Sebastian Valdez-Oranday
Over the past several years, North American e-sports have transformed from relatively unorganized gaming tournaments to competitive leagues organized and run by some of the biggest video game publishing companies. Publishing company Activision Blizzard responded to the growing popularity around first-person-shooter video games by creating two franchised competitive leagues centered on the company’s Overwatch and Call of Duty video game titles, respectively.[1] Complete with all the bells and whistles of major American sports leagues, including city-based franchising, minimum salary requirements, benefits for players, and streaming contracts with media organizations, Activision Blizzard’s leagues sought to translate the established money-making mechanisms of traditional sports into the e-sport space.[2] After all, the most recent Call of Duty title proved itself immensely popular with fans, making over $800 million in sales during its opening weekend.[3] Unfortunately for league investors, the Call of Duty League and Overwatch League have proven themselves to bear the legal and commercial burdens faced by traditional sports leagues, but unable to realize the same financial success.[4]
It’s not cheap for an organization to expand into the e-sport space through Activision Blizzard’s franchised leagues. For the Overwatch League, the company charged investors $20 million to secure a franchise spot.[5] For its second outing, Activision Blizzard charged investors $25 million to secure a franchise spot in the Call of Duty League.[6] Still, Activision Blizzard has responded to slow growth and lack of profits by allowing teams in both leagues to defer payments, and even providing financial assistance in the form of $1 million to the teams. For some executives, however, this isn’t enough. Misfits Gaming CEO Ben Spoont, whose organization fields the Call of Duty League team the Florida Mutineers, spoke to the New York Times about the financial disappointment associated with the franchised league. In 2022, Spoont explained that, “[t]hey certainly pitched us that the growth of these leagues would be meteoric, and we all drank the Kool-Aid.” A few years after the creation of franchised leagues, popular gaming organizations like 100 Thieves and Faze Clan, both of which field teams in the Call of Duty League, have found financial success through an increased emphasis on content creation and merchandising.[7]
Still, Activision Blizzard’s franchising has great legal concerns beyond achieving financial success for investors. One issue that could be at the root of franchising problems is a reliance on traditional sports in cases where the e-sport is simply operating under different circumstances. In 2021, the Department of Justice opened an antitrust probe into the Overwatch League’s soft salary cap that limited league teams to $1.6 million in spending on player salaries.[8] While dealing with competitive balance taxes is common among traditional major sports leagues, a striking difference in the e-sport space compared to the MLB or NBA is the absence of a players’ union to collectively bargain around these issues. For the Call of Duty League and Overwatch League, the video game publisher is calling all the shots.[9]
To add to the unique issues faced by e-sports trying to mirror traditional competitive sports leagues, Activision Blizzard, at the time of this posting, finds itself at the center of a $69 billion acquisition bid by Microsoft that may or may not be blocked by EU antitrust regulators in 2023 over concerns of marketplace balance.[10] As its situation stands, the video game publisher finds itself in a position where it is navigating the legal hurdles faced by traditional sports leagues, while creating a product that can both cater to a general video-game-playing fanbase and serve as a viable competitive e-sport for an expanding sports industry. Maybe the best path forward for the budding American e-sports industry is to be patient. “We were trying to accomplish as an industry what took the N.B.A. 50 years, but we were trying to do it within a five-year time period,” Spoont told the New York Times.[11]
[1] Kevin Webb, 12 Teams Reportedly Paid $25 Million Each To Join a New Esports League that Starts Today—Here's Everything You Need to Know About Call of Duty League, Business Insider (Jan. 24, 2020, 5:48 PM), https://www.businessinsider.com/call-of-duty-league-teams-schedule-salary-rules-format-2019-11 [https://perma.cc/28DJ-FF25] [https://web.archive.org/web/20221203031526/https://www.businessinsider.com/call-of-duty-league-teams-schedule-salary-rules-format-2019-11].
[2] Kellen Browning, The Excitement Around E-Sports Is Growing. But Where Are the Profits?, N.Y. Times (Nov. 26, 2022), https://www.nytimes.com/2022/11/26/business/video-game-e-sports-profit.html [https://perma.cc/G4SE-ZUUQ] [https://web.archive.org/web/20221203033046/https://www.nytimes.com/2022/11/26/business/video-game-e-sports-profit.html].
[3] Mike Hume, Call of Duty Made $800 Million in One Weekend. Here’s What that Means., Wash. Post (Nov. 4, 2022, 2:33 PM), https://www.washingtonpost.com/video-games/2022/11/04/call-duty-modern-warfare-2-sales/ [https://perma.cc/Q6WQ-3FRQ] [https://web.archive.org/web/20221203041907/https://www.washingtonpost.com/video-games/2022/11/04/call-duty-modern-warfare-2-sales/].
[4] Browning, supra note 2.
[5] Id.
[6] Jacob Wolf, Sources: Call of Duty Franchise Spots to Sell at $25 Million Per Team, ESPN (Mar. 13, 2019), https://www.espn.com/esports/story/_/id/26249076/call-duty-franchise-spots-sell-25-million-per-team [https://perma.cc/EG2R-L5SP] [https://web.archive.org/web/20221203035300/https://www.espn.com/esports/story/_/id/26249076/call-duty-franchise-spots-sell-25-million-per-team].
[7] Browning, supra note 2.
[8] Jacob Wolf & Liz Richardson, U.S. Department of Justice Opens Antitrust Inquiry Into Overwatch League’s Soft Salary Cap, ‘Competitive Balance Tax’, Dot Esports (July 2, 2021, 8:00 PM), https://dotesports.com/news/u-s-department-of-justice-opens-antitrust-inquiry-into-overwatch-leagues-soft-salary-cap-competitive-balance-tax [https://perma.cc/8D75-CBJN] [https://web.archive.org/web/20221203042336/https://dotesports.com/news/u-s-department-of-justice-opens-antitrust-inquiry-into-overwatch-leagues-soft-salary-cap-competitive-balance-tax].
[9] Sean Murray, Activision Blizzard Settlement with US Department of Justice in Esports Antitrust Case Breaks Down, Gamer (Nov. 8, 2022), https://www.thegamer.com/activision-blizzard-overwatch-league-department-of-justice-anti-trust-settlement-breaks-down/ [https://perma.cc/NML3-PVJH] [https://web.archive.org/web/20221203043336/https://pixels.ad.gt/api/v1/getpixels?tagger_id=AU1T-0100-A9B797EAF0A1A2DB87625027ACA147DC&url=https%3A%2F%2Fwww.thegamer.com%2Factivision-blizzard-overwatch-league-department-of-justice-anti-trust-settlement-breaks-down%2F&code=%27none%27].
[10] Foo Yun Chee, Microsoft's $69 Bln Activision Bid Faces EU Antitrust Probe, Reuters (Nov. 9, 2022, 12:47 PM), https://www.reuters.com/markets/deals/eu-antitrust-regulators-probe-microsofts-69-bln-activision-bid-2022-11-08/ [https://perma.cc/76Z3-8AYD] [https://web.archive.org/web/20221203044323/https://www.reuters.com/markets/deals/eu-antitrust-regulators-probe-microsofts-69-bln-activision-bid-2022-11-08/].
[11] Browning, supra note 2.