US Department of Justice Opens Antitrust Investigation into Overwatch League Soft Cap, “Competitive Balance Tax”
The Antitrust Division of the United States Department of Justice is investigating the Monitoring League on its soft cap policy that discourages teams from overspending, people familiar with the investigation told Dot Esports.
The investigation is being led by Justice Department attorney Kathleen Simpson Kiernan, who works for the Civil Conduct Task Force of the Antitrust Division in Washington. Kiernan and other DOJ lawyers contacted and interviewed several former Monitoring League employees, according to sources. The nature of Kiernan’s investigation is not criminal, sources said. DOJ officials did not respond to a request for comment from Dot Esports.
At the center of Kiernan’s investigation is the absence of a players’ union, which would allow Monitoring League to ask for an “illegal work exemption”. This status has been granted to the NFL, NBA and other professional sports leagues that have unions. The exemption stems from a 1965 U.S. Supreme Court case, Amalgamated Meat Cutters v. Jewel Tea Co., who said that “union-employer agreements” fall outside the scope of the Sherman Act of 1890, the centerpiece of antitrust law.
Kiernan’s team also contacted Activision Blizzard, the operator of the Monitoring League. As a result, Activision Blizzard has asked team leaders not to falsify or destroy player salary information, a routine action taken in the event of a government investigation.
“We have received a request from the Department of Justice and are cooperating accordingly,” an Activision Blizzard Esports spokesperson told Dot Esports in a statement. “We provide epic entertainment for our fans and support our players and teams in producing the most competitive and enjoyable esports leagues in the world.”
In 2020, the soft salary cap threshold stood at $ 1.6 million, according to league sources. If a team exceeded this amount in annual player salaries, then the organization would have to pay player salaries as well as the excess amount to the league as a luxury tax.
This means that every dollar above that $ 1.6 million limit would cost a team twice as much, preventing organizations from offering massive and competitive salaries. This luxury tax would then be distributed among the non-offending teams. There are few teams that have naturally crossed this threshold on the basis of standard market salaries for professionals. Monitoring players, according to sources.
The specific details of the flexible salary cap of the Monitoring The League has never been disclosed to the public by League officials. A Dexerto report from August 2019 included a note that mentions a “competitive balance tax” and quoted two now-deleted tweets from September 2018 by then-London Spitfire chief executive Susie Kim, who confirmed the tax.
The DOJ created the Civil Conduct Task Force to assist other litigation groups, including its own core group in Washington, as well as other offices in New York, San Francisco, and Chicago Resources. ”
Its creation is part of an increased interest in US antitrust laws under the leadership of current US elected officials, such as Senator Amy Klobuchar (D-MN) and Representative David Cicilline (D-RI), who lead both the antitrust subcommittees of their respective bodies. In March, President Joe Biden appointed Lina Khan, a prominent antitrust scholar, to be the new chair of the Federal Trade Commission. Members of Congress confirmed Khan in June.