Activision Blizzard Is Owed Approximately $400 Million in Franchise Payments for Overwatch, Call of Duty Leagues
There are questions if the debt owed by teams will be collected or forgiven.
Activision Blizzard is still owed between $390 and $420 million in franchise payments from teams participating in the Overwatch and Call of Duty Leagues after it deferred payments for two years as COVID-19 relief, league sources told The Jacob Wolf Report this week.
The 20 franchises in the Overwatch League owe the publisher roughly $6 to $7.5 million each, for a total of $120-150 million, according to sources.
In the Call of Duty League, teams owe an average of $22.5 million each, sources said—after making just the initial payment for the league, about $2.5 million, prior to the COVID outbreak in 2020. Payment terms for Call of Duty varied, with the franchise price starting at $25 million, as reported by ESPN.
Annual payments for both leagues were deferred in fall 2020 when Activision Blizzard pushed them to fall 2022 as a part of its COVID relief measures for teams, according to The Washington Post and confirmed by The Jacob Wolf Report. There is an ongoing discussion now to potentially put those payments off longer, potentially to early 2024, sources said. Activision Blizzard declined to comment on Friday.
During the pandemic, Overwatch League reduced the debt owed to it by its teams, leveling out franchise pricing for both the 12 inaugural teams who bought in in 2017 and the eight expansion teams that joined in 2018, according to sources.
The new total franchise price for Overwatch League was roughly $16 million—with teams having already paid between $7.5 and $10 million each, sources said. That means Activision Blizzard has received close to $200 million in Overwatch League payments over the past five years.
In 2017, the Overwatch League charged its original 12 franchises $20 million each, according to an ESPN report, becoming the most expensive esports league at the time. In 2018, the league sold eight expansion slots at prices ranging from $27 to $35 million, sources said.
Because they bought in earlier, the inaugural 12 Overwatch League franchises were entitled to four anti-dilution payments of roughly $250,000 each, paid out once per year. That money would be deducted from the expansion franchises’ payments. About a year into the pandemic, Activision Blizzard allowed the 12 franchises to opt-in to receive those payments in advance, with the outstanding amount being made as one flat payment.
During his time at the company, former Activision Blizzard head of esports Brandon Snow proposed waiving all outstanding franchise payments, sources said. Snow left Activision Blizzard in February for an executive role at Formula 1. He declined to comment when contacted by The Jacob Wolf Report this week.
Activision Blizzard has not altered its payment terms and likely won’t make any material changes until after its acquisition by Microsoft closes in mid-2023, pending any potential U.S. government antitrust interference. Microsoft’s stance on Activision Blizzard’s esports properties is unknown, and the company has stayed silent about it since it announced the acquisition plans in January.
Since Activision Blizzard courted investors between 2016 and 2019, the esports business has changed significantly, as have the leagues themselves. The pandemic scrapped the Overwatch League’s extravagant home-and-away model just two months into its rollout. The Call of Duty League, which planned a similar traveling road show around the U.S., London and Paris, was forced to nix its events plans as well.
The Overwatch League also lost several sponsors in the wake of a California Department of Fair Employment and Housing lawsuit filed against Activision Blizzard that alleges the company knowingly allowed sexual misconduct over many years.
After the DFEH suit, Coca-Cola, Kellogg’s and State Farm paused their advertising on the Overwatch League, per The Washington Post. No advertisers are currently listed on the Overwatch League website. Only four—Zenni, Scuf, Mountain Dew and Aimlab—sponsor the Call of Duty League.
The changes for the esports industry are more widespread. Most esports businesses, regardless of game, have realized the difficulty in generating reliable revenue in categories other than sponsorship and advertising. Many are beginning to pivot—expanding into technology verticals with software, Web3 projects, game development or white-label media production.
The Overwatch and Call of Duty leagues are the most expensive esports leagues in the world by franchise cost, a fact for which they’ve drawn criticism from industry insiders.
Leveraging its CEO Bobby Kotick’s personal relationships, Activision Blizzard recruited high-profile billionaires and multimillion-dollar ownership groups who had never invested in esports before, including the New England Patriots’ Kraft family, Denver Nuggets and Arsenal F.C. owner Kroenke Sports & Entertainment, and then-New York Mets ownership family the Wilpons via their Sterling.VC arm.
In the years since, several Overwatch League owners have divested or lowered their risk by bringing on additional investors.
The Kraft family, who were the Overwatch League’s first buyer, merged their Boston Uprising team with Oxygen Esports, a third-party group that raised $20 million and acquired a Call of Duty League slot. With the move, the Krafts shifted much of the financial burden to Oxygen.
Immortals, who own the Los Angeles Valiant, outsourced most of its operations for that team to LinGan e-Sports and relocated the franchise from the U.S. to China. Immortals also sold its Call of Duty League slot at the end of the 2020 season to 100 Thieves, who rebranded the team to the Los Angeles Thieves and sold the OpTic Gaming brand to its former CEO, Hector “H3CZ” Rodriguez, and NRG Esports.
Rodriguez and NRG later split in 2021, with NRG selling Oxygen its team slot. H3CZ then merged OpTic with longtime rival Envy Gaming and relocated the team to Dallas, with the OpTic brand replacing the Dallas Empire.
As their businesses enter the later stages, esports teams will face new challenges with investment fundraising. With the stock market down and what many believe is an impending recession looming, private equity and venture capital investments are decreasing and companies in all sectors are being affected. That means many esports teams will need to figure out how to survive over the next few years with their existing cash on hand, and better manage their profit and loss.
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