In re: National Collegiate Athletic Association Athletic Grant-In-Aid Cap Antitrust Litigation

Northern District of California, cand-4:2014-md-02541

Exhibit B

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EXHIBIT B UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION: IN RE: NATIONAL COLLEGIATE: ATHLETIC ASSOCIATION: ATHLETIC GRANT-IN-AID CAP: ANTITRUST LITIGATION:::::::::: Case No. 4:14-md-2541-CW: Case No. 4:14-cv-02758-CW::: EXPERT REPORT OF DANIEL A. RASCHER: ON ECONOMIC LIABILITY ISSUES FOR:: THE INJUNCTIVE CLASSES:::: March 21, 2017:::::::::::::::: Table of Contents 1. Qualifications ........................................................................................................................................................................2 2. Scope of work ........................................................................................................................................................................3 3. Summary of opinions with respect to Defendants' anticompetitive restraints and their impact ...................................4 3.1 The restraints cause anticompetitive harm ...................................................................................................................................... 7 3.2 Defendants' procompetitive justifications are not economically procompetitive and are not valid ................................................ 7 4. The restraints at issue (a) take place in relevant markets in which Defendants have market power, (b) harm competition, and (c) have direct impact on class members .............................................................................................13 4.1 The relevant markets at issue are input markets into the commercial products of FBS football and Division I men's and women's basketball ...................................................................................................................................................................................... 18 4.1.1 Conference and school revenues are large and growing 18 4.1.2 NCAA tournament revenues have also been on the rise 30 4.1.3 Sponsorship revenues 32 4.1.4 Attendance and viewership ratings 34 4.2 Defendants have successfully exercised market power in a market in which Plaintiffs compete, leading to anticompetitive harm and antitrust impact to the classes ................................................................................................................................................. 38 4.2.1 Evidence of anticompetitive impact prior to this case 39 4.2.2 Evidence of anticompetitive impact demonstrated by the relaxation of the cap in 2015 42 4.2.3 Defendants acknowledge that the restraint has caused direct anticompetitive impact to class members 56 4.2.4 The increases in women's basketball compensation since 2014 also provides direct evidence that Defendants have market power in a relevant market, the restraint caused anticompetitive harm, and that members of the women's class have been adversely impacted 57 4.3 Defendants acknowledge that both the goal and the effect of the existing restraint was to constrain market prices ..................... 61 5. The restraints have additional market-wide Anticompetitive effects .............................................................................63 5.1 Coaches' pay is rising faster than inflation, and has continued to skyrocket since O'Bannon ...................................................... 64 5.2 Facilities spending is also rising faster than inflation.................................................................................................................... 69 5.3 Postseason gift suites constitute large financial benefits above COA ........................................................................................... 70 6. The indirect process of identifying relevant markets (both product and geographic) and demonstrating market power also shows defendants have market power in the relevant markets in which plaintiffs compete ....................73 6.1 The economic evidence demonstrates the appropriateness of the relevant product markets ......................................................... 75 6.1.1 Extending the Analysis to include Division I women's basketball 85 6.2 High barriers prevent the sort of market entry that might otherwise thwart anticompetitive conduct ........................................... 89 6.3 The NCAA plays the role of cartel monitoring and enforcement.................................................................................................. 92 6.3.1 Monitoring 92 6.3.2 Enforcement 93 6.4 The geographic market is the entire United States ........................................................................................................................ 95 7. There is no economic evidence to support Defendants' purported procompetitive justifications offered to date ...101 7.1 What makes a restraint economically procompetitive? ............................................................................................................... 102 7.1.1 Collusive cost cutting is not, by itself, economically procompetitive 102 7.1.2 Eliminating choice or preventing price competition are not economically procompetitive justifications 104 7.1.3 Collusive Wealth Extraction is not procompetitive 107 7.1.4 Justifications for sports leagues do not automatically apply for sanctioning bodies 107 7.2 The history of the restraint shows its adoption was neither necessary to create the product nor aimed at enhancing consumer demand........................................................................................................................................................................................ 110 7.2.1 Historically, "amateurism" has been justified as being contrary to consumers' wishes, rather than being procompetitive 112 7.3 "Amateurism": There is no economic evidence to support the claim that collusive enforcement of amateurism enhances consumer demand ....................................................................................................................................................................... 114 7.3.1 The current cap is not limited to covering expenses tethered to education 116 7.3.2 The popularity of college sports does not hinge on a national agreement on what constitutes "amateurism" or to cap pay at either the pre-2015 or new Full COA level 131 7.3.3 If consumers truly demand "amateur college sports," rather than just college sports, there should be little need for a rule requiring "amateurism" 149 7.3.4 Defendants' arguments in favor of "amateurism" are often not procompetitive at all 156 7.4 Academic Integration: There is no economic evidence to support the claim that the rules at issue improve academic integration, nor is there evidence that academic integration is an economically procompetitive objective.................................................... 160 7.4.1 Inefficient substitution of athletic facilities for direct compensation and benefits creates isolation rather than integration 170 8. There exist less restrictive alternatives that are equally or better suited to attaining the NCAA's purportedly procompetitive goals without fixing prices .....................................................................................................................172 8.1 A less restrictive alternative of level: a national restriction on payments beyond those "tethered to educational expenses" but not capped at COA ............................................................................................................................................................................ 173 8.2 A less restrictive alternative of scope: true conference autonomy .............................................................................................. 177 9. Conclusion .........................................................................................................................................................................182 10. Signature............................................................................................................................................................................184 Page 1 45. I have also reviewed school-level data for the total sport revenues for the three sports at issue, based on the NCAA's MFRS data. While these data must be carefully used if the purpose is to identify 47 whether the sports at issue are economically profitable, and while important indirect benefits (and resulting revenues) are uncounted for, the MFRS data nevertheless show a similar picture. At the individual school level, Power 5 institutions collectively generated over four billion dollars in annual revenues just from the class members' three sports. These revenues include conference distributions as well as, but not limited to, ticket sales, sponsorships, student fees, guarantees, media rights, and (donor's mostly tax-deductible) contributions. For 2014-15, this represented an average per school of over $60 million. Exhibit 3: Total Power School MFB, MBB, and WBB Revenues $5.0 $4.5 $4.0 $4.2B $4.0B $3.5 $3.7B Revenue (in billions) $3.4B $3.0 $3.2B $3.0B $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Academic Year Notes: Power schools defined as all FBS schools in a Big Six conference as of 2009-10 or Power 5 conference as of 2015-16. Sources: [1] NCAAGIA03659522-527; NCAAGIA02314376-380; Plaintiffs Comments MFRS Data - Additional Offer of Production - 11 09 15.xlsx; Dr. Ordover's unique_id.key.csv [2] ESPN.com 46. As a data note, in some cases in this analysis I have relied on EADA data rather than data produced by Defendants through the MFRS. In other reports, I have also used publicly available USA Today data on coaches' pay, though now that information has been produced from the MFRS. To ensure that the choice of data source was not driving these results, I have tested the accuracy of using EADA or USA Today data 47 I discuss this in great detail in Rascher O'Bannon Class Cert. Declaration, pp. 58-99. Page 21 as a proxy for MFRS, and found a very strong relationship (with the exception of women's basketball revenue, where EADA-reported revenue substantially understates MFRS-reported revenue). These regression results are shown below. Exhibit 4: Comparison Between MFRS and Public Data for Power Schools Academic Years 2009-10 Through 2014-15 Dependent Independent OLS Std. 2 Sport Statistic Obs Corr. t-Stat p-Value Adj. R Dataset Dataset Coefficient Error MFB Total Revenue 1,435 0.98 1.04 0.005 205.86 <.0001 0.97 MBB Total Revenue 2,021 0.99 1.03 0.004 282.02 <.0001 0.98 WBB Total Revenue 2,007 0.52 0.43 0.016 27.12 <.0001 0.27 EADA MFB Total Expense 1,435 0.98 1.02 0.005 203.92 <.0001 0.97 MFRS MBB Total Expense 2,021 0.99 1.03 0.003 320.95 <.0001 0.98 WBB Total Expense 2,009 0.98 1.02 0.004 234.4 <.0001 0.96 MFB Coach Salary 686 0.85 1.01 0.024 41.99 <.0001 0.72 USA Today MBB Coach Salary 246 0.91 0.93 0.028 33.27 <.0001 0.82 WBB Coach Salary. . . . . . . Notes: [1] MFRS total revenue and total expense are defined as total operating revenue and total operating expense respectively. [2] Coach salary is defined as compensation provided to head coach by the University. [3] USA Today covers FBS head coaches for start years 2009-2016 and 68 DI MBB head coaches for start years 2011-2015. Sources: [1] NCAAGIA03659522-527; NCAAGIA02314376-380; NCAAGIA02263618; Plaintiffs Comments MFRS Data - Additional Offer of Production - 11 09 15.xlsx; Dr. Ordover's unique_id.key.csv [2] Equity in Athletics Data Analysis (EADA) Survey Data (bit.ly/2kIRHbI) [3] USAToday.com Coach Salaries (usat.ly/1xV4SYq) [4] ESPN.com Page 22