Activision Blizzard Inc (NASDAQ:ATVI) has been sued by the US Department of Justice (DoJ) alleging the salary cap for esports players in the Call of Duty and Overwatch leagues was anti-competitive.
The video game publisher agreed to settle the suit, the DoJ said overnight, which centred around its so-called 'competitive balance tax' system used by the leagues.
Under the tax, a franchised team would be fined if it exceeded a player salary limit set by Activision Blizzard, with the fees distributed among non-offending teams.
Activision had said the system, which it discontinued in 2021, was intended to prevent wealthier teams from dominating with high salaries.
But in practice, the DoJ filing suggested, the system led to depressed wages for all players, adding that the tax "minimized the risk that one team would substantially outbid another for a player".
"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," the DoJ said.
Under the settlement, Activision Blizzard is prevented from imposing any future salary caps or taxes.
A spokesperson for Activision Blizzard maintained that the tax was lawful and had no negative impact on player salaries.