Antitrust Probe Could Upend Business for Esports Franchises
Settlement talks between the Department of Justice and Activision-Blizzard over its competitive gaming luxury tax have broken down, as reported by Jacob Wolf. The outcome of this settlement could have significant implications for the underlying business model of esports.
The Facts
The fundamental issue here stems from Activision’s now-withdrawn “competitive balance tax.” It was eliminated in October 2021 after the Justice Department began investigating.
- For every dollar an esports team spent over a certain limit, it had to pay a dollar into a pool of league funds
- Funds would be redistributed to teams below the spending limit
- $1.6 million was the limit in 2021
- Applied to Overwatch League (OWL) and Call of Duty League (CDL)
When Having a Union Comes in Handy
In an ironic change here, Activision has to be kicking itself that it isn’t dealing with a union. If it were dealing with a union of esports players, Activision could negotiate what clearly is a salary cap – similar to many professional sports. But with no union, Activision appears to have engaged in something more akin to price fixing (wages, in this case).
In an ironic change here, Activision has to be kicking itself that it isn’t dealing with a union. If it were dealing with a union of esports players, Activision could negotiate what clearly is a salary cap – similar to many professional sports. But with no union, Activision appears to have engaged in something more akin to price fixing (wages, in this case).
- Unions are a non-starter in esports given many players are contractors
- Extremely short esport careers also limit the potential for unions
The Larger Problem
The larger issue here is many esports franchises are in the red after COVID, even owing Activision money. Many franchises attribute this partly to high player salaries. Microsoft's pending acquisition of Activision further complicates any negotiations.
The larger issue here is many esports franchises are in the red after COVID, even owing Activision money. Many franchises attribute this partly to high player salaries. Microsoft's pending acquisition of Activision further complicates any negotiations.
- OWL: $6-$7.5 million owed on average per franchise
- CDL: $22.5 million owed on average per franchise
- Even Riot’s League of Legends World Championship has yet to turn a profit
How to Turn a Profit?
That’s the question many esports franchises have yet to answer. They pay companies like Activision or Riot for the privilege of competing, hoping to make up the fees in prize money and sponsorship. A few have succeeded, but by and large most franchises have struggled without the lucrative broadcast deals and in-person revenue (tickets, concessions, etc.) teams rely on. With even a soft salary cap out of the question, sooner or later, something may have to give if esports is to keep growing.
That’s the question many esports franchises have yet to answer. They pay companies like Activision or Riot for the privilege of competing, hoping to make up the fees in prize money and sponsorship. A few have succeeded, but by and large most franchises have struggled without the lucrative broadcast deals and in-person revenue (tickets, concessions, etc.) teams rely on. With even a soft salary cap out of the question, sooner or later, something may have to give if esports is to keep growing.
Featured image: Overwatch League
