The global video game industry continues to see tremendous growth, with 2023 revenues projected to reach CA$487 billion.
Esports continue to grow just as quickly.
In our report, Legal state of play in the video games industry, we noted that in 2021 an estimated 240 million people watched at least one esports event and that the esports market alone was estimated to be worth CA$1.6 billion.
The industry’s growth has been marked by an increase in high-profile legal claims, including two matters arising earlier this spring concerning employment issues, both of which we highlight below. We expect this trend to continue, with developers, gaming companies, and esports organizations and teams facing increasing employment- and competition-related disputes, complaints, and potential litigation.
Riot Games and LCSPA
In June 2023, the League Champion Series Players Association (the North American League of Legend players’ union), announced it had reached an agreement with Riot Games regarding its threatened walkout of the 2023 Summer Split. The Summer Split is the final tournament in the season before the League Championship Series playoffs, with the winners qualifying for the World Championship tournament. This is not the first time Riot Games and the LCSPA have had a conflict: in March 2020, the LCSPA and Riot Games disagreed publicly on how to proceed with the 2020 Spring Split in light of the COVID pandemic.
Before reaching an agreement with Riot, the LCSPA had threatened to walk out of the 2023 Summer Split over changes to the LCS structure. On May 12, 2023, Riot announced it was removing the mandate requiring LCS teams to field a team in the “Challengers League,” which operated as a feeder, or minor league, system for the LCS. A mere six days after Riot’s decision, only 30% of LCS organizations chose to keep their Challengers League teams.
The LCSPA objected to Riot’s decision, alleging that Riot had previously provided assurances that no changes would be made to the Challengers League in 2023. In a release posted on the Players Association’s Twitter account, the LCSPA argued the average annual salary cost of an entire Challengers League roster was “less than 17% of an average LCS organization’s League-based salary costs in a year” and highlighted the players, coaches, and managers who would lose their jobs as a result of the decision. The Association’s release continued by stating over 50% of current professional LCS players came up through the Challengers League system and without the requirement for LCS teams to have a Challengers League roster, the Challengers League would not be possible. After its response, the LCSPA issued a set of demands to Riot and players subsequently voted to walk out on the upcoming LCS 2023 Summer Split in protest of Riot’s decision.
Riot responded to the threatened walkout, announcing that the Summer Split would be delayed for two weeks to encourage discussion with the LCSPA, and cautioned that if a compromise could not be found, the entire LCS summer season may be cancelled, resulting in no LCS teams being able to qualify for the World Championships.
Ultimately, Riot and the LCSPA avoided a walkout or cancellation, and reached an agreement to resume the 2023 Summer Split, albeit slightly delayed, with concessions made by Riot and LCS teams “to ensure a more sustainable [Challengers League] future and a more equitable voice for players in their workplace.” The agreement included the following items:
- Revenue sharing between tournament operators and participating teams.
- An improved North American Challengers League governance model, including a Team Participating Agreement (individual agreements between Riot and each team covering participating in sanctioned leagues).
- A 30-day minimum notice period and severance requirements for players who earn up to 1.5x the league’s minimum salary.
- A two-week minimum termination notice period for non-resident LCS players.
- Reinforced health insurance requirements for international LCS players.
Activision Blizzard and the DOJ
On April 3, 2023, the United States Department of Justice, Antitrust Division, filed a complaint in the US District Court for the District of Columbia against Activision Blizzard for imposing rules that allegedly limited competition and suppressed wages of players in Activision’s Overwatch and Call of Duty professional esports leagues.
The complaint centres around a “Competitive Balance Tax” that Activision and the independently owned teams in the OW and COD leagues allegedly agreed to impose, which sought to penalize teams for paying players above a threshold set by Activision each year. In effect, teams would be fined for every dollar spent over that threshold, with the sum paid then redistributed to all non-offending teams in the league. Briefly, the complaint alleges:
- the tax constituted an “unreasonable restraint of trade,” lessening competition between teams and limiting players’ compensation, in violation of the Sherman Act;
- the tax minimized the risk that teams would substantially outbid each other for players;
- the tax depressed the wages of all players in the leagues and teams were incentivized to reduce player compensation, thereby reducing competition;
- teams in the leagues agreed that without the tax, player compensation would be higher; and
- due to an investigation by the DOJ in 2021, Activision had issued a memorandum that year to all teams in the COD and OW leagues, announcing the company would no longer enforce or implement the tax.
Although salary caps and restrictions may be common in other professional esports leagues (often as a result of collective bargaining), the complaint distinguished that players in Activision’s leagues were not members of a union, and therefore had never negotiated or bargained for the tax. Activision responded by stating that the tax was never levied as the leagues voluntarily dropped it in 2021; however, in a statement reported by Reuters, Activision’s stance is that the tax was legal and “did not have an adverse impact on player salaries.”
The complaint was accompanied by a proposed final judgment, consented to by Activision and the DOJ, which would prohibit Activision from imposing any rule that would impose an upper limit on player compensation or that would tax, fine, or otherwise penalize teams from exceeding a certain compensation amount in any professional esports league. Additional requirements of the proposed final judgment include that Activision must:
- implement a revised antitrust compliance policy and a whistleblower protection policy;
- annually provide notice of the meaning and requirements of the Final Judgment to Activision’s esports officers, as well as employees of Activision involved in the business and operations of any of Activision’s esports leagues, which, notably, seem not to be limited to COD and OW leagues;
- provide a copy of the Final Judgment and implemented policies to new officers of Activision and employees involved in the business and operations of any of Activision’s esports leagues;
- allow, upon request, a representative of the Assistant Attorney General for the Antitrust Division to have access to Activision’s records and interview its employees, officers, and agents; and
- submit reports to the Antitrust Division relating to the Final Judgment if requested by the Assistant Attorney General.
The unopposed motion for entry of the final judgment was granted by the Court and signed by Judge Jia Cobb on July 11th, 2023.
We expect employment and competition cases similar to these two matters to increase in number—especially in Canada where reported claims remain relatively few in number. Additionally, the Activision and DOJ settlement is yet another reminder that government agencies and regulators are beginning to pay attention to the video game industry and esports, as mentioned in our previous post, Dark times for “Dark Patterns”? Epic Games settles over unauthorized micro-transactions and user interface trickery (sort of). This oversight is only expected to increase.
To stay on top of the latest legal developments in the video game industry, please reach out to the authors, Josh Dial and Gabriel Simons.