DOJ and Activision end legal battle on esports player salaries

The Department of Justice and Activision Blizzard came to an agreement regarding the lawsuit filed over salary limits in the Call of Duty League (CDL) and Overwatch League (OWL).

Recently, the Department of Justice filed a lawsuit against Activision Blizzard regarding an esports league rule named "Competitive Balance Tax." The rule aims to find a middle ground between franchise teams and prevent possible stomp by a rich organization. It is "effectively operated as a salary cap, penalized teams for paying esports players above a certain threshold and limited player compensation in these leagues."

DOJ's complaint talks about how Activision's Competitive Balance Tax violates rules and says: "This conduct had the purpose and effect of limiting competition between the teams in each league for esports players and suppressed esports players' wages. This conduct violates Section 1 of the Sherman Act, 15 U.S.C. § 1, and should be enjoined."

DOJ summarized the issue in the file

"Teams recognized that their spending on player compensation would have been higher absent the Competitive Balance Tax. The tax minimized the risk that one team would substantially outbid another for a player. The tax not only harmed the highest-paid players, but also depressed wages for all players on a team. For example, if a team wanted to pay a large salary to one player, the team would have to pay less to the other players on the team to avoid the tax. Teams also understood that the tax incentivized their competitors to limit player compensation in the same way, further exacerbating the tax's anticompetitive effects," said in the filing, DOJ summarized the issue.

Even though the logic behind it might make sense, in reality, this was used to lower player salaries as a whole. Activision dropped salary limits in October 2021, and the company added, "The tax was never levied, and the leagues voluntarily dropped it from our rules in 2021. 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"

According to the Department of Justice's announcement, Activision accepted the terms and won't put any limitations or caps on salaries of esports players or teams. It was already ended by Activision Blizzard way before the settlement.

Activision Blizzard is waiting to be acquired by Microsoft. The lawsuits still proceed, and if the company manages to convince the court, Call of Duty League and Overwatch League will also change hands.

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