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Justice Department settles with video game publisher over esports salaries

The federal government accused Activision Blizzard of suppressing wages in popular “Call of Duty” and “Overwatch” leagues.

WASHINGTON (CN) — The Justice Department has agreed to a settlement with one of the world’s largest video game publishers following an investigation into claims that the company illegally limited salaries in its popular esports leagues.

The Justice Department filed an antitrust lawsuit Monday against Santa Monica, California-based Activision Blizzard Inc. over a now-discontinued salary cap for teams in esports leagues for "Overwatch" and "Call of Duty."

The government simultaneously filed a proposed consent decree in the U.S. District Court for the District of Columbia, which would end the dispute without an admission of guilt. 

Activision is one of the world’s leading video game publishers. The "Call of Duty" franchise, started in 2003, is a first person shooter game set in different eras, depending on the release and is one of the most popular and influential games in history. "Overwatch" was launched in 2016 and features two teams competing over different objectives.

The company created an "Overwatch" esports league in 2018 that now has 20 teams in cities across North America, Europe and Asia, according to the lawsuit. The "Call of Duty" league launched in 2020 and has 12 teams. 

Th Justice Department claims the leagues have generated “hundreds of millions” from franchise fees, sponsorships and a streaming partnership with Disney. ESPN reported that Activision was charging a franchise price of $25 million per team.

The leagues operate similar to traditional sports, with independently owned teams hiring a roster of players. 

When it created the leagues, Activision made teams agree to what was called a competitive balance tax. The tax operated similar to a traditional sports league’s salary cap. Teams would be fined $1 for each dollar spent on player compensation above an Activision-imposed threshold, with the proceeds distributed to other teams.

“While players in other professional sports leagues have agreed to salary restrictions as part of collective bargaining agreements, the players in Activision’s esports leagues are not members of a union and never negotiated or bargained for these rules,” the lawsuit states.

The Justice Department contends that the tax not only hurt the highest-paid players, but also suppressed wages across the league.

“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 statement. “Today’s lawsuit makes clear that the Antitrust Division remains committed to protecting workers across all types of industries from anticompetitive conduct.”

The practice was discontinued in 2021 amidst the Justice Department investigation. Joe Christinat, a spokesperson for Activision Blizzard, told The Verge that the tax was never levied.

The consent decree would bar Activision from imposing any rule to limit player compensation, require the company to certify that it has ended the practice in all its esports league, implement revised antitrust compliance and whistleblower policies, and provide notice of the final judgment to teams and players.

The decree must be signed off by a federal judge.

The lawsuit was the latest legal setback for the company from government investigators over the past few years. 

Activision agreed to pay $35 million in February in a settlement with the Securities and Exchange Commission over claims it lacked adequate disclosure controls for assessing reports of workplace misconduct.

The company has also been contending with the fallout from reports that sexual harassment and discrimination was rampant at its studios. It has faced lawsuits from the California Department of Fair Employment and Housing and the U.S. Equal Employment Opportunity Commission and is the subject of a complaint by the National Labor Relations Board.

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