Roger Noll declaration

Economist and Stanford Professor Emeritus Roger Noll made a declaration in support of the City of San Jose’s antitrust lawsuit against Major League Baseball. He also provided a (presumably paid for) analysis of the issues at stake. The following is Professor Noll’s complete statement. A PDF version is available here.

DECLARATION OF EXPERT WITNESS ROGER G. NOLL

1. My name is Roger G. Noll. I reside in Palo Alto, California. I am Professor Emeritus of Economics at Stanford University and a Senior Fellow at the Stanford Institute for Economic Policy Research, where I am Co-Director of the Program on Regulatory Policy. My educational background includes a B.S. in mathematics from the California Institute of Technology and a Ph.D. in economics from Harvard University. My complete curriculum vita is attached as Appendix A.

2. My primary area of scholarship is the field of industrial organization economics, which includes antitrust economics and the economics of specific industries. I have taught antitrust economics at both the undergraduate and graduate levels. I am the author, co-author, or editor of thirteen books, and the author or co-author of over 300 articles. Many of these publications deal with antitrust economics. I also have published extensively on the economics of sports, including Sports, Jobs and Taxes, co-edited with Andrew Zimbalist, which deals with the economic impact of sports teams and facilities and for which Professor Zimbalist and I wrote a chapter on the implications of the economic impact of teams and facilities for antitrust policy.

3. I have served as a consultant in antitrust litigation, including matters pertaining to sports. I have served as an economic expert for the players’ association in all major U.S. team sports (baseball, basketball, football, hockey, and soccer) on the economic effects of restrictions on competition in markets for the playing services of professional athletes, including testimony at trial in Freeman McNeil, et al., vs. National Football League (U.S. District Court, Minnesota) and John Mackey vs. National Football League (U.S. district Court, Minnesota). In Bernard Parrish, et al., vs. National Football League Players Association (U. S. District Court, Northern District of California) I testified on behalf of the players’ association about the value of licensing rights for retired NFL players.

4. Other cases in which I have testified at trial in recent years are the following:

• In re Application of MobiTV Related to U.S. vs. ASCAP (U.S. District Court, New York City);

• Reggie White, et al., v. NFL: Lockout Insurance & Lockout Loans (U.S. District Court, Minneapolis);

• SmithKlein Beecham d/b/a GlaxoSmithKline vs. Abbott Laboratories (U.S. District Court, Northern District of California, Oakland);

• Novell vs. Microsoft (U. S. District Court, Salt Lake City);

• DVD CCA vs. Kaleidescape (Superior Court, San Jose); and

• In the Matter of Adjustment of Rates and Terms for Pre-existing Subscription and Satellite Digital Audio Radio Service (Copyright Royalty Board, Washington, D.C.).

5. In addition to the cases in which I have testified at trial, I have submitted expert reports and/or been deposed in numerous matters. I have also testified before the U.S. Congress on antitrust and sports matters on numerous occasions.

ASSIGNMENT

6. Attorneys for Plaintiffs have asked me to analyze Plaintiffs’ allegations in this matter to determine the economic evidence and analysis that would be used to prove liability in support of their claims. In undertaking this task I have read the Complaint, which was filed on June 18, 2013. I also have read Defendants’ Motion to Dismiss, filed on August 7, 2013. Finally, I have made use of information that has been collected from other public sources and my four decades of research on the economics of sports.

7. The purpose of this Declaration is to provide a preliminary analysis of the economic issues in this litigation before discovery has taken place. Hence, I reserve the right to revise my analysis and amend my conclusions on the basis of new information that has not yet become available. In particular, I understand that this Declaration is being submitted in connection with settling of the pleadings and that I am not being asked to opine on the merits of the claims. I would like to have the benefits of the complete discovery record before reaching my conclusions on the merits.

ANALYSIS

8. The objective of an antitrust economics analysis of liability is to determine whether conduct by Defendants caused harm to the competitive process. Ultimately, harm to the competitive process means harm to consumers, in this case sports fans. My main conclusion is that preventing the Oakland Athletics baseball team from moving to San Jose causes harm to competition because relocating to San Jose would substantially increase the potential fan base and attendance of the team.

9. Major League Baseball (“MLB”) is made up of thirty teams. These teams are economic competitors in many markets, including markets for players, coaches, regional television rights, and product licenses. If teams are geographically close, they also compete for attendance among sports fans in a local area. Presently MLB has local teams that compete for attendance in Baltimore-Washington, Chicago, Los Angeles, New York and the Bay Area.

10. Economics research and prior litigation have concluded that each major professional sports league in the U.S., including MLB, possesses market power in the provision of major league games in its sport in North America. Among the ways that MLB exercises its market power is by controlling the number and geographic location of major league baseball teams in North America. MLB has adopted rules that define the “home territory” of each team in the league and that place restrictions on franchise relocation. For now irrelevant historical reasons MLB has placed San Jose in the home territory of the San Francisco Giants, even though a team in San Jose would be less of a direct competitor to the Giants than is a team in Oakland because San Jose is much further than Oakland from the Giants’ home stadium.

11. One domain of competition in MLB as well as other professional sports is competition among cities to attract or to retain a team. Economics research shows that the financial success of a baseball team depends on the economic and demographic characteristics of its home territory, the quality of its home stadium, and the financial terms and other arrangements concerning the stadium. Cities actively compete for baseball teams on the basis of agreements that they offer to a team concerning a home stadium. The alleged anti-competitive conduct in this case is Defendants’ inhibition of competition and restraint of trade through the application of restrictions on team relocation which are preventing the City of San José from competing with the City of Oakland for the Athletics Baseball Club (Athletics).

12. Economists who have studied the location of teams in a league have concluded that in some circumstances a league has a reasonable business justification for restricting relocation. In particular, because the success of a league depends on the financial success of each team, leagues have a valid interest in assuring that each team will enjoy sufficient popularity in its home territory to be financially viable. This pro-competitive justification does not apply to MLB’s refusal to allow the Athletics to move to the City of San José.

13. San Jose is much more attractive than Oakland as a home location for a baseball team for several reasons. First, San Jose has a much larger population base, and so substantially greater potential home attendance for a local team. Second, San Jose is located in the Silicon Valley, which is the corporate home to many of the world’s leading high technology companies. This feature of San Jose is important because an increasingly important component of the revenue of a major league sports team is the sale of luxury boxes and other reserve seating to corporations, law firms, and wealthy individuals. Third, San Jose has identified and made available to the Athletics a location for a new stadium that will be a substantial improvement over the facility and location where the Athletics currently play. For these reasons San Jose is a much more attractive home territory for the Athletics than Oakland. Moreover, relocation to San Jose is financially attractive to the Athletics precisely because it increases total economic output, which in sports is the number of fans in attendance.

14. Competition in the local market for major league baseball would be enhanced if the Athletics relocate to San José. By increasing the potential revenue of the Athletics, relocation to San Jose would increase the financial incentive of the Athletics to field a team of higher quality. Making the Athletics more competitive would intensify competition between the Athletics and the San Francisco Giants, the other Bay Area major league baseball team.

15. MLB has not yet set forth its complete business justifications for preventing the movement of the Athletics to San Jose, so a full analysis of this issue is not feasible at this time. In antitrust economics, a restriction on competition can be justified only if it is reasonably necessary to achieve a pro-competitive objective, which is defined as an improvement in performance that benefits consumers. Given that San Jose is substantially more economically attractive than Oakland as a home location for the Athletics, the only plausible reason for preventing relocation of the Athletics to San Jose is to protect the Giants from more intense competition from the Athletics.

16. Protecting an incumbent firm from losing business to a more efficient competitor is never a reasonable business justification for a restriction on competition. In this instance, such protection is especially unwarranted. Since moving to their new stadium in downtown San Francisco, the Giants are among the most successful teams in MLB. Indeed, the success of the Giants since relocating to a new and much superior stadium illustrates why the quality and location of a stadium is extremely important to the success of a team. While the Giants will experience more intense competition from the Athletics if the latter move into a much better stadium in San Jose, historical experience with stadium improvements demonstrates that increased attendance at home games of the Athletics will not come at the expense of the Giants, just as the Giants’ improved attendance since relocating to downtown San Francisco has not come primarily at the expense of the Athletics.

I declare that the foregoing is true to the best of my knowledge and belief. Executed on September 6, 2013 at Stanford, California.

ROGER G. NOLL

40 thoughts on “Roger Noll declaration

  1. re: For now irrelevant historical reasons MLB has placed San Jose in the home territory of the San Francisco Giants, even though a team in San Jose would be less of a direct competitor to the Giants than is a team in Oakland because San Jose is much further than Oakland from the Giants’ home stadium.

    …Lots of good stuff here

  2. Let me guess: our in house attorney will claim that Noll is full of hot air..

  3. re: Moreover, relocation to San Jose is financially attractive to the Athletics precisely because it increases total economic output, which in sports is the number of fans in attendance.

    …A judge could decide that if MLB would rather lose money in Oakland than make money in San Jose, that is MLB’s prerogative.

  4. @PJK: Sure. But if it was MLB’s prerogative, they’d be stifling competition and hurting consumers, degrading Oakland A’s to a second class team.

  5. Things will get ever weirder when Lew Wolff and John Fisher provide testimony.

  6. Not sure how this helps SJ. This is just testimony that the AT hurts the A’s ability to be competitive. It doesn’t show how it hurts the city nor help give it standing.

  7. This is actually just a declaration of support for SJ. Don’t actually see how it helps SJ either re standing. That said, whether the case gets dismissed or continues, this excellent declaration by Noll could be added to either the comittee study or presented at a future owners meeting. What this declaration presents goes far beyond SJ’s lawsuit IMHO.

  8. Briggs, are Wolff and Fisher providing testimony? They aren’t parties to the suit though I guess they could be called as witnesses?

  9. Dan, if SJ gets standing, Wolff is all but guaranteed to be called on for testimony in some capacity. But I doubt he has any connection to anything regarding this until then.

  10. Does anyone else see the contradiction between 10 & 14? To change one word and do a quick mash-up:

    San Jose would be MORE of a direct competitor to the Giants than a team in Oakland because San Jose is located in the Silicon Valley, which is the corporate home to many of the world’s leading high technology companies.

    It’s pretty clear Lew wants to go after the tech money which is snug in the Gnats wallet right now. If you can’t spot that, the Gnats sure can. Lew’s strategy is clearly:
    1) Build stadium
    2) ?
    3) TECH MONEY
    The Gnats want to hold on to that cash, so they will thwart him at step 1 if they can. Lew’s gotta change that plan. But he’s stuck in the mud, he’s a real estate man.

    14 flies in the face of current reality:

    By increasing the potential revenue of the Athletics, relocation to San Jose would increase the financial incentive of the Athletics to field a team of higher quality.

    What’s this financial incentive thing? I like the quality of our team as it stands. Playoffs, here we come!

    All of this may be irrelevant, anyway. MLB will fight to preserve ATE tooth and nail. And how often does the little fish sue the big fish and then, win or lose, enter into a successful business partnership with them?

    I’m sure most folks will disagree, but if I wanted to move the A’s to San Jose, I would have gone about this way differently. I would have improved the marketing and fan experience; invested in tech and reached out to that sector from day one. I wouldn’t have trashed the fanbase, pitting one fan against another. One reason attendance has been rising: we, the fans, have reclaimed our team. In fact, we’ve grown to embrace the ghetto thing, it’s part of the humor, the experience. Go A’s!

    • @freddy – Financial incentive is about keeping the team intact. Beane and Forst have done magic picking up young, cheap talent and scrap heap guys who are productive, to complement pricier talent like Crisp, Cespedes, and Balfour. Eventually much of that young talent will get expensive, and the A’s typically don’t keep guys past their 6th service year. They won’t until they get more locally-generated revenue, and that comes from Silicon Valley.

  11. @freddy,
    Glad to see your more of an expert on this than Noll. BTW, its straight up fantasy that the Giants control the tech money of Silicon Valley; see SVLG poll from a few years back. And adding to RM’s post, the tech money of SV is needed to privately finance a ballpark, being that no direct public subsidies would ever come out of Oakland (or SJ for that matter).

  12. BTW,
    The only folk who feel “trashed” are the Oakland-only (in reality your pols have been trashing you since day one, not Wolff). You don’t speak for me or the majority of us. The man is trying to get us a privately financed ballpark in the Bay Area, and for that I’m grateful..Go A’s!!!

  13. “All of this may be irrelevant, anyway. MLB will fight to preserve ATE tooth and nail.”

    MLB will be all too foolish if they use the dispute between two teams that already share the same market as the example basis to preserve their ATE. This will only serve to open up a can of worms that would counter MLB’s ATE argument.

  14. MLB would also be foolish to not open up SJ for the A’s. Allow the A’s $J and keep your precious ATE intact; what a deal!

  15. @Tony D.
    Re:”The only folk who feel “trashed” are the Oakland-only (in reality your pols have been trashing you since day one, not Wolff). You don’t speak for me or the majority of us. The man is trying to get us a privately financed ballpark in the Bay Area, and for that I’m grateful..Go A’s!!!’
    I hear what you’re saying. I would be, and I am currently thankful for Lew Wollf , because I think he (or his son), will eventually build the A’s a new ballpark, somewhere in the Bay Area, but there is no debating, that he has said some hurtful things to a portion of the fan base. I personally know, former season ticket holders, one of them whom lives in San Francisco, that was so offended by Wollf’s comments toward Oakland (fan base in general), that they refused to renew. I don’t think I would every do something like that myself, but you don’t have to be Oakland-only person, to see that the man has made an unfortunate error, or two. Two things can be true at the same time, my friend.
    @freddy
    Re: “One reason attendance has been rising: we, the fans, have reclaimed our team. In fact, we’ve grown to embrace the ghetto thing, its part of the humor, the experience. Go A’s!”
    Hay man I don’t think attendance has come up so dramatically, that anyone can proclaim any particular reason for it, even if they claim that it’s only one of the reasons.
    It’s a ghetto thing? perhaps that’s part of the reason Wollf wants to move. I was born at Highland Hospital and raised in the ghetto areas, of East Oakland, have even lost family members to the ghetto, please don’t site that in any positive way, as it relates to the A’s

  16. Sorry I meant to spell the man’s name (Wolff) correctly.

  17. Lakeshore: Did Wolff say anything that wasn’t true? The A’s fan base is not large enough. We all know that.

  18. @ pjk I dont know, I dont recall exactly what he said, but as you know its not always whats said, but what tone or manner. Fact is poeiple where hurt, and some of them turned away from the A’s because of it. If it botherd me as much as some, I am sure could tell you.

  19. @pjk,
    Leave Lakeshore alone, will yah! The man has all my respect as someone who would dearly like the A’s to remain in Oakland.

  20. The tone of how he said it? Please. What Wolff has said is he has exhausted all options in Oakland. Bud’s committee, now in its fifth year of existence, has found nothing to refute what Wolff said. But the Oakland-only folks will be satisfied with nothing short of a new ballpark in Oakland, without regard to how much it’s going to cost and how much the owners lose in building it. Can somebody spend $750 million of their own money to build at Howard Terminal, sans ROI? Sure. Does anyone think that’s going to happen? The “A’s belong in Oakland” sensibility is a bit mind-boggling, considering how poorly the A’s have done at the gate in most of their existence there. Don’t the A’s deserve better crowds than the Giants, not 11,000 for the first-place A’s and 41,000 for the last-place Giants? Maybe San Jose can give that to the A’s.

  21. @pjk
    Please man, let’s not let this turn into a referendum on Lew Wolff I appreciate the man, I admire the man, I will be grateful for the rest of my life, to the man if he builds a new ballpark for the A’s in (wait for it, wait for it….) San Jose, San Jose, San Jose, how clear do I have to make that, for you.. Ok now that that part is out of the way, do I think he is perfect? Do I think he has done everything correctly, representing the ownership of the A’s? No, and (believe it or not), I don’t think he has to. Most people don’t think their own parents do everything, without fault and I am sure Lew Wolff hasn’t, or as you would say (in a not so un-rude way), Lew Wolff has made a misstep, or two (no matter how little), in his time heading the Oakland A’s ownership group “in other news flashes today, water is wet, fire is hot, and ice is cold”… We can disagree, can you leave it at that?

  22. What’s your point? “Wolff has made a misstep.” So what? He’s made an honest assessment of the ballpark situation in the A’s current territory and nobody has refuted it.

    • @pjk – It might help if you didn’t always appear as a repetitive hardliner. No party is above reproach when it comes to the A’s, including Wolff and the City of San Jose.

  23. @pjk
    What’s my point? My point is I can’t make an honest assessment (my opinion), of Lew Wolff’s efforts as the lead point person of the A’s ownership group, without you seaming to have a problem with it, you have an opinion, you express it, I may not agree with some parts of it, but I don’t ask you to prove to me, every portion of your opinion to my satisfaction, what part of. I said “We can disagree”
    In the words of Rodney King “Can we all just get along”, or in this case can we all just be A’s fans.

  24. Roger Noll is right on with his thesis on this situation. MLB has colluded directly hurting the City of San Jose to attain a team that is a mere 35 miles away.

    Rule of Reason Business Justification must come into play here. If San Jose can make $$ and receive economic benefit and it being blocked by anti-competitive policies their suit has serious merit.

    Noll illustrates that clearly. Just because MLB is a sports league does not make them exempt to this. Their ATE from 1922 did not specify this in particular therefore the judge must look at this narrowly and not broaden the scope.

    This says it all right here:

    “Protecting an incumbent firm from losing business to a more efficient competitor is never a reasonable business justification for a restriction on competition. In this instance, such protection is especially unwarranted.”

    To put it in normal business terms if a Chevron gas station exists on a corner and a Shell gas station wants to open up across the street, protecting the Chevron from losing business by preventing the Shell from opening across the street is “never a reasonable business justification for a restriction on competition.”

    Just because MLB is a sports league does not exempt them from this. The others leagues have lost miserably in similar situations in court. Bud Selig will make MLB pay for his cowardice dearly.

  25. Lew Wolff’s A’s just steamrolled the last AL team to get a new ballpark, outscoring the Twins 26-5 over two days. Selig’s embarrassment – a baseball field with football markings during the playoffs – nears. The Raiders nightmare – half a season on a baseball infield – nears as well.

  26. Interesting: SeeBass doesn’t want the A’s to make the postseason because he hates kicking off the dirt infield (just now on CSNCA). GO A’S AND GO RAIDERS!

  27. If (Belle & )Sebastian Janikowski doesn’t like kickiing off the dirt, the Raiders need to perform better on 3rd down conversions. =/

  28. @Tim,
    It wasn’t my report, it was CSNCA’s after todays game. Yes, apparently incorrect. BTW, Target Field simply gorgeous!

  29. @Tony D. Yeah man that Target Field is real nice, one day, one day my friend.

  30. I read through a couple times and never felt he landed a definitive knock out – pretty underwhelmed. I could envision several retorts from MLB experts that would at least muddy Noll’s arguments.

    To me, SJ was too clever by half with the land lease option for this anti-trust case. You can hate the ATE, but standing looks like a really tough row to hoe.

    Hope i’m wrong, but I’ve grown too cynical about this process.

  31. paragraph 11 of the decl. is a joke. San José is begging for leave to amend its flawed complaint. leave to amend is usually granted along with granting an initial motion to dismiss if there’s any chance the plaintiff can add necessary allegations. I doubt that’s possible here. but it may be.

  32. Standing, schmanding, even if the SJ vs MLB case were not to receive standing, it would very likely be appealed, all the way to the SCOTUS if necessary, SJ will eventually likely prevail. SJ city officials seem determined. Furthermore, MLB and Selig do not want the case to go to trial. They will undoubtly cut a deal with the A’s/SJ as soon as the case receives standing. The gnats mgt has been bluffing all the time with a weak hand – and SJ vs MLB is calling the giants’ bluff.

  33. @xoot,
    So now what Noll says is a “joke.” I would have preferred “hot air,” but whatever. Need to hear something from MLB or the Giants so that Xoot can say “it’s the greatest thing since sliced bread!” Go A’s!

  34. No, tony, only paragraph 11 is a joke. Any litigator would be able to tear him apart on that fantasy in a deposition. Get it right.

  35. Here’s the way it could go down. The judge could say,

    Look, this expert declaration you’ve submitted is outside the pleadings and not something I should consider on a Rule 12 motion–except insofar as it demonstrates your request for leave to amend to fix the holes in your original complaint. To that extent, I’ll consider it, and dismiss your complaint now, with leave to amend, and I’ll defer ruling on the antitrust exemption at this time. The (he pauses and grimaces, suggesting the adjective “bizarre” is what he has in mind) market definition your guy offers could get adjudicated on summary judgment, when the defendants submit counter declarations from their experts. But I’m not sure we’re ever going to get to that point. Frankly I don’t see anything in the declaration that will cure your standing problem. And, as I say, I’m not inclined to do anything on the antitrust exemption issue at this point. . . .

    Could go down like that.

  36. @Xoot: Have you actually read the option agreement between San Jose and Lew Wolff?

  37. @steven, yes. It’s Ex. 3 to the complaint. (It was originally between the JPA and an Athletics LLC.) It doesn’t bind either party the way the Raiders contract with the L.A. Coliseum bound those parties. Those facts supporting standing in that old A/T case. And San Jose does not have a stadium, as did the L.A. Coliseum authority, so I don’t believe it competes in an actually extant market.

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