Create custom game, then select "spectate" and you can no longer invite/kick/etc.

Is this expected behavior?

Probably since you're not actually playing, it gives control to someone that is.

The "leader" of the game is transferred to a player in the game

I was just thinking if a commentator was going to host the game; inviting everyone to the match would require extra steps. For example, the person that takes over control may not have everyone on friends list of other team. Also new owner could invite their own spectator.

Host password protects game, invites two teams, moves to spectator, new host can now invite their own spectators.