Overwatch League franchise owners will vote on an updated ‘operating agreement’ at the end of the current season, Activision Blizzard disclosed in a financial filing.
If teams do not vote to continue under the updated operating agreement, a termination fee of $6m (~£4.66m) will be paid to each franchise.
Activision Blizzard said the combined cost of the termination fees would total $114m (~£88.5m), should teams decide to go this route.
The disclosure came as part of Activision Blizzard’s Q2 financial results. In it, the video game giant also disclosed that total revenues for the Overwatch League comprise less than 1% of its consolidated net revenue.
“As previously disclosed, our collaborative arrangements for our professional esports leagues continue to face headwinds,” the financial filing reads.
“During the second quarter, we amended certain terms of our collaborative arrangements with team entities participating in the Overwatch League. According to the amended terms, following the conclusion of the current Overwatch League season, the teams will vote on an updated operating agreement.”
Details of the vote — including what the threshold is for it to pass, what the updated operating agreement included, and the exact date — were not disclosed in the financial filing’s brief section on the Overwatch League. The current Overwatch League season is scheduled to end on October 1st.
In June, franchise slot owner OverActive Media announced it had struck a deal with Activision Blizzard to wipe its outstanding Overwatch League franchise fee payments in a deal worth $6.5m (~£5m), though this deal also included a sponsorship between the two parties. OverActive Media was required to publicly disclose the deal because it is publicly traded, but it is widely reported and believed that other franchises also had their remaining fees wiped.
Interestingly, a $114m total in termination fees, where each franchise gets $6m, implies there are 19 franchises. The league is meant to have 20 franchises. In May, The Esports Advocate reported that the Chengdu Hunters had disbanded, but it was never confirmed what happened to Chengdu Hunters’ franchise slot.
In an interview with The Verge, Overwatch League commissioner Sean Miller claimed that Overwatch esports would continue no matter how the vote played out. The outlet also reported that Activision Blizzard had laid off much of its esports staff. The Esports Advocate reported the number of laid off employees was “less than 50.”
Activision Blizzard runs the Overwatch League and Call of Duty League, franchised esports leagues for two of its flagship games. Activision Blizzard did not mention whether the Call of Duty League will see a similar vote or if there will be any changes to its structure.
The news comes after the publisher admitted publicly in a May 4th financial filing that its franchised esports leagues “continue to face headwinds which are negatively impacting the operations and, potentially, the longevity of the leagues under the current business model.”
Team owners bought into the Overwatch League for $20m per slot ahead of its launch in 2018 — subsequent expansion teams paid even more — but the league went on to see poor viewership and low revenue, resulting in reportedly widespread discontent amongst team owners.
In January, Jacob Wolf reported that over half of the Overwatch League teams had started a collective bargaining process against Activision Blizzard due to what they described as high operating costs and continually missed promises on revenue.
Jacob Wolf separately reportedly in May 2022 that Activision Blizzard was owed a combined $400m in franchise payments across both the Overwatch and Call of Duty leagues.
Activision Blizzard was hit by several lawsuits in 2021 that alleged widespread sexual harassment and a frat boy culture at the company. Following those lawsuits and widespread community backlash, several brands pulled out from sponsoring the Overwatch League, adding to the league’s financial difficulties.
UPDATE 19/07/2023 5:35pm: This article has been updated since publication to include a report by The Verge that staff had been let go, and a report by The Esports Advocate estimating the number of employees laid off.