Overwatch League at risk of collapse as teams vote on $114 million exit payment

In May, Activision Blizzard warned that the Overwatch League is not in a good place. The city-based esports league is facing "headwinds," as the publisher put it, that are taking a toll on both its current operations and its long-term future. It also acknowledged that efforts to address those challenges "may prove unsuccessful," although Overwatch League head Sean Miller said the company remains "committed to Overwatch esports," and that the league is "not going away anytime soon."

The future of the Overwatch League grew even murkier with the release of Activision's most recent quarterly financial results, which indicates that the league could be forced to make significant changes to its structure at the end of the current season, and might even shut down entirely.

"During the second quarter, we amended certain terms of our collaborative arrangements with team entities participating in the Overwatch League," the report says. "According to the amended terms, following the conclusion of the current Overwatch League season, the teams will vote on an updated operating agreement. If the teams do not vote to continue under an updated operating agreement, a termination fee of $6 million will be payable to each participating team entity (total fee of approximately $114 million)."

Despite a torrent of money being poured into it, the Overwatch League has never lived up to its initial promise of a city-based esports league. The planned move to playing home-and-away games in the style of pro sports leagues was battered by the Covid-19 pandemic, major sponsors have lost interest, and there's still no Overwatch publisher in China—a big problem given that four of the league's teams are based in that country. Meanwhile, the league is not making money: Activision said today that revenues generated by the Overwatch League account for less than 1% of the company's total net revenues.

A report by The Verge also points to growing esports woes at Activision: The company laid off around 50 employees in its esports department yesterday, a move one employee described as "a significant gutting of Activision Blizzard Esports." Another employee said that Activision was planning the shutdown of some of the tools it uses to run its tournaments, and while replacements were in development, the layoffs included at least some of the people who were working on them.

The likelihood of Overwatch 2 rejuvenating the pro scene also seems faint right now. Activision acknowledged in its financial report that Overwatch 2 "engagement and player investment" have declined quarter over quarter, although it expressed hope that the Overwatch 2: Invasion update coming on August 10, which will include PvE story missions, a new game mode, and a new hero, will turn things around. August 10 will also see the debut of Overwatch 2 on Steam, which I suspect will be a much bigger deal as far as boosting player counts, but how it will impact interest in the Overwatch League is a completely different question.

All in all, it's reasonable to say that the future of Overwatch does not look particularly bright right now, and it makes me wonder if this post-season vote is really more of a formality than anything else: Does Activision really think teams will opt for the uncertain future of a teetering league that nobody seems especially committed to over a significant cash payout? Or is the publisher simply willing to pay $114 million to put a pin in Overwatch esports and move on? 

It's impossible to predict how the teams will vote without knowing the terms of the updated operating agreement. Even if the city-based structure is dropped, the Overwatch League could continue to operate under a more conventional esports league format, assuming there's sufficient interest among existing esports orgs. But given all of the above, you can see why players and fans likely aren't too optimistic that the OWL will continue.

I've reached out to Activision for comment and will update if I receive a reply.