without their input or consent. The cap was imposed without their input or consent.

"Video games and esports are among the most popular and fastest growing forms of entertainment in the world today, and professional esports players, like all workers, are entitled to the benefits of competition for their services," said Justice Department Antitrust Division Assistant Attorney General Jonathan Cantor said in a statement (opens in new tab). Activision's actions have interfered with that." Today's lawsuit makes clear that the Antitrust Division remains committed to protecting workers in all industries from anticompetitive conduct."

Along with the lawsuit, the Antitrust Division also filed a proposed consent decree (essentially a settlement). Activision must also agree to repeal the balanced competition tax in esports leagues.

In a statement sent to PC Gamer, Activision denied that the Competitive Balance Tax broke any rules, but effectively agreed to the terms of the settlement.

"Activision Blizzard Esports is committed to being a leader in the esports industry and to creating opportunities for players to earn just compensation and profits," a company representative said. When we launched Overwatch and the Call of Duty League, we wanted to create viable career opportunities for players who needed a minimum salary and mandatory benefits as part of their player contracts. As a league, we also wanted our product to be competitive, so we carefully designed and implemented a Competitive Balance Tax that would allow our players to earn a minimum salary and mandatory benefits as part of their player contracts.

"We have believed and still believe that the competitive balance tax is legal and will not negatively impact players' salaries. The tax was never imposed and the league voluntarily removed this tax from the rules in 2021. We remain committed to a player ecosystem with fair salaries and health care and will continue to have the least restrictive player mobility compensation system in all of Major League Sports."

The DOJ investigation into the Overwatch League salary cap actually began in July 2021 (opens in new tab), but negotiations to resolve the issue broke down in late 2022, according to the Jacob Wolf Report (opens in new tab). However, as Microsoft's proposed acquisition of Activision Blizzard is heading toward completion and has an increasing chance of success, the company may have wanted to return to a clean slate and remove a potential roadblock.

If approved by the court, the settlement would be Activision Blizzard's second settlement with a U.S. government regulator this year; in February, the company agreed to pay a $35 million fine (open in new tab) for violating rules protecting whistleblowers and failing to adequately disclose information to investors The two parties agreed in ...