The Department of Justice said Monday that it had reached a settlement with gaming giant Activision Blizzard over a complaint accusing the company of financially penalizing successful Overwatch and Call of Duty esports teams. The DOJ alleged Activision’s “Competitive Balance Tax” would have “effectively operated as a salary tax and limited competition.” Activision says it never made a team pay the tax and that the leagues dropped the monetary measure from their contracts in 2021. The settlement and its proposed consent decree are still subject to a federal judge’s approval.
Activision and teams competing in Activision-owned esports leagues had agreed to a pay structure, which, according to the DOJ, served the “purpose and effect of limiting competition between the teams in the league.” Teams were fined one dollar for every dollar a team exceeded the salary cap threshold set by Activision, according to the complaint—if a team paid its players $1.2 million, Activision would fine the team $200,000 and redistribute that cash among the other teams. The DOJ says this redistribution system stymied esports markets because one team could not substantially outbid another for a particularly elite player. Though the league’s highest-paid stars are the most obvious losers of the tax, the DOJ complaint notes it could also depress the wages of lesser-paid players if a team opted to pay a larger salary to one player.
“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—deserve the benefits of competition for their services. Activision’s conduct prevented that from happening,” Assistant Attorney General Jonathan Kanter said in a press release.
Activision defended the legality of its Competitive Balance Tax in a statement sent to Gizmodo, saying the measure was intended to promote competition, not harm it.
“The tax was never levied, and the leagues voluntarily dropped it from our rules in 2021,” the spokesperson added. “When we launched The Overwatch and Call of Duty Leagues, we wanted to create viable career opportunities for the players requiring minimum salaries and mandatory benefits as part of player contracts. As a league, we also wanted our products to be competitive, so we carefully designed and implemented the Competitive Balance Tax.”
The DOJ’s proposed consent decree, if accepted by a court, would prohibit Activision from putting in place any rule that would directly or indirectly limit player compensation in the company’s professional esports leagues. As part of that consent decree, Activision would have to certify it has ended the Competitive Balance Tax and put in place revised antitrust compliance and whistleblower protections.
Activision Blizzard faces scrutiny from three major US regulators
It’s been a rough regulatory start to 2023 for Activision. In addition to the DOJ’s suit, the company agreed to pay $35 million in February to settle charges levied by the Securities and Exchange Commission that the company failed to put in place systems allowing it to properly collect and analyze employee complaints about workplace misconduct. Those shortcomings ran afoul of whistleblower protection rules, according to the SEC, which also determined Activation issued severance agreements between 2016 and 2021 that similarly violated whistleblower protection rules. The company had just fired dozens of employees over sexual harassment and other workplace misconduct around the time of the settlement.
Prior to that, the Federal Trade Commission filed its own lawsuit attempting to block Microsoft’s proposed $69 billion acquisition of Activision Blizzard. In that case, the FTC argues the mega-acquisition would give Microsoft the power to suppress competitors to Xbox and its growing cloud gaming businesses. If successful, a blocked deal between Microsoft and Activision would represent the biggest win by far for the Biden Administration’s aggressive, reform-minded FTC.