Overwatch League Teams Start Collective Bargaining Process Against League
The teams are seeking some form of economic relief after years of high operating costs and disappointing revenues.
The majority of Overwatch League teams have retained a British law firm to start a collective bargaining process against the league after years of high operating costs and continually missed promises on revenue.
The teams have hired Sheridans, a media and technology focused law firm with experience in both traditional sports and esports, to negotiate on their behalf with the league, sources familiar with those discussions told The Jacob Wolf Report.
The goal for those discussions is for the teams to be awarded some form of economic relief to promote sustainability after each franchise spent somewhere between $7.5 to $10 million in franchise payments over the past six years, as well as more than $1 million in operating costs each year to maintain their teams. For some teams, that means they’ve spent more than $16 million on a league with lackluster viewership and no profitability in sight.
Negotiations between the teams, Sheridans and Activision Blizzard have only begun and tensions are high as teams evaluate how they will spend prior to the 2023 season which begins this spring. Activision Blizzard did not respond to a request for comment.
Discussions among the teams about taking collective action have spanned years as many have lobbied complaints to the league since the COVID-19 pandemic fundamentally changed the league’s structure in 2020. But the decision to collectively organize is more recent and in part was led by OverActive Media, the ownership group behind the Toronto Defiant, sources said. OverActive have previously worked with Sheridans on transactions related to its League European Championship team MAD Lions.
While operating costs for Overwatch League teams is lower than other esports leagues, such as the League Championship Series, the Overwatch League featured the highest franchise buy in ever. For the 12 franchises who joined before Season 1, each committed to a $20 million franchise tag to be paid over time, according to ESPN. Season 2 expansion team prices were even higher, with prices ranging from $27 to $35 million, as we reported in May.
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In 2020, as many of the teams faced COVID-related economic difficulty and took Paycheck Protection Program (PPE) loans in the U.S., Activision Blizzard deferred the remaining balance. Activision Blizzard later leveled the debt, reducing the balance on franchise payments down to $16 million for all 20 teams. Each team still owes somewhere between $6 to $7.5 million to Activision Blizzard.
Operating costs still remain high and for the teams who aren’t owned by major conglomerates or public companies, there’s concern around how maintaining a profitless Overwatch League team will affect their bottom line and cash flow in a troublesome fundraising environment.
In an interview with the Houston Chronicle on Jan. 16, the COO of Houston Outlaws’ parent company Beasley Esports, Lori Burgess, spoke candidly about the state of the company’s revenue and losses for the Overwatch League franchise. Burgess said that the team pays some players more than $200,000 per year in salary and despite $1.4 million in revenues—stemming primarily from ad sales—the team is still operating at a loss.
Revenue share from the league is also at an all-time low, as the league displays zero sponsors on its website and has not signed a major media rights deal since the expiration of its agreement with YouTube this fall.
The league lost many of its sponsors in July and August 2021 after a California Civil Rights Division lawsuit against parent company Activision Blizzard that alleged systemic sexual harassment and gender discrimination within the company.
As a result, brands like Coca-Cola, Kellogg’s Cheez-It and Pringles, State Farm and T-Mobile paused or terminated their deals with the league in wake of the news, according to the Washington Post. It also lost Xfinity, whose sister company Comcast Spectacor owns the Seoul Infernal (formerly known as the Philadelphia Fusion), in between the 2021 and 2022 season.
More broadly, esports is going through what some, including Overwatch League team executives, have called “the esports winter.” As esports teams enter mid-to-late stage in their fundraising cycles, many are struggling to find venture or private equity financing to stay afloat, leading to mass layoffs and significant scaling back on spending to reduce burn. Advertising dollars are also shrinking, as brands question the value of spending on esports amid low conversion to their products from esports-centric ad campaigns.
The franchise leagues, including the Overwatch League, its sister Call of Duty League and the LCS and LEC, are a key focus in this downturn given promises made by publishers Activision Blizzard and Riot Games from 2016 to 2018.
“They certainly pitched us that the growth of these leagues would be meteoric, and we all drank the Kool-Aid,” Misfits Gaming CEO Ben Spoont, whose organization owns the Overwatch League’s Florida Mayhem and Call of Duty League’s Florida Mutineers, told The New York Times in November. “What has happened is that growth has not materialized as fast as we had hoped.”
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