The Justice Department has taken Activision Blizzard to court, alleging the publisher’s esports leagues may have underpaid their workers/players through an exploitative “competitive balance tax.”
The tax signed by both Activision and every team in theirs years ago call of Duty And over watch Esports leagues are designed to work (roughly) like salary caps in the NFL and NBA. However, the government says this particular deal “had the purpose and effect of restricting competition between teams in each league for eSports players and suppressing eSports players’ wages”. says in a court filing on April 3
From the beginning of each league, Activision and the teams agreed to introduce rules that had the purpose and effect of significantly reducing competition for players by suppressing player compensation. Under these rules, which Activision dubbed the “Competitive Balance Tax,” teams were fined if their total player compensation exceeded a threshold set by Activision each year. For every dollar a team spends above this threshold, Activision would fine the team $1 and distribute the collected amount prorated to all non-defaulting teams in the league. For example, if Activision sets a competitive balance sheet tax threshold of $1 million, a team that spent $1.2 million on player compensation in a season would pay a $200,000 fine that goes to the other teams would be distributed.
Teams realized that their player compensation spending would have been higher without the Competitive Balance Tax. The tax minimized the risk of one team significantly outbidding another for a player. The tax not only hurt the highest-paid players, it also depressed the wages of all players on a team. For example, if a team wanted to pay a player a large salary, the team would have to pay the other players on the team less to avoid the tax. The teams also understood that the tax encouraged their competitors to cap player compensation in the same way, further compounding the tax’s anti-competitive effects.
Sports fans might be thinking, hey, that’s pretty much how the NBA’s salary cap and luxury tax work. And it is! But as the Justice Department points out, the NBA’s deal was negotiated in negotiations with a players’ union under collective bargaining agreements. It wasn’t this tax.
The Government says an investigation into the Competitive Balance Tax has been ongoing for years, and that in 2021 – after warning it may be the case illegal – Activision “issued memoranda to all teams in the Overwatch and Call of Duty leagues announcing that it would no longer implement or enforce a competitive balance sheet tax in any of the leagues.”
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Reuters report that is the case today (3 voluntarily removed them from our rules in 2021. We have always believed and still believe that the Competitive Balance Tax was legitimate and did not adversely affect player salaries.”