Professor Heckman Rebuttal Report
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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA, OAKLAND DIVISION IN RE: NATIONAL COLLEGIATE ) CASE NO. 14‐md‐2541‐CW; ATHLETIC ASSOCIATION ATHLETIC ) 14‐cv‐02758‐CW GRANT‐IN‐AID CAP ANTITRUST ) LITIGATION ) ) ) THIS DOCUMENT RELATES TO: ) ) ALL ACTIONS ) ) ) ) ) REBUTTAL REPORT OF PROFESSOR JAMES J. HECKMAN TABLE OF CONTENTS I. Introduction ................................................................................................................................. 2 A. Background ............................................................................................................................ 2 B. Tasks ...................................................................................................................................... 2 C. Summary of Conclusions ........................................................................................................ 2 II. Dr. Noll Does Not Establish a University Labor Market Monopsony .............................................. 6 A. Universities are Multi‐Dimensional Entities With Multiple Constituents and Non‐Profit Motives ................................................................................................................................. 6 B. Dr. Noll’s Narrow Focus is Akin to Incorrectly Viewing Student‐Athletes as Selling Services in a “Spot” Labor Market, Thereby Leading to Erroneous Conclusions .......................................... 9 C. Universities Compete for Students Across Multiple Dimensions ........................................... 14 D. Even Assuming for the Sake of Argument that Dr. Noll’s View of Student Athletics as a Short‐ Term, Narrow Spot Labor Market For Student Athletic Services Were Taken as Correct, Dr. Noll’s Claim that the Defendants have Operated a Monopsony Cartel in a Market for FBS Football and Division I Basketball Labor is Unsubstantiated. ............................................... 15 III. Dr. Noll Ignores the Equilibrium Effects of Plaintiff’s Proposed Rule Changes, Including Adverse Effects for Some/All Class Members ................................................................................................... 18 A. Dr. Noll Ignores the Value Produced by University Investments Over Time which Benefit Current and Future Students and the Value that Amateur Intercollegiate Sports Has for University Constituencies and Which the Plaintiffs’ Proposed Rule Changes Threaten. ........ 18 B. Dr. Noll Ignores The Equilibrium Effects of Plaintiffs’ Proposed Rule Changes, Including Adverse Effects for Some/All Class Members, Employing Strong Unfounded Assumptions About the But‐For World As the Basis for His Analysis ......................................................... 21 IV. Dr. Noll’s Criticisms of the Empirical Results in Heckman Report Are Either Factually or Econometrically Incorrect .................................................................................................................. 28 APPENDIX A: CURRICULUM VITAE AND PAST TESTIMONY ................................................................ A‐1 APPENDIX B: MATERIALS RELIED UPON ............................................................................................ B‐1 APPENDIX C: REGRESSION RESULTS .................................................................................................. C‐1 1 I. Introduction A. Background 1. My name is James J. Heckman. I am the Henry Schultz Distinguished Service Professor of Economics in the Department of Economics and the Harris School of Public Policy at the University of Chicago. I direct the Center for the Economics of Human Development at the University of Chicago. 2. I submitted a report previously in this matter, on March 21, 2017.1 The full listing of my background is included in that report, and an updated CV is attached here as Appendix A. B. Tasks 3. I have been asked by counsel for the NCAA to review the rebuttal report of Roger Noll in this litigation, as well as related materials, and to respond to the few, minor criticisms Dr. Noll raises related to my report, the proper interpretation of my results, his claimed monopsonistic input labor markets for student‐athlete labor, and the relevance of my findings with respect to the assumptions and conclusions Dr. Noll develops in his report. C. Summary of Conclusions 4. My primary finding is that Dr. Noll makes fundamental economic errors, unsupported assumptions, and provides no clear theoretical model or any empirical analysis to support his conclusions, thereby providing no reliable basis for his conclusion of anticompetitive harm to class members.2 In particular: 1 Expert Report of Professor James J. Heckman, March 21, 2017 (henceforth Heckman Report). 2 Dr. Noll claims that “defendant’s economic experts do not offer any valid economic arguments or evidence that the conduct at issue in this litigation – the current limits on the compensation that can be received by a member of one of the three classes – is anything other than a collusive price‐fixing agreement among horizontal competitors that causes anticompetitive injury in the relevant markets for college students who play FBS football or Division I men’s or women’s basketball, and that this collusive agreement has no reasonable business justification.” Declaration of Roger G. Noll, May 16, 2017 (henceforth Noll Report), p. 2. 2 Dr. Noll does not establish a university labor market monopsony or monopsony effects in such an assumed market. Dr. Noll ignores the equilibrium effects of Plaintiffs’ proposed rule changes, including adverse effects for some/all class members.3 Dr. Noll’s criticisms of the empirical results in the Heckman Report are either factually or econometrically incorrect. 5. As further discussed in Section II, Dr. Noll does not establish a university labor market monopsony for student athletes. In adopting a narrow labor market view, he ignores many of the short‐term and long‐term human capital benefits that student‐athletes receive, as the work in my previous report and my extensive academic work show, which go well beyond the direct financial support of athletic scholarships to include benefits of training, mentoring, classroom education, exposure to diverse communities, publicity, developing self‐discipline, leadership and time management skills, as well as many other benefits. In ignoring or improperly analyzing these factors, Dr. Noll improperly divorces the student‐athlete and student‐athletics from their broader relationship with the university. As a result, he draws incorrect and speculative conclusions about universities as monopsony purchasers of athletic labor inputs for FBS football and Division I basketball. 6. Dr. Noll’s narrow view of student athletics as essentially a “spot” (i.e., short‐term money wage‐related) labor market monopsony is incorrect and unsupported. It ignores the broader, 3 Throughout the report, I refer to “Plaintiffs’ proposed rule changes” as described by Judge Wilken: “Consolidated Plaintiffs and Jenkins Plaintiffs allege in their complaints that the NCAA and its member institutions violate federal antitrust law by conspiring to impose the cap on the amount of monetary and in‐kind compensation a school may provide a student‐athlete. Plaintiffs assert that, without the NCAA's cap on compensation, schools would compete in recruiting student‐athletes by providing more generous compensation. Plaintiffs seek an injunction against the NCAA's rules limiting compensation for student‐athletes.” Order Denying Motion for Judgment on the Pleadings, pp. 2‐3. 3 multidimensional nature of the relationship between students and universities, which is a crucial component for analyzing both current policies and Plantiffs’ proposed rule changes. The Heckman Report provides empirical evidence of the broader relationship and is relevant to analyzing Plaintiffs’ proposed rule changes in those relationships. In particular, Dr. Noll’s overly simplistic view of the university‐student relationship as an employer/employee relationship for athletic labor misses the complex process of matching between students (both for student‐ athletes and non‐athletes) and universities across many dimensions, and the dimensions on which competition across universities for students occurs. These many dimensions are of importance to students in choosing where to attend college, including whether to participate at all in intercollegiate athletics. Dr. Noll’s essentially “spot” labor market framework for analyzing university‐student relationships is erroneous and is the basis for erroneous conclusions. 7. In addition, as discussed further in Section II, Dr. Noll has not substantiated his claim that defendants operate a monopsony cartel using reliable theoretical foundations and empirical tools typically used by economists. For Dr. Noll’s claim ‐ that the current NCAA rules at issue here are nothing but a collusive pricing arrangement causing anticompetitive injury ‐ to be true, the NCAA and defendant Conferences would have to act as a successful monopsonist labor‐purchasing cartel for FBS football and Division I basketball players. Dr. Noll does not even discuss, much less examine, the economic criteria for a labor market to be a monopsony, or establish that there is one in operation here. Similarly, Dr. Noll presumes but does not provide any reliable evidence that a monopsony “wage” prevails in his alleged national market for FBS and Division I basketball student‐athletes, or that student‐athletes in these sports are “compensated” currently