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Case 1:17-cv-05495-MKB-ST Document 26-6 Filed 10/16/17 Page 1 of 114 PageID #: 1717

UNITED STATES DISTRICT COURT


EASTERN DISTRICT OF NEW YORK

________________________________________________
)
NORTH AMERICAN SOCCER LEAGUE, LLC, )
)
Plaintiff, )
v. ) Civil Action No. 1:17-cv-05495
)
)
)
UNITED STATES SOCCER FEDERATION, INC., )
)
)
Defendant. )
________________________________________________)

DECLARATION OF

STEVEN R. PETERSON, Ph.D.

October 16, 2017


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TABLE OF CONTENTS

I. EXECUTIVE SUMMARY .............................................................................................. 1


A. USSFS PROFESSIONAL LEAGUE STANDARDS ................................................................. 2
B. ANALYSIS OF PLAINTIFFS AND PROFESSOR SZYMANSKIS THEORY OF ANTICOMPETITIVE
INJURY ............................................................................................................................. 8
C. PROFESSOR SZYMANSKIS ECONOMIC ANALYSIS IS FLAWED ........................................ 10
II. QUALIFICATIONS AND ASSIGNMENT.................................................................. 13
A. QUALIFICATIONS ........................................................................................................... 13
B. ASSIGNMENT ................................................................................................................. 13
C. MATERIALS CONSIDERED .............................................................................................. 14
III. PLAINTIFFS ECONOMIC THEORY ....................................................................... 14
IV. THE ECONOMICS OF SPORTS AND ANTITRUST ............................................... 15
A. THE ECONOMICS OF SPORTS TEAMS AND LEAGUES ....................................................... 15
B. SELF-REGULATION OF SPORTS LEAGUES ....................................................................... 17
V. THE ORGANIZATION OF SOCCER IN THE UNITED STATES AND THE
CONTROL OF EXTERNALITIES AND FREE RIDING......................................... 19
VI. USSFS PROFESSIONAL LEAGUE STANDARDS ARE PROCOMPETITIVE .. 22
A. USSFS PROFESSIONAL LEAGUE STANDARDS ............................................................... 24
B. COMPOSITION AND PLAY ............................................................................................... 26
C. MARKETS, STADIUMS, AND FIELDS ............................................................................... 31
D. FINANCIAL VIABILITY.................................................................................................... 38
E. MEDIA ........................................................................................................................... 39
F. TEAM ORGANIZATION AND LEAGUE OPERATIONS ......................................................... 40
G. CONCLUSIONS REGARDING THE USSF PROFESSIONAL LEAGUE STANDARDS ................ 42
VII. ANALYSIS OF PLAINTIFFS THEORY OF HARM TO COMPETITION .......... 43
A. MARKET DEFINITION ..................................................................................................... 44
B. THE HYPOTHETICAL MONOPOLIST TEST ....................................................................... 45
C. THE PRODUCT AND GEOGRAPHIC MARKETS FOR ATTENDANCE AT MLS SOCCER
MATCHES....................................................................................................................... 47
D. COMPETITION BETWEEN MLS AND NASL FOR ATTENDANCE ....................................... 54
E. THE RELEVANT MARKETS FOR BROADCAST RIGHTS ..................................................... 56
F. MARKET POWER IN THE MARKET IN WHICH MLS LICENSES BROADCASTERS ............... 58
G. THE CONTRACT BETWEEN USSF AND SUM DOES NOT TRANSFER MONEY FROM MLS
TO USSF AS PLAINTIFF ALLEGES .................................................................................. 62
H. PLAINTIFFS THEORY OF ANTICOMPETITIVE HARM IS UNFOUNDED .............................. 63
VIII. ANALYSIS OF PROFESSOR SZYMANSKIS ECONOMIC ANALYSIS ............. 64
A. PROFESSOR SZYMANSKIS ANALYSIS OF THE FINANCIAL AND PROFESSIONAL
CONNECTIONS BETWEEN USSF AND MSL..................................................................... 64
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B. PROFESSOR SZYMANSKI DOES NOT ANALYZE THE CORRECT RELEVANT MARKET ....... 67
C. PROFESSOR SZYMANSKI HAS NO BASIS TO ASSERT THAT USSF AND MLS HAVE
MARKET POWER IN THIS RELEVANT MARKET ........................................................... 74
D. PROFESSOR SZYMANSKIS CONCLUSIONS REGARDING THE PROFESSIONAL LEAGUE
STANDARDS ARE ECONOMICALLY UNFOUNDED............................................................ 76
E. PROCOMPETITIVE JUSTIFICATIONS FOR PROFESSIONAL LEAGUE STANDARDS ............... 88
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I. Executive Summary

1. Rigorous economic analysis shows that the United States Soccer Federations (USSF)

Professional League Standards are efficient and procompetitive. The standards foster

stable growth and investment in soccer, thereby expanding output, including limiting free

riding that would otherwise undermine the growth of professional soccer leagues in the

United States. I am a Harvard-trained Ph.D. economist with more than 25 years of

experience in antitrust economics, and I have reviewed the claims put forth by the North

American Soccer League (NASL). I conclude that NASLs claim that USSF and

Major League Soccer (MLS) have an incentive to collude and the related conclusions

Plaintiffs economist Dr. Szymanski offers are both wrong as matter of economics and

are unreliable.

2. USSF governs soccer in the United States. Its goal is to develop soccer into a major sport

alongside American football, baseball, basketball, and hockey. To do this, USSF invests

in the US Mens and Womens National Teams, trains coaches, referees, and athletes,

and promotes soccer for the benefit of all participants. Any amateur or professional

soccer organization can take advantage of USSFs investments by capitalizing on

increased interest in the game or access to more highly trained athletes, coaches, and

referees trained at USSFs expense. USSFs investments help grow soccer, but they also

create incentives for soccer leagues and clubs to free ride on USSFs investments. The

USSF has procompetitive interests in encouraging investment in soccer and limiting free

riding on its and others investments in soccer.

3. USSF administers soccer in the United States, in part, through its Professional League

Standards, which set requirements for professional soccer leagues seeking Division I,

1
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Division II, or Division III status. The standards set minimum requirements for leagues

covering the number of teams in the league, geographic breadth and market size,

financial viability, and staffing, among other things.

4. Plaintiff and its economic expert, Professor Szymanski, allege that the Professional

League Standards are anticompetitive and that USSF has discriminatorily applied them

against NASL. The alleged result is that MLSs market power has been protected or

enhanced to the financial benefit of USSF.

A. USSFs Professional League Standards

5. My economic analysis shows USSFs Professional League Standards govern league

characteristics that economics indicate directly affect fans experiences when watching a

soccer game, in person or on television. They encourage investment in soccer in the

United States and are procompetitive, which explains why USSF is not alone among

organizations governing sports in establishing standards related to quality. I address

several of the key requirements of the Professional League Standards at issue in this

matter below.

1. Number of Teams

6. Soccer leagues produce a season-long competition in the context of a championship race.

This contest appeals to fans because it allows them to follow standings, learn about teams

and players, and become involved in the competition over the course of one or more

2
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seasons.1 League-based play clearly requires more than a few teams and becomes more

interesting as the number of teams in the league grows, at least to some point.

7. The Professional League Standards currently require Division I leagues to initially have

12 teams and to grow to 14 teams by the third year of operation. Division II leagues must

start with 8 teams and grow to 12 teams by the sixth year of operation. These standards

clearly matter to fans. Leagues with only 4 or 5 teams cannot generate the variety of

team match ups, local rivalries, and competition comparable to that of a larger league. A

five-team league playing about twice weekly would have to repeat matchups by the third

week of the season, limiting fan appeal. The standard requiring a minimum number of

teams thus ensures that US professional soccer leagues grow to the point that they

provide varied and intense competition for fans. The standard helps guarantee the quality

of professional soccer leagues and is procompetitive.

2. Geographic Coverage, Market Size, and Stadium Capacity

8. The Professional League Standards require Division I leagues to have US-based teams in

the Eastern, Central, and Pacific time zones. Division II leagues must initially have

teams in two time zones and have teams in the Eastern, Central, and Pacific time zones

by the third year of operation. This is a way to ensure that soccer can compete with the

four major US sports, all of which have national footprints, for fan interest. If a Division

I or Division II soccer league is to support the nationwide growth of soccer, the league

should not have just a regional footprint and regional appeal. A larger league footprint is

1
Professor Szymanski agrees that soccer competition in the context of league-based play is differentiated
from one-off matches, such as friendlies or scrimmages (Expert Declaration of Stefan Szymanski,
September 20, 2017 (hereinafter Szymanski Declaration) at 35).

3
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also important for attracting broadcaster interest in the league.2 Increased broadcaster

interest is, of course, the result of increased fan interest in leagues with larger geographic

coverage.

9. The Professional League Standards include minimum requirements for stadium capacities

for Division I and Division II leagues. NASLs current teams meet that particular

requirement for Division II leagues, which is the status NASL seeks to retain through its

motion for a preliminary injunction. Whether NASLs expansion teams for the 2018

season will meet the requirement is not clear. The stadium capacity requirement directly

affects both fans experience when attending games and teams incentives to invest in the

game. Fans experience while attending a game does not depend solely on the quality of

competition on the field. Fans experience reflects the quality of the stadium, its

amenities, and the size of the crowd, as well as the quality of play. Thus, the stadium

capacity requirement directly affects fans perception of the game, particularly relative to

the major outdoor US sports, which generally have stadiums much larger than the

15,000-seat minimum for Division I soccer leagues. MLS teams regularly draw 15,000

or more fans to their games, and the ability to fill a stadium of about the size of the

typical basketball arena is an important signal that soccer is a serious sport with appeal

comparable to other major US sports.3 Moreover, teams with larger stadiums will have

an incentive to invest to attract fans and fill the stadiums.

10. The Professional League Standards also require Division I leagues to locate 75% of their

teams in metropolitan areas with at least 1 million people. Division II leagues must
2
Szymanski Declaration at 96 (a growing footprint can be attractive to broadcasters who seek to reach
television audiences.).
3
See Appendix C.

4
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locate 75% of their teams in metropolitan areas with at least 750,000 people. Clearly,

larger metropolitan areas offer a larger potential fan base that can support better facilities

and better teams. Moreover, sports economics shows that teams invest in talent when

their fan bases respond positively to a teams winning percentage. The standards

encourage leagues to place their teams in larger markets, where they will reach a larger

number of fans, and thus encourage investment in the teams and their facilities.

11. The Professional League Standards requirements for geographic coverage, market size,

and stadium size encourage investment in professional soccer leagues. Moreover,

nothing in the requirements limits the ability to develop a soccer league at levels below

Division I or Division II. The Professional League Standards reflect the fact that teams in

smaller markets will systematically find it in their interest to invest less than teams in

larger markets and that teams with smaller stadiums will create a different impression for

fans than teams that play in larger stadiums. Ensuring that top-tier leagues present fans

with a consistent and positive soccer experience is output expanding because it keeps

leagues from free riding on the investments of the USSF and other leagues that make the

investments that the Professional League Standards require.4 If USSF were to allow free

riding, the incentives for other leagues, such as MLS, to invest in soccer would be

reduced.

3. Financial Stability

12. The Professional League Standards include financial requirements that require leagues to

have funds available to operate a team should it become financially troubled during the

4
I use the term top-tier to mean the upper echelons of professional sports, not necessarily confined to any
particular league or division.

5
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course of a season. The standards also establish net worth requirements for principal

owners and each ownership group as a whole. These requirements reflect soccers long

history with failed teams and leagues (for example, an earlier incarnation of the North

American Soccer League and the Womens United Soccer Association).5 Failed leagues

and teams lead to poor press for soccer as a whole and may create the perception among

potential fans that soccer is not a sport worth watching. Also, fans who previously

enjoyed soccer may become disaffected if the teams they have followed suddenly

disappear.

13. One consequence of leagues and teams financial instability is that it turns off fans and

reduces the effectiveness of USSFs and other soccer leagues investments in developing

interest in the sport. Of course, when investment becomes less effective, the incentive to

engage in the investment is reduced as well. Thus, USSFs requirements supporting a

leagues financial stability ensure that a league has sufficient funds to be reasonably

stable and contribute to the development of soccer without free riding on or undermining

others investments in soccer.

4. Team and League Organization

14. USSFs Professional League Standards require Division II leagues to fill 11 team

positions with full-time employees on a year-round basis. These positions include the

general manager, head and assistant coaches, marketing and community outreach staff,

and some administrative positions. Staffing requirements reflect the level of professional

5
See, e.g., Top 20 Professional Sports Leagues Which Failed Miserably (or Hilariously), Masters in Sports
Management, at http://www.mastersinsportsmanagement.org/2010/top-20-professional-sports-leagues-
which-failed-miserably-or-hilariously/, accessed on October 14, 2017. For additional discussion, see the
Declaration of Sunil Gulati, October 16, 2017 (hereinafter Gulati Declaration), at 64, 74, 92, and 143.

6
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management, marketing, and community outreach that USSF has found teams should

undertake to be successful and to generate increased interest in soccer in their

communities. This requirement is consistent with USSFs goal of expanding soccer in

the United States.6 It helps ensure the quality of the teams in a league and each teams

outreach to the community, which benefits soccer fans and other soccer organizations.

15. Without this standard, leagues could skimp on staffing requirements by responding to

each individual teams economic incentive to limit its contribution to the soccer

community while benefitting from the investments of USSF and other soccer

organizations. These individual incentives undermine the development of soccer, and

USSFs standards that limit such conduct expand output and are procompetitive.

5. Conclusions on Professional League Standards

16. USSFs Professional League Standards require more investment in the league and its

teams in order to obtain higher divisional status. As described, the standards affect fans

perception of the quality of competition and other aspects of their soccer experience.

Ensuring a quality soccer experience across leagues with a common divisional

designation contributes to the growth of the sport and increases output and interest in the

sport over time. Moreover, standards encourage investment and limit free riding by

soccer organizations that would otherwise succumb to the incentive to limit investment

while benefitting from the investments of others to the detriment of the growth of soccer

in the United States.

6
Gulati Declaration at 74.

7
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B. Analysis of Plaintiffs and Professor Szymanskis Theory of Anticompetitive


Injury

17. Plaintiffs theory of anticompetitive harm has two key elements. First, Plaintiff claims

that USSF has applied the Professional League Standards in ways that discriminate

against NASL, thus enhancing MLSs market power. Second, Plaintiff claims that USSF

has the incentive to discriminate against NASL because USSF benefits from the

maintenance and expansion of MLSs market power through USSFs contract with

Soccer United Marketing (SUM), which also licenses MLSs soccer properties. The

economic evidence supports neither of Plaintiffs assertions.

18. My understanding of USSFs contract with SUM is that SUM makes payments above the

minimum payment schedule to USSF based solely on the revenues SUM earns from

licensing USSFs soccer properties. If MLSs licensing revenue were to grow as the

result of increased market power, USSFs contract with SUM would not allow USSF to

participate in the gains from MLSs hypothetical market power. In fact, Professor

Szymanski claims that his analysis of the contract between USSF and SUM shows that

rather than USSF sharing in revenues from MLS soccer properties, SUM siphons off

money from USSF for the benefit of MLS.7 Professor Szymanskis analysis finds exactly

the opposite of what would be required to infer that USSF had an anticompetitive

economic incentive to discriminate against NASL in favor of MLS.

19. Soccer leagues primarily earn money by selling tickets to fans, licensing broadcasts of

matches, and attracting sponsors. Soccer teams sell tickets in geographic markets that are

roughly the size of the metropolitan areas where the teams are located. MLS and NASL

7
Szymanski Declaration at 19 (This suggests that MLS owners profit from SUM and properties that
ultimately belong to USSF.).

8
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currently have teams in only two common metropolitan areas, New York City and the

greater San Francisco Bay Area.8 With little scope for competition between NASL and

MLS teams, MLS has little to gain from limiting competition between MLS and NASL in

ticket sales. In addition, Plaintiff does not claim that USSF would benefit from increased

MLS ticket sales because ticket revenues do not flow through SUM. USSF has no

economic incentive to discriminate against NASL to increase MLSs alleged market

power in ticket sales.

20. In order for MLS to exercise market power in the market for broadcast licenses, it would

need to exercise market power over advertisers that would then have to pay above-

competitive advertising rates for advertising during soccer matches. Broadcasters would

channel the above-competitive advertising fees to MLS in the form of license fees. This

theory would also be economically unfounded because MLS programming represents a

very small share of television advertising expenditures or sports television advertising

expenditures. Thus, MLS has no ability to withhold the supply of programming from

broadcasters to exercise market power over advertisers or broadcasters. USSF cannot

enhance MLSs market power relative to broadcasters and advertisers by allegedly

enforcing the Professional League Standards discriminatorily against NASL.

21. If USSF has no economic incentive to discriminate against NASL, some other economic

basis for USSFs conduct must exist. The most likely economic explanation for USSFs

administration of the Professional League Standards is that USSF believes they support

the growth of soccer in the United States. This conclusion is supported by USSFs

8
I understand that NASLs San Francisco team has not yet confirmed that it will return for the 2018 season.

9
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decision to implement detailed standards 15 years before NASL reentered professional

soccer.

C. Professor Szymanskis Economic Analysis Is Flawed

22. Professor Szymanski asserts that the close relationship between MLS, SUM, and USSF

represents a significant conflict of interest.9 However, rather than finding an economic

incentive for USSF to favor MLS over NASL, he finds the opposite that MLS benefits

from license fees from USSFs soccer properties through USSFs contract with SUM.

Professor Szymanskis analysis completely undercuts Plaintiffs claim that USSF has an

anticompetitive economic motive to apply the Professional League Standards

discriminatorily relative to NASL.

23. As noted above, soccer leagues primarily earn money by selling tickets to fans, licensing

broadcasts of matches, and attracting sponsors. These are the markets in which MLS

would have to exercise market power in order to increase its profits. Plaintiff recognizes

that these are a soccer leagues primary sources of revenue.10 Nevertheless, Professor

Szymanski does not define relevant markets for ticket sales or broadcast license fees.

Instead he defines a market for top-tier mens soccer leagues in the US and Canada.11

Professor Szymanski asserts that the demand for the services of such a league comes

9
Szymanski Declaration at 17.
10
Complaint, North American Soccer League, LLC, Plaintiff, against United States Soccer Federation, Inc.,
Defendant, United States District Court Eastern District of New York, September 19, 2017 (hereinafter
Complaint) at 38 (The customers in the markets for top-tier and second-tier professional soccer leagues
located in the U.S. and Canada are fans who purchase tickets or licensed merchandise of the leagues,
sponsors who purchase the reputational, promotional and other benefits of association with the leagues and
their clubs, and broadcasters who obtain the rights to distribute games.).
11
Szymanski Declaration at 37.

10
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from teams/owners/promoters wishing to play in these forms of season-long, league-

based competitions.12

24. Professor Szymanski has clearly defined the wrong market for assessing whether USSF

could benefit by discriminating against NASL. MLS would have to exercise its market

power in the markets for tickets and broadcast rights where it sells access to its matches.

Professor Szymanski, however, focuses his relevant market analysis on services to

would-be soccer team owners and the prices of soccer teams. MLS does occasionally

receive payments from owners of expansion teams. However, MLS has no ability to

charge a monopoly price to a would-be team owner acting as an investor. If MLS

attempts to charge expansion teams more than the value of becoming an MLS member,

the owner would simply reject the offer because it would lower his or her wealth.

25. Given that Professor Szymanski has defined the wrong relevant market, he has no basis

to assert that MLS has market power in any market where it sells tickets or licenses to

broadcasters or sponsors.

26. Professor Szymanski asserts there is no valid procompetitive justification for the

divisional structure that USSF implements through the Professional League Standards.13

However, Professor Szymanski explicitly recognizes that USSF may have a legitimate

interest in promoting rules that benefit consumers, improve quality, increase output, and

ensure competition.14 As I have described, in the context of growing soccer into a major

sport in the United States, and where USSF and others are investing heavily to do so, the

12
Szymanski Declaration at 37.
13
Szymanski Declaration at 6.1.
14
Szymanski Declaration at 64.

11
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Professional League Standards accomplish exactly the goals that Professor Szymanski

asserts would justify them.15 In addition, Professor Szymanski appears to take issue with

the Professional League Standards because they do not reflect observations he makes

about how the game is conducted in Europe.16 However, international comparisons are

simply not helpful for assessing the competitive effects of USSFs Professional League

Standards. USSFs Professional League Standards are specific to the United States, and

the effort to build the sport in the United States faces different obstacles than the

promotion of soccer in Europe, where it is the most popular sport in most countries, and

has been so for many decades.

27. Furthermore, Professor Szymanski asserts that sanctioning NASL as a Division III league

will diminish its ability to compete, particularly against the United Soccer League

(USL). This conclusion appears not to account for the growth and success of the USL

as a Division III league. USLs continued growth and success as a Division III league

(and now provisionally as a Division II league) indicates that league designations do not

preclude (or ensure) success. NASL asked for Division I status in 2015 and has

subsequently faltered to the point that it no longer meets the standards of a Division II

league all while designated as a Division II league. With no change in its Division II

status, NASLs current decline cannot be attributed to USSFs Professional League

Standards.

15
As described in the body of my report, USSF provides public goods that are available to all participants in
soccer in the United States. There are also instances of externalities where teams and leagues take actions
in sports that are individually advantageous, but damaging to the league or the sport as a whole. Professor
Szymanski lists the presence of public goods and externalities as two reasons that regulation of markets can
improve outcomes (Szymanski Declaration at 82).
16
Szymanski Declaration at 6.2.

12
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II. Qualifications and Assignment

A. Qualifications

28. My name is Steven R. Peterson. I am an Executive Vice President at Compass Lexecon,

an economics consulting firm with expertise in the areas of competition and antitrust,

financial economics and valuation, and regulatory economics. I received my A.B. in

economics from the University of California, Davis, in 1987 and my Ph.D. in economics

from Harvard University in 1992. While at Harvard, my areas of specialization were

economic theory and industrial organization. Industrial organization includes the study

of market power and anticompetitive conduct. I have previously testified on competition

and other matters before Federal courts. I have also served as an adjunct faculty member

in the Department of Economics at Northeastern University where I teach courses on the

economics of antitrust, regulation, and public policy.

29. I have consulted on the economics of antitrust and competition, mergers, estimation of

damages, and the economics of valuation, and on regulation and public policy. A copy of

my curriculum vitae, which includes a list of my testimony in the last four years, is

attached as Appendix A.

30. Compass Lexecon is being compensated for my work in this matter at the rate of

$800/hour. My compensation does not depend in any way on the outcome of this

proceeding. The opinions I express here are my own, and do not necessarily represent

the views of any of my employers.

B. Assignment

31. I have been asked by counsel for USSF to examine Plaintiffs claims that USSF has

conspired to discriminate against NASL, conferring market power on MLS in order to

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share in the financial gains from MLSs exercise of its alleged market power. Counsel

has also asked that I review the declaration of Professor Stefan Szymanski in support of

Plaintiffs motion for a preliminary injunction.

C. Materials Considered

32. I have examined a range of materials and evidence in the course of my work on this

matter. These items have included legal documents and course of business records from

various soccer entities, including USSF and NASL. A list of the documents considered

by me and by my staff is included as Appendix B to this declaration.

III. Plaintiffs Economic Theory

33. USSF has established Professional League Standards that set requirements for

professional soccer leagues seeking Division I, Division II, and Division III status. As

described below, the Professional League Standards are related to the leagues and their

member teams investments in providing fans with a high-quality soccer experience.

Plaintiff claims that USSF has applied its Professional League Standards in ways that

discriminate against NASL and favor MLS.

34. The economic motivation for the purported discriminatory application of the Professional

League Standards is that USSF and MLS have economic ties through Soccer United

Marketing (SUM).17 SUM licenses broadcast and other rights on behalf of MLS and

certain rights on behalf of USSF (e.g., the broadcast of exhibition/friendly matches

17
Complaint at 103. See also Memorandum of Law in Support of Plaintiffs Motion for a Preliminary
Injunction, North American Soccer League, LLC, Plaintiff, against United States Soccer Federation, Inc.,
Defendant, United States District Court Eastern District of New York, September 20, 2017 at 10-11.

14
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involving the US Mens and Womens National Team competitions).18 According to

Plaintiff, the direct economic link between the USSF and MLS creates a powerful

economic incentive for USSF to protect MLSs monopoly position, which USSF

purportedly protects through discriminatory application of the Professional League

Standards. 19 The asserted result of USSFs application of the Professional League

Standards is that NASL has not been able to ascend to the top tier of mens soccer. As a

result of the alleged exclusion of NASL from Division I soccer, MLSs market power has

been maintained or enhanced in the market for mens top-tier professional soccer

leagues located in the U.S. and Canada.20

35. Plaintiffs theory of anticompetitive harm is based on the assumption that USSF shares in

the benefits of MLSs purported market power through license fees earned by SUM.

Consequently, the market power analysis logically should focus on the relevant markets

in which SUM licenses rights to MLS matches.

36. Before addressing these claims, I first describe the economics of sports leagues that relate

to antitrust economics.

IV. The Economics of Sports and Antitrust

A. The Economics of Sports Teams and Leagues

37. Sports competition is the result of two independent teams that are each motivated to win.

A scrimmage or a practice does not have the same characteristics as a true competitive

18
SUM also represents other soccer properties besides those involving MLS and USSF. This includes, for
example, exhibition/friendly matches that the Mexican National Team plays in the United States. See
Kevin Baxter, Mexico's national soccer team finds a great home venue in the U.S., Los Angeles Times,
at http://www.latimes.com/sports/soccer/la-sp-mexico-soccer-20150328-story.html, accessed on October
10, 2017.
19
Complaint at 105.
20
Complaint at 35.

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contest and generally attracts less fan interest than a genuinely competitive game. Thus,

the most basic sporting event, a one-off game between two teams, is a product that is

jointly produced by the efforts of the two teams. Teams compete on the field, but

competition requires the teams to agree on the rules that govern the on-field competition.

38. One-off games can be interesting, particularly if they involve quality teams, a meeting of

teams that rarely play each other, or top players, but one-off games are not the normal

method for organizing competitive contests. One problem is that one-off games are

unlikely to retain fan interest because many fans will be unfamiliar with the teams or

players and the schedule of play may be erratic. League-based competition has benefits

over one-off games and tournaments for many sports. Leagues consist of a stable roster

of teams that compete regularly with each other. This structure increases fan interest

because fans can learn about the teams and their players over the course of a season or

longer, follow standings as the season unfolds, become involved in rivalries between

teams, and so forth. Generating fan interest in a season-long competition of league

games requires more than two teams and more than just a few so that teams do not meet

too frequently.21 Competition in a league usually ends with some type of championship,

which is often the result of a championship tournament between the top teams in the

league (particularly in the United States).22

21
Franklin Fisher, Christopher Maxwell, and Evan Schouten, The Economics of Sports Leagues and the
Relocation of Teams: The Case of the St. Louis Rams, Marquette Sports Law Review, Vol. 10, Issue 2
Spring 2000, at 195 (Even a small number of teams cannot produce the product that is produced by a
sports league. That product is a series of games in the context of a league season. The elements of
standings, play-offs, and championships are a very large part of what creates fan interest. Those elements
require a league with a non-negligible number of teams.).
22
Plaintiffs and Professor Szymanski agree that there is a distinction between one-off games and tournaments
on one hand and league-based play on the other. See, e.g., Complaint at 45 and Szymanski Declaration at

16
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39. The primary product of a sports league is the season-long competition that the member

teams jointly produce. Leagues and their member teams primarily sell access to games

by selling tickets to fans attending games, licensing television stations and networks to

broadcast games, and attracting sponsors who pay to have their products associated with

the league.23

B. Self-Regulation of Sports Leagues

40. The members of a sports league must coordinate some aspects of their operations to

ensure that league games offer a level of play that interests fans, in person and on

television. Most leagues operate with teams owned by individual owners or owner

groups but with significant centralized decision making over some economic aspects of

their organization. Because of the joint production of competition, leagues often share a

portion of gate or broadcast revenues. Sports leagues also generally provide marketing

and other benefits to all teams in the league in order to attract and retain the attention of

the leagues fan base.

41. The members of a league are interdependent because the decisions of one team can affect

others in the league, so successful leagues must find ways to limit teams incentive and

ability to take actions that, while individually beneficial, harm the league as a whole. For

example, a teams decision to change cities may be individually beneficial, but reduce

overall league revenue and attendance. This would be the case, for example, when a

team that is part of a regional rivalry moves and, in making its decision, ignores the

30-33. Neither Plaintiff nor Professor Szymanski provides credible evidence that one-off soccer
competitions are not substitutes for league-based soccer.
23
Games may also be available for viewing on pay television stations or through league-sponsored streaming
services.

17
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benefits to its former rival of the fan interest the rivalry created. This is an example of

what economists call an externality. An externality occurs when one party undertakes an

action based on the costs and benefits to itself, but without regard for the effect of the

action on others, or parties external to the decision to take the action.

42. Leagues are also subject to free riding, which occurs when one team takes advantage of

the resources of the league or other teams without compensation. For example, in a

league in which home and visiting teams share gate revenue, one team might choose to

spend very little money on players while sharing in gate receipts at away games. Of

course, this decision negatively affects other teams in the league. The low-quality team

would draw few fans at home games, which reduces gate receipts shared with visiting

teams. Thus, a team that free rides on the reputation and quality of other teams without

contributing to league competition injures other teams.

43. Sports leagues have to find ways to keep the individual incentives of teams, which may

diverge from league incentives, from interfering with the operation of the league and the

creation of competition that attracts sustained fan attention. Different leagues have

different degrees of centralization and different rules to address these problems.24 MLS

24
For example, the National Football League explicitly governs the conduct of home clubs, to ensure they
protect players and provide the conditions for a fair and friendly contest. Clubs face warning and other
penalties for noncompliance. The NFL states Our primary goal is to protect the competitive equity. We
want the game to be decided on the field, between the two teams. See League Governance, NFL
Football Operations, at http://operations.nfl.com/football-ops/league-governance/, accessed on October 7,
2017; Major League Baseball has a rule (that stretches back more than 100 years) prohibiting any
individual from owning more than one team. See David Hill, MLB History: Owners Prevented from
Owning More than One Team, Fox Sports, at http://www.foxsports.com/mlb/story/mlb-history-owners-
prevented-from-owning-more-than-one-team-021017, accessed on October 7, 2017; and the NFL restricts
and governs the membership of franchises: Each entity or each person holding any interest in the
applicant must be approved by the affirmative vote of no less than three-fourths of the members. A three-
fourths majority is also required to transfer a membership to another entity. See Gregor Lentze, The
Legal Concept of Professional Sports Leagues: The Commissioner and an Alternative Approach from a
Corporate Perspective, Marquette Sports Law Review, Vol. 6, Issue 1 Fall 1995, at page 68.

18
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has organized itself as a single-entity league in which the league owns the teams and

hires the players on the global market for soccer players. This is not the most common

way to organize a league, but is how the league was initially structured in the 1990s. At

that time much of the activity in forming a new professional league in the United States

was focused on the effort to guard against the risk of having another professional soccer

league fail in the United States.25

V. The Organization of Soccer in the United States and the Control of Externalities
and Free Riding

44. USSF is a non-profit organization headquartered in Chicago, IL. It serves as the

governing association for soccer in the United States, and, in this role, USSF interacts

with other soccer governing bodies, supports athletes at all levels of the sport (from

amateur to professional), develops coaches and referees in the United States, and

generally oversees all aspects of soccer in the United States. USSF has served as the

governing body for soccer in the United States for more than 100 years. USSF states that

its mission statement has been clear and simple: to make soccer, in all its forms, a

preeminent sport in the United States and to continue the development of soccer at all

recreational and competitive levels.26

45. USSF engages in many activities in support of this mission. Prominent among them are:

promoting all types of soccer (from amateur to professional to the national teams of the

25
By the late 1980s, the United States had no prominent professional soccer league. Given the size and
wealth of the country, FIFA (the body that oversees the sport globally) was interested in expanding soccers
popularity in the United States, and did so by awarding the 1994 World Cup hosting rights to the United
States, with the expectation that USSF would facilitate creation of a sustainable professional mens soccer
league (see the Gulati Declaration at IV).
26
USSF at http://www.ussoccer.com/About/About-Home.aspx, accessed on October 3, 2017.

19
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United States);27 governing and administering the sport in the US; ensuring the continued

development and advancement of players, coaches, and referees; organizing national cup

competitions; and promptly and equitably resolving grievances arising in the sport.28

46. USSF is not a league, but instead spends effort and resources in ongoing activities that

serve to increase the popularity, quality, and output of soccer in the United States. Over

the years 2014-2016, expenditures by USSF in furtherance of its mission averaged more

than $90 million per year.29 The money is spent to fund and promote the US Mens and

Womens National Teams, which attract interest to the sport, to maintain various youth

teams, to field an Olympic team, to train quality coaches and referees, and other activities

that support the sport and interest in the sport.

47. USSFs contributions to the development of soccer benefit all soccer participants in the

United States. USSFs contributions are also subject to free riding by amateur and

professional organizations. Consider USSFs efforts to increase interest and participation

in soccer. This delivers benefits to all who are involved in the sport. For example, when

USSF promotes interest in the US Mens or Womens National Teams, it helps create a

shared public good in the form of the kind of increased attraction of youth to soccer and

27
By, for example: securing competitions and games for the US National Teams, overseeing international
games hosted in the United States, running youth teams which feed into the future US Mens and Womens
National Teams, running a youth development academy, administration of teams that compete in beach
soccer and futsal, conducting the US Open Cup (which is open to amateur and professional teams),
registration of players and referees at all levels, advertising the successes of the various teams that represent
the United States, subsidizing certain professional players salaries, etc. See USSF at
http://www.ussoccer.com/about/about-us-soccer, accessed on October 6, 2017.
28
Bylaws of the United States Soccer Federation, at http://www.ussoccer.com/about/governance/bylaws,
accessed on October 3, 2017.
29
USSF Audited Financial Statements, Years ended March 31, 2016 and 2015 at 7 and USSF Audited
Financial Statements, Years ended March 31, 2015 and 2014 at 7, at
https://www.ussoccer.com/about/federation-services/resource-center/financial-information, accessed on
October 2, 2017.

20
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thereby promotes the development of youth soccer participation. Of course, such interest

encourages people to attend professional soccer matches and watch soccer on television.

Thus, USSFs promotion of soccer inures to the benefit of amateur and professional

soccer alike.

48. Once fan interest is generated, it is what economists call a non-excludable good that can

be used by any soccer league seeking to attract soccer fans to its games.30 This means

that soccer leagues can free ride on the USSFs marketing expenditures and other support

for soccer.31 Teams or leagues free ride on the USSFs expenditures on soccer when they

do not themselves invest in developing fan interest or do not invest to put high-quality

competition on the pitch to retain fan interest. Thus, any entity with a commercial

interest in soccer can free ride on the USSFs investments in soccer in the same way that

an individual team can free ride on the investments of a soccer league.

30
A non-excludable good is a good for which it is difficult or impossible to exclude people from consuming it.
The implication is that it is difficult or impossible to charge for the use or exploitation of the good.
31
From training referees, to overseeing coaching courses, the USSF engages in many activities that are non-
excludable and are subject to free riding. Training referees and coaches, which then serve all players better
as the referees and coaches skills increase, is one way that USSFs investments benefit soccer participants
and organizations that do not directly pay for those services. In addition, USSFs actions generate interest
in the game generally, and these benefits inure to everyone with an involvement in the game. Consider, for
example, the interest and excitement in the sport when the US National Teams are successful. All of those
putting on professional soccer likely benefit (i.e., MLS, NASL, and USL) when the US Womens National
Team wins the World Cup, and those living in the United States are that much more inclined to purchase
tickets to a match taking place nearby. The local club (again, be it MLS, NASL, and USL) also likely
benefits when the Womens or Mens World Cup is on television, even without marginal advertising
spending by the club itself. Interest in the game tends to be at its peak when the World Cup is being held,
and this is particularly true when the US National Teams are doing well in the tournaments. Increased
interest in the sport, in the marketplace in which MLS, NASL, and USL teams sell tickets, is undoubtedly a
valuable public good that the clubs strive to capitalize upon. Soccer differs from other major sports in the
United States in a number of ways, but one of the most obvious differences lies with the relative
importance of the World Cup in the sport. For many players, performing for ones national team is the
pinnacle of the sport, and the global competition eclipses league-based championships and tournaments. In
the other major sports in the United States, league-based championships are seen as the height of
professional accomplishment (e.g., the NBA Championship is generally considered far more important than
an international title in basketball).

21
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VI. USSFs Professional League Standards are Procompetitive

49. Sports leagues impose rules on their member teams because their fortunes will rise and

fall together and there are many ways for one team to benefit itself while harming the

league. The USSF is not a league but spends its money to make soccer more popular in

the United States and to improve the quality of soccer competition in the United States.

These expenditures include maintaining developmental youth squads (which feed into the

US Mens and Womens National Teams) and administration of the US Open Cup

competition, as well as support for the quality of soccer competition in the United States

by training referees and providing training camps for promising young soccer players.

All of these expenditures benefit soccer teams and leagues at the amateur and

professional levels. USSF has procompetitive reasons, and reasons consistent with its

mission to increase the popularity of soccer and the level of play of soccer, for creating

rules that keep teams and leagues from free riding on USSFs investments in US soccer

to the detriment of interest in soccer in the United States.

50. Moreover, USSF has procompetitive interests in the financial stability of soccer leagues.

Financial stability not only requires that teams have backers with sufficient capital to

support the leagues teams as they develop fan interest, but also that the league create a

compelling product that ultimately attracts fans. Attracting fans means that the

experience of watching a top-tier soccer match should rival the experience of watching a

game of the other major sports in the United States. Thus, top-tier soccer must be

sufficiently compelling to attract fans from other sports or keep young fans from

switching their allegiance to other sports. In addition to the competition on the field, a

22
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top-tier sport experience involves other aspects of the fan experience, such as the quality

of the facilities and concessions, for example.

51. More generally, the USSFs Professional League Standards are analogous to standards

imposed by manufacturers on distributors to limit free riding. In the context of the

manufacturer-distributor relationship, a distributor can free ride on the manufacturers

investment in the quality and reputation of its brand by failing to support the product

appropriately at the time of sale. The distributor may also free ride horizontally on other

distributors who do provide the services necessary to support the product. Distributor

free riding in either of these scenarios erodes the value that consumers associate with a

manufacturers product and reduces the incentive of others to provide high-quality sales

service as the value consumers place on the product or brand falls. Thus, a free riding

distributor can harm the manufacturer and distributors of a product by failing to properly

support consumer satisfaction.32

52. USSF has legitimate reasons to be sure that its efforts to support the growing interest in

soccer in the United States are not undermined by the proliferation of low-quality and

financially unstable professional leagues that reduce fans interest in soccer relative to

other entertainment.

53. In this section, I describe the economic basis for my conclusion that the USSFs

Professional League Standards are procompetitive. The procompetitive nature of the

Professional League Standards is made still more evident in the context of the subsequent

sections of my report that describe how USSF does not benefit from the alleged increase

32
Dennis Carlton and Jeffrey Perloff, Modern Industrial Organization, Third Edition, (Reading, MA:
Addison-Wesley, 2000) at pages 401-405.

23
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in MLSs market power. If USSF does not benefit economically from its alleged

discriminatory application of the Professional League Standards relative to NASL, then

USSF has no anticompetitive reason to apply the Professional League Standards

discriminatorily as alleged.

A. USSFs Professional League Standards

54. Figures 1A and 1B show the key requirements of the Division I and Division II Mens

Professional League Standards and how they have changed since 1995. Generally, the

standards address the composition of leagues; requirements for the stadiums and markets

in which they play; financial viability of leagues and teams; requirements for

broadcasting games; requirements for team employees and for player and youth

development; and requirements for league employees.

24
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Figure 1A
Select Professional League Standards
Mens Division I Outdoor
1995 2008 2014 Proposed Changes 2015

Composition; Play
Minimum number of teams: 10 10 12; 14 by year 3 16

Competition participation for US-based teams: All US Soccer and CONCACAF competitions for which they are eligible

Markets; Stadia; Fields


Eastern, Central, and
At least 3 time zones in the At least 3 time zones in the
Must have US-based teams located in: At least 3 time zones Pacific time zones in the
continental US continental US
continental US
Min. 75% of league's teams in metropolitan area sized at least: 1,000,000 2,000,000
Minimum seating capacity: 15,000
Financial Viability
League must either have the funds to cover or have $1,000,000
Does not specify amount
performance bonds for each team worth: (maximum requirement is $20,000,000 total)
Team Ownership:
Principal owner with >35% share must have net worth: $40,000,000

Combined ownership net worth: $70,000,000 $80,000,000


Media
All regular season and
Significant portion of games
championship games
Broadcast or cable television contract: Regular season and championship games telecasted on television; the rest
telecasted (streaming
streamed online
counts)
Team Organization
Each team must have the required employees: Full-time Full-time, year-round

Player development: US-based teams must support either an amateur or professional reserve team in a USSF-sanctioned league.

Youth development: US-based teams must have a program to develop youth players.
League Operations
Chief operations officer, a chief financial officer and a
League full-time staff: Chief executive officer
director of marketing/public relations

Note: Required employees include general manager, director of marketing/sales, director of communications/media relations, director of
promotions/community relations, director of game operations, head coach, assistant coach, trainer, ticketing manager, finance director, and
clerical staff.
Sources: United States Soccer Federation Professional League Standards.

25
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Figure 1B
Select Professional League Standards
Mens Division II Outdoor
Proposed Changes
1996 2008 2010 2014
2015
Composition; Play
Minimum number of teams: 8 8 8; 10 by year 3; 12 by year 6 12

All US Soccer and


US Open Cup and
CONCACAF
Competition participation for US-based teams: CONCACAF All CONCACAF competitions for which they are eligible
competitions for which
competitions
they are eligible

Markets; Stadia; Fields

At least 2 time zones in


At least 2 time zones in
the continental US;
At least 2 time zones in the continental US; at At least 3 time zones in
Must have US-based teams located in: At least 2 time zones Eastern, Central and
the continental US least 3 time zones in the the continental US
Pacific time zones by
continental US by year 6
year 6

Min. 75% of league's teams in metropolitan area sized at least: 750,000 1,000,000
Minimum seating capacity: 5,000 7,500
Financial Viability
League must either have the funds to cover or have $750,000
Does not specify amount $750,000
performance bonds for each team worth: (maximum requirement is $15,000,000 total)
Team Ownership:
Principal owner with >35% share must have net worth: $20,000,000

Combined ownership net worth: $40,000,000


Team Organization

Employees or Full-time employees or Full-time, during the


Each team must have the required employees: Full-time, year-round
independent contractors independent contractors season

League Operations

League full-time staff: Chief executive officer

Note: Required employees include general manager, director of marketing/sales, director of communications/media relations, director of
promotions/community relations, director of game operations, head coach, assistant coach, trainer, ticketing manager, finance director, and
clerical staff.
Sources: United States Soccer Federation Professional League Standards.

55. Each of the standards is related to factors that affect fans experience of the soccer

competition the league generates, influences fans experiences attending a match,

supports financial viability, encourages media exposure and community outreach, and

supports sound management of the league and its teams. I address the requirements

below and describe why they support USSFs goal to expand interest in soccer in the

United States and are procompetitive.

B. Composition and Play

56. The Professional League Standards for Division I leagues require leagues to have 12

teams initially and 14 teams after 3 years of operation. Plaintiffs immediate concern

with regard to the Professional League Standards requirements, however, is that the

26
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Division II standards require leagues to have 8 teams at inception and 10 teams by year

three and 12 teams by year six. NASL does not meet this standard and the number of

NASL teams that will compete in 2018 is uncertain.

57. As described above, a soccer leagues product is season-long, league-based soccer

competition in the context of a championship race. 33 The seasons competition

becomes more attractive to fans as the number of teams rises, at least within reason.34

This is evident from the distinction between friendlies or one-off matches and matches in

the context of league play. League play engages fans in the progression of the season,

team standings, a championship race, team rivalries, and the development of players.

Scrimmages and friendlies potentially offer exciting soccer competition, but they do not

offer the multifaceted elements of competition that arise in the context of league play.

The regular schedule of play among teams in a stable league has also proved to be the

most successful business model for sports.

58. The characteristics of league-based matches are not controversial. Both Plaintiff and

Plaintiffs economic expert agree that league-based competition is distinct from single

games, international competitions, or friendlies.35 Thus, they implicitly recognize that

more than just a few teams are necessary for a league to offer high-quality, season-long

competition to fans. This is apparent because leagues with a few teams would offer

repetitive matchups that would not sustain fan interest over the course of a season or

33
Dennis Carlton, Alan Frankel, and Elisabeth Landes, The Control of Externalities in Sports Leagues: An
Analysis of Restrictions in the National Hockey League, Journal of Political Economy, Vol. 112, No. 1,
2004.
34
Mr. Gulati notes that a minimum number of teams, and sufficient geographic coverage in the United States,
are fundamental to warrant the moniker of a national league. See the Gulati Declaration at 209.
35
Complaint at 45 and Szymanski Declaration at 49-51.

27
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seasons. This would be the case even if the teams in the league had quality players and

performed well in matches. An exclusive focus on the quality of competition on the field

is too narrow to capture the other factors that contribute to fans enjoyment of a sport.

59. The best evidence on the optimal number of teams in a US league is found by comparing

to the leagues in the four major US sports: football, hockey, baseball, and basketball.

The number of teams in these leagues also sets sports fans expectations about the

number of teams in top-tier US sports leagues. Figure 2 compares the number of teams

in the NFL, NHL, MLB, NBA, MLS and NASL. The two horizontal lines show the

range of the required number of teams in the Division II Professional League Standards

(8 teams at inception and 12 teams by year 6).

Figure 2
Number of Teams in US Sports Leagues
2017 Regular Season
35

32
31
30 30
30

25

22

20

15

10
8

0
NFL NHL MLB NBA MLS NASL

Note: Dashed lines represent the required number of teams for Division II initially (8) and after six years (12).
Sources: League websites; United States Soccer Federation Professional League Standards 2014.

28
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60. The four major US sports have 30 or more teams in their top-tier leagues. MLS has 22

teams, and NASL has 8 teams as of 2017. Clearly, the number of teams required for

Division II status is not large relative to the number of teams in top-tier leagues in the

United States. Moreover, the size of the major US sports leagues indicates that other

sports leagues have found benefit from the increased variety and intensity of competition

that arises in leagues with more than the 12 teams that the Division II standards

ultimately require (and the 14 teams that the Division I standards ultimately require).

61. Plaintiff and Professor Szymanski appear to agree, in principle, that league play offers

fans superior characteristics relative to friendlies and one-off games. This recognition

implies that the relevant issue is not whether establishing standards for the number of

teams in a league is reasonable. The issue is where that number is set. Evidence from

US sports indicates that the benefits of league play continue with increasing numbers of

teams well above the thresholds in USSFs Professional League Standards. Thus, from

an economic perspective, the required minimum numbers of teams are set at reasonable

levels.

62. Standards that are closely related to the quality and variety of competition that a league is

capable of producing are procompetitive. Such standards help informed fans understand

the quality of play they are likely to see over the course of a season, which benefits

consumers. The standard also encourages league growth. League growth expands output

as leagues attempt to increase team numbers with expansion teams in new metropolitan

areas.

29
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63. Efforts to expand soccer in the United States have been beset by team and league

failures.36 These failures damage soccers reputation and make it difficult to sustain fan

interest when fans find that the league or team they have followed has failed. Economics

indicates that larger leagues are more likely to survive the failure of poorly located clubs

and other setbacks because the loss of one or two teams will not drive the number of

teams in the league below levels that soccer fans will find uninteresting. Ensuring

stability of leagues is in USSFs legitimate interests because it protects the investments it

makes in expanding soccer and maintains incentives for those leagues that support soccer

at a grassroots level to continue to do so.

64. USSFs Professional League Standards also require that teams in Division I and Division

II play in all US Soccer and CONCACAF competitions for which they are eligible.

Neither Plaintiff nor Professor Szymanski appears to complain about this particular

standard. In fact, they appear to believe that playing in such tournaments would benefit

the teams in question. 37 Clearly the requirement that teams play in international

36
For an example of NASL acknowledging this in 2011, see NASL CEO Aaron Davidson Expressed
Continued Optimism in Receiving Division 2 Sanctioning, IMSoccer News, at
http://www.insidemnsoccer.com/2011/01/25/nasl-ceo-aaron-davidson-expresses-continued-optimism-in-
receiving-division-2-sanctioning/, accessed on October 12, 2017 ([USSF is] demanding that we live up to
those standards. Part of the reason theyre being so strict is because of the instability of where we come
from. 106 teams have played in division two or three since 1996 and of those 84 folded. Fans dont want
to follow a team whos in a league with those sort of stats and that much turnover.) See also Top 20
Professional Sports Leagues Which Failed Miserably (or Hilariously), Masters in Sports Management, at
http://www.mastersinsportsmanagement.org/2010/top-20-professional-sports-leagues-which-failed-
miserably-or-hilariously/, accessed on October 14, 2017. For additional discussion, see the Gulati
Declaration at 64, 74, 92, and 143.
37
Complaint at 53 (Due to the enormous significance accorded by soccer fans to FIFA-affiliated
competitions, and FIFA recognition, it is impossible for a U.S.-based top-tier or second-tier mens
professional soccer league to compete effectively in the relevant markets without the applicable level of
USSF recognition and the ability to participate in such FIFA competitions.). Szymanski Declaration at
70 (The demotion of NASL from DII to DIII imposes an additional anti-competitive restraint with regard
to national and international soccer competition. Specifically, the demotion decreases the chances of an

30
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tournaments expands the amount of soccer involving US teams that is available for US-

based fans to watch, even if the competition is not league-based. Nevertheless, the

participation of US teams in international events is output expanding and supports fans

perception that US teams can compete at the international level. Activities that support

fan interest in soccer would be expected to increase US soccer output as well.

C. Markets, Stadiums, and Fields

1. Geographic Coverage and Market Size

65. The Professional League Standards for Division I leagues require US-based teams

located in Eastern, Central, and Pacific time zones in the continental United States.38

Division II leagues must have teams in these three time zones after three years (see

Figures 1A and 1B). These requirements reflect the reality that top leagues in the United

States are present throughout the country. In order for soccer to be considered the equal

of the four major US sports, it will need to be popular throughout the United States as

well, and soccers top-tier leagues will need to compare favorably to those in competing

sports.

66. One aspect of being a major sport in the United States is that the sports top-tier leagues

have the geographic breadth to generate sufficiently broad fan interest that national

broadcasters are interested in carrying games.39 In fact, Professor Szymanski explicitly

NASL team winning the Lamar Hunt US Open Cup, and thus decreases the chances of an NASL team
competing in the CONCACAF Champions League.).
38
In its proposed revisions to the Professional League Standards in 2015, USSF intended to ease the time
zone requirement (e.g., a team in the Mountain time zone would count toward a three time zone geographic
dispersion). In his testimony Mr. Gulati discusses how these proposed revisions were not enacted. Gulati
Declaration at 104-105.
39
John Jones, The Economics of the National Hockey League, The Canadian Journal of Economics,
February 1969, at pages 18-19. In addition, covering all major cities in a given country is beneficial.
High score: Increased game attendance and lucrative media contracts will boost revenue, IBISWorld

31
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recognizes that a larger league footprint increases the interest of broadcasters in the

league. 40 Therefore, interest in licensing the national broadcast rights of a regional

league can be expected to be lower than in licensing a league with interest throughout the

country.

67. As described, one way in which USSF evaluates the footprint of leagues is a time zone

requirement. This requirement has existed since 1995-1996, with minor variations (see

Figures 1A and 1B). I have reviewed the composition of both MLS and NASL in light of

the current requirement, and show the results in Figure 3A. This figure shows that MLS

has teams in the three time zones called for in the Professional League Standards, while

NASL lacks a team in the Central time zone. This same analysis is repeated in Figure 3B

with the addition of the time zone locations for teams from the NFL, NHL, MLB, and

NBA. The difference between NASL and the other sports leagues is clear: NASL has no

team in the Central time zone and only one team in the Pacific time zone.41

Industry Report 71121a: Sport Franchises in the US, May 2015, at page 7 (the wealthiest sports franchises
in large metropolitan areas have a major advantage in terms of broadcasting and media coverage because
viewership levels are much higher compared with small-market teams.).
40
Szymanski Declaration at 96 (a growing footprint can be attractive to broadcasters who seek to reach
television audiences.)
41
Note that NASL has made it known to USSF that its team in the Pacific time zone (i.e., the San Francisco
Deltas) has not committed to return to the NASL for 2018. Letter from NASL to USSF, August 15,
2017; see also Gulati Declaration at 208 and 215. As noted above, USSF intended to do away with the
requirement that teams be located in these specific time zones in its proposed 2015 revisions to the
Professional League Standards, while maintaining the principle of geographic dispersion of teams across
multiple time zones.

32
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Figure 3A
Number of Teams in Eastern, Central, and Pacific Time Zones
2017 Regular Season
18

16

14

12

10
10
MLS
NASL
8

6
5 5 5

2
1

0
Eastern Central Pacific

Note: MLS has two teams in the Mountain time zone (Colorado Rapids and Real Salt Lake). NASL has one team in the Mountain time zone (FC
Edmonton) and one team in the Atlantic time zone (Puerto Rico FC).
Sources: League and team websites.

Figure 3B
Number of Teams in Eastern, Central, and Pacific Time Zones
2017 Regular Season
18
17

16
16

14
14
13

12
NFL
10 NHL
10
9 MLB
NBA
8 8
8 MLS
NASL
6 6
6
5 5 5 5 5 5

2
1

0
Eastern Central Pacific

Note: Leagues with teams in the Mountain time zone: NFL (2), NHL (4), MLB (2), NBA (3), MLS (2), and NASL (1). NASL also has one team
in the Atlantic time zone.
Sources: League and team websites.

33
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68. The Professional League Standards also require that Division I leagues have 75% of their

teams in metropolitan areas with at least 1 million people and that Division II leagues

have at least 75% of their teams in metropolitan areas with at least 750,000 people. The

justification for such requirements is clear. Quality teams can be expensive to field and

larger metropolitan areas provide a larger population from which to draw fans and offer

larger media markets to support the teams.42 To the extent fans are more likely to watch

soccer on TV if they have a team in their metropolitan area, placing teams in large

metropolitan areas will also help increase national broadcaster interest in carrying games.

Finally, USSF has an interest in encouraging investment to make soccer available to as

much of the US population as possible. Encouraging investment in large rather than

small metropolitan areas supports this goal and encourages increased output.

69. The requirements on geographic breadth and market size recognize that teams that are in

larger markets will systematically have larger potential fan bases and access to greater

broadcast opportunities. While there are undoubtedly examples of small-market teams

with sustained success in their leagues, economics indicates that teams invest in talent

when their fan bases respond positively to winning more games and higher quality

competition on the field.43 A team with a larger fan base is more likely to have fans that

reward the team for winning. Thus, the economics of team sports indicates that leagues

42
High score: Increased game attendance and lucrative media contracts will boost revenue, IBISWorld
Industry Report 71121a: Sport Franchises in the US, May 2015, at page 19 (Geography is pivotal in
determining the anticipated fan base and the likely demographics, as well as the regions media market and
potential for corporate sponsorships. For this reason, major league sports are based almost exclusively in
highly-populated metropolitan areas.).
43
John Vrooman, A General Theory of Professional Sports Leagues, Southern Economic Journal, 1995.

34
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meeting the Division I Professional League Standards would be more competitive than

leagues that do not, and similarly for the Division II standards.

70. The standards also do not unduly limit where a league can place teams. There are nearly

60 metropolitan areas in the United States that have populations of 1 million or more and

approximately 80 metropolitan areas in the United States with populations of 750,000 or

more.44 Even if a growing league chooses not to enter a metropolitan area where one of

the 22 MLS teams currently plays, there are numerous available metropolitan areas that

meet the requirements of the Professional League Standards. Thus, the standards do not

place undue restrictions on the locations that a leagues teams can establish themselves.

Moreover, the standard for population size explicitly allows the flexibility for 25% of the

teams in a league to be in smaller metropolitan areas if the league desires.

71. The Professional League Standards requirements addressing geographic coverage and

market size are related to factors that systematically affect the incentives of owners to

invest in their teams and fans perception of the league, whether they attend the game or

watch a broadcast. Moreover, the standards do not limit the output of soccer from

leagues that do not meet the Professional League Standards for a higher divisional

designation. For these reasons, the Professional League Standards addressing geographic

coverage and market size are procompetitive. They encourage investment where it will

be most productive and where team success is most likely.

44
Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2016, US Census Bureau,
Population Division, March 2017.

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2. Stadium Size

72. In this section, I address the Professional League Standards requirements for the seating

capacity of stadiums for Division I and Division II leagues. These requirements may not

be at issue for the present motion in that the immediate issue is whether NASL will be

designated a Division II league. NASLs stadiums for current teams meet the standards

for Division II leagues, but NASLs expansion teams may or may not have arrangements

with stadiums that meet Division II standards. My comments below are directed

primarily at the Division I standard, but are equally applicable to the Division II standard.

73. The Professional League Standards require Division I teams to have stadiums with

minimum seating capacity of 15,000 spectators, and the standards require Division II

teams to have stadiums with minimum seating of 5,000 spectators. The stadium size

requirements complement the requirements regarding market size because larger

metropolitan areas can obviously support larger stadiums than smaller metropolitan areas.

Thus, the stadium size standard gives teams the incentive to make their stadium

investment where it will attract sufficient fans to make the stadium worthwhile. As

described above, investing in larger rather than smaller cities increases exposure to soccer

and increases output.

74. The stadium size requirement has a number of functions. Previously, US soccer leagues

have played in high school stadiums and other facilities that were not at all comparable to

the facilities that US sports fans would expect of a top-tier league based on their

experience with the four major US sports. Clearly, the stadium size requirement affects

fans experience while attending a soccer game, and USSF has an interest in ensuring that

fans experiences at top-tier soccer matches meet their expectations of what a top-tier

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sporting event should be like. This includes the quality of the facilities, the amenities and

concessions available at soccer venues, and so forth. Here, a proper measure of output

includes the quality of fans experiences of the entire event, which includes the size and

quality of the facilities where the match is held.

75. The size of a stadium also changes the incentive of a team to invest in the quality on the

pitch. As the team puts a higher quality product on the pitch a larger stadium allows the

team to accommodate more fans and earn greater ticket revenue. Given that the stadium

is a significant up-front cost, team owners will choose to locate in metropolitan areas that

will reward investment in the quality of the team by buying tickets.45

76. There may be metropolitan areas that cannot support a 15,000-seat soccer stadium. In

such a circumstance, a team owner might be willing to enter with a smaller stadium but

not with a stadium meeting the Division I standard. As long as there are places where a

stadium with a capacity of 15,000 spectators can be built, however, there is no restriction

on output from the stadium size standard, and as noted above, there are about 80

metropolitan areas with populations of 750,000 or more. Rather than restrict output, the

standard directs soccer stadium investment to cities with sufficient fans to support it.

77. Moreover, there is no reason that a league cannot use a smaller stadium in the smaller

city. A team with such a stadium could not be part of a Division I league, but could still

be a successful business in the smaller city. There is no reduction in output by labeling

this teams matches Division II or Division III. The systematically lower level of

investment in the small-town team will make the experience of attending a game offered

by the small-town team different than the experience of attending a Division I match.
45
The market-size requirements also support this goal.

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Small and large cities can have professional soccer, but the quality of small-town soccer

with its lower levels of investment in facilities and athletes differentiates it from Division

I soccer.

D. Financial Viability

78. The Professional League Standards require that the league have a minimum amount of

funds available to cover individual team expenses and set minimum requirements for the

net worth of the owners of the leagues teams. These requirements reflect the history of

soccer in the United States which is replete with the failure of soccer teams and leagues.

Team and league failures, particularly if they occur during a season, discourage fans. As

a former CEO of NASL described the problem in 2011: 106 teams have played in

division two or three since 1996 and of those 84 folded. Fans dont want to follow a

team whos in a league with those sort of stats and that much turnover.46 Discouraged

fans frustrate USSFs efforts to build soccer into a major sport in the United States and

vitiate the investments of others that more effectively support the development of soccer.

79. The various financial requirements serve a number of functions. The requirement that the

league maintain funds that increase with the number of teams is to ensure that the league

can take over a team should it become financially unviable during the course of a season.

46
See NASL CEO Aaron Davidson Expressed Continued Optimism in Receiving Division 2 Sanctioning,
IMSoccer News, at http://www.insidemnsoccer.com/2011/01/25/nasl-ceo-aaron-davidson-expresses-
continued-optimism-in-receiving-division-2-sanctioning/, accessed on October 12, 2017; NASL recognized
the instability of Division II level soccer in the past: The NASL and its member teams are fully
committed to establishing a long overdue stable structure and platform for second division soccer in the
United States, Canada and Puerto Rico. See NASL Committed to Securing USSF Sanctioning for 2011,
NASL, January 20, 2011.

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In the past, teams have folded midseason,47 which discourages fans and makes them less

likely to commit to the next soccer team to start up in the area.

80. The net worth requirement for owners helps ensure the financial viability of the teams in

the league and of the league as well. Moreover, all leagues, not just MLS, have an

interest in the financial wherewithal of their owners because they have an interest in

being sure that the owner will not underfund the team and free ride on the investments of

others.48 Leagues have a legitimate interest in ensuring that unexpected financial strains

do not lead an owner to underinvest in his or her team because doing so would injure all

of the teams in the league.

81. In the case of soccer, which is in the process of developing into a top-tier sport, league

and team failures injure the reputation of soccer and threaten fan interest. Thus,

standards to ensure the financial strength of teams and leagues help avoid free riding by

underfunded teams and leagues that hope to survive on interest created by others

investments in soccer. Therefore, the financial stability of the owners in a league is a

reasonable concern for USSF because soccer leagues have failed in the United States

previously, to the detriment of US fans interest in soccer.

E. Media

82. Neither Plaintiff nor Professor Szymanski appears to take issue with the media

requirements included in the Professional League Standards. At this time, NASL is

47
See the Gulati Declaration at 92 for a discussion of a previous instance of NASL and USSF having to deal
with a mid-season default on obligations by the NASL team in Baltimore.
48
Jared Bartie, Daniel Etna, and Irwin Kishner, Navigating the Purchase and Sale of Sports Teams, New
York Law Journal, 2015 (The financial stability of an owner group obviously affects the owned team, but
also affects the strength of the league as a whole. Accordingly, leagues are careful to ensure that
prospective owners have the resources to undertake team ownership, including related financial
obligations.).

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seeking an order that would require USSF to grant it a Division II designation for the

2018 season, and the media requirements for Division II leagues are quite minimal. They

require Division II leagues to produce an annual media guide, provide lineup cards at

games, and issue weekly statistical reports and regular press releases.49

83. The Professional League Standards for Division I leagues require that regular season and

championship games be telecast, whether on television or via streaming. The relevant

measure of output for evaluating media is the number of fans who watch a match.

Requiring leagues to broadcast all of their gams increases the availability of soccer on

broadcast television or on streaming services. This standard increases output relative to a

circumstance where not all matches are available by some form of broadcast

transmission.50 The standard gives US soccer fans more opportunities to watch soccer

matches and unambiguously expands output.51

F. Team Organization and League Operations

84. Division I leagues are required by the Professional League Standards to have a full-time,

year-round staff and teams are required to have full-time, year-round staff in a number of

positions as well. For the league, these positions include a chief operations officer, a

49
2014 United States Soccer Federation Professional League Standards at page 2.
50
Katrien Lefever, Sports/Media Complex in the New Media Landscape, New Media and Sport, 2012, at
page 7 (Wide coverage through television, for instance, can result in significant exposure for sports
leagues. Such exposure can deliver private benefits to the league and the clubs in the form of increased
revenue from sponsorship and attraction of new supporters.).
51
In addition, national broadcasts highly value the ability to reach audiences that span the entire continent and
are sometimes riveted to the event on television: Outside of the Academy Awards, Shark Week and a
handful of freakishly successful scripted dramas, sports is the only segment that guarantees huge reach and
live-audience deliveries -- two conditions that also serve to squash much of the ad avoidance that erodes
salable gross ratings points. See Anthony Crupi, Sports Now Accounts for 37% of Broadcast TV Ad
Spending, AdAge, at http://adage.com/article/media/sports-account-37-percent-all-tv-ad-dollars/300310/,
accessed on October 6, 2017.

40
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chief financial officer, and a director of marketing and public relations. For teams, the

required positions are general manager, several marketing, media, and community

relations positions, coaches, and several administrative and clerical positions.52 The total

number of required full-time positions for a team is 11. The team staffing requirements

are the same for Division II teams as they are for Division I teams.

85. These requirements reflect USSFs view that a well-run soccer team will be planning,

managing the team and its resources, and marketing and engaging in community outreach

and support of soccer generally on a year-round basis. Complaints regarding

requirements that sanctioned soccer leagues have year-round staff (or support youth

leagues) are the complaints of a league or team that hopes to free ride on the investments

of others. The payoff to these efforts may come in the future and may not be captured by

the team making the investment. Therefore, some individual teams might do better if

they could avoid the cost of some staff and community soccer development. Of course,

ensuring that teams do not follow their own incentives and cut staff is the reason for the

standard. The standards encourage management, coaching, community outreach, and

marketing activities that benefit the soccer team and soccer generally.

86. Were USSF to allow Division I or Division II soccer leagues to free ride on the

investments of others, the incentives of the others to invest would be reduced because

lower-quality teams with less coaching investment and less marketing investment would

52
Stephen Ross and Stefan Szymanski, Antitrust and Inefficient Joint Ventures: Why Sports Leagues
Should Look More Like McDonalds and Less Like the United Nations, The Comparative Economics of
Sport, 2010, at page 122 (Free-riding problems occur when firms under-invest in promoting a product
because of a desire to free ride on promotional efforts of others. For example, teams could spend less on
payroll, or avoid costly public relations activities like community outreach, confident that the general
appeal of their club is significantly affected by the general goodwill generated by the efforts of league
officials and other clubs.).

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benefit from others investment while dissipating the public goods that such investment

creates. Encouraging year-round investment in soccer and the sound management of

teams leads teams to manage themselves more intensively to their own benefit, the

benefit of their league, and the benefit of soccer generally. Such requirements support

the growth of soccer in the United States and expand output.

G. Conclusions Regarding the USSF Professional League Standards

87. Each of the Professional League Standards analyzed here is associated with a legitimate

goal of the USSF or explicitly expands the output of soccer in the United States. In

particular, the standards require that leagues devote the resources necessary to sustain the

level of competition and associated fan interest that USSF finds leagues at different levels

should provide US soccer fans.53 In this regard, the Professional League Standards are

analogous to requirements that manufacturers and franchisors place on their downstream

distributors and franchisees. In each case, the upstream firm has invested in a product or

brand and has an interest in ensuring that its investment is not subject to free riding by

downstream firms. USSF has an interest in protecting its own investments and the

investments of others from free riding because such protections encourage the growth of

soccer in the United States.

53
High score: Increased game attendance and lucrative media contracts will boost revenue, IBISWorld
Industry Report 71121a: Sport Franchises in the US, May 2015, at page 30 (Most spectator sports are
heavily regulated by a governing body which establishes the rules of the game, issues licenses to play,
establishes the annual draw, undertakes most financial arrangements and oversees the operation of the
league); In addition, Mr. Gulati (the President of USSF) notes: The purpose of these standards has never
been to hinder or impede competition. Rather they have been designed in an attempt to (a) reduce (not
eliminate) the risk of league and team failures, particularly during the middle of a season, and (b) further
USSFs mission of growing the game at all levels. See the Gulati Declaration at 74.

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VII. Analysis of Plaintiffs Theory of Harm to Competition

88. Plaintiffs theory of anticompetitive harm has two key elements. First, Plaintiff claims

that USSF has applied the Professional League Standards in ways that discriminate

against NASL, with the result that MLSs market power has been enhanced. Second,

Plaintiff claims that USSF has the incentive to discriminate against NASL because USSF

benefits from the maintenance and expansion of MLSs market power through USSFs

contract with SUM. Below, I address the relevant markets in which MLS licenses or

sells access to the soccer competition its teams create to determine whether USSFs

conduct could plausibly enhance MLSs market power. I also address whether USSF has

the incentive to enhance MLSs market power as Plaintiff asserts.

89. In short, I find that NASL and MLS teams rarely compete with each other in the same

metropolitan area for ticket sales. Thus, any effort by USSF to discriminate against

NASL would not have a material effect on MLSs bottom line from ticket sales.

Moreover, Plaintiffs claim is that USSF benefits from its association with MLS through

SUM, which manages broadcast and other licensing transactions, not ticket sales. In the

market containing licensing broadcasts of soccer matches, advertisers and broadcasters

have many options other than MLS programming to reach and attract viewers. Moreover,

the ad revenue associated with MLS broadcasts is a very small share of sports advertising

revenue on television and a still smaller share of all television advertising revenue.

MLSs small share precludes the possibility that it could exercise market power over

either advertisers or broadcasters, as would be required to earn above-competitive fees

for broadcast licenses. Moreover, USSF cannot confer market power on MLS in the

market for programming.

43
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90. I understand that USSFs contract with SUM does not pay USSF increased amounts if

MLS soccer properties generate more income. In fact, Professor Szymanskis analysis of

USSFs contractual relationship with SUM leads him to assert that money flows from

USSF to MLS through SUM rather than the other way around. Thus, USSF does not

have an economic incentive to discriminate against NASL in favor of MLS as Plaintiff

asserts. Plaintiffs theory fails at each step.

91. I now turn to the analysis of the relevant markets in which MLS sells tickets or licenses

broadcasts of its matches and whether MLS has market power.

A. Market Definition

92. Market definition is an economic tool used to evaluate whether a firm or firms possess

market power. The goal of market definition is to identify the competitive options

customers can turn to in order to avoid paying a price increase by a firm attempting to

exercise market power. The available options are substitutable products and alternative

suppliers to which customers can turn to in order to escape an increase in the price of one

product.

93. A relevant market has two dimensions, a product dimension and a geographic

dimension. The boundaries of the relevant product market delineate the products that are

good substitutes for one another and to which customers would turn should the price of

one product in the market rise. Often using a new supplier entails costs. For example,

transportation costs frequently limit the suppliers that customers can turn to should one

supplier increase prices. The geographic market encompasses the sources of supply (i.e.,

suppliers) that customers view as reasonably interchangeable. The geographic market

44
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tracks the alternative suppliers that customers can reach out to for supply when faced

with price increases from one or more suppliers.54

94. Competition in a market depends on characteristics of both supply and demand, but

[m]arket definition focuses solely on demand substitution factors, i.e., on customers

ability and willingness to substitute away from one product to another in response to a

price increase or a corresponding non-price change such as a reduction in product quality

or service.55 Supply-side factors, such as entry and supply substitution, must also be

considered when analyzing market power. They are not part of the market definition

analysis, however.

B. The Hypothetical Monopolist Test

95. The standard method used to define markets is the hypothetical monopolist test. Under

this test, a relevant product market exists if a hypothetical profit-maximizing firm that is

the only present and future seller of the products in the candidate market could profitably

impose at least a small but significant and non-transitory increase in price (a SSNIP) on

at least one product in the market.56 A SSNIP is typically taken to be a price increase of

about 5%.57

96. To apply the hypothetical monopolist test to the product market, we define an initial

candidate market around a product or group of products. If the evidence indicates that a

5% price increase of that product would not be profitable because customers would shift

54
Horizontal Merger Guidelines, US Department of Justice and the Federal Trade Commission, August 19,
2010 (hereinafter HMG) at 4.2.1.
55
HMG at 4. Supply factors are important to the question of market power, but are considered separately
from market definition.
56
HMG at 4.1.1.
57
HMG at 4.1.2.

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a large share of their purchases to competing products outside of the candidate market,

the candidate market is too small. In this circumstance, we add the next-best substitute

product to the candidate market and apply the hypothetical monopolist test again. The

process of adding increasingly distant substitutes to the candidate market continues until

the 5% SSNIP is profitable. This occurs when customers can no longer effectively

substitute their purchases to products outside of the candidate market. The smallest set of

products satisfying the hypothetical monopolist test defines the relevant product market.58

97. The hypothetical monopolist test is also used to determine the boundaries of the relevant

geographic market. The analysis begins with a candidate set of suppliers of the products

in the relevant product market. If a 5% price increase would not be profitable because

customers would turn to suppliers outside of the candidate market, the next-best

substitute supplier is added to the candidate market. This process continues until a 5%

SSNIP would be profitable because customers cannot substitute their purchases to

suppliers outside of the candidate market.

98. The hypothetical monopolist test ensures that a relevant market contains a sufficiently

large number of products and suppliers that it would be subject to market power if they

were under the control of a hypothetical monopolist. This means that the market includes

the substitute products and sources of supply that are good substitutes for the product

subject to a SSNIP. The products and suppliers outside of the market are not sufficiently

good substitutes to defeat the exercise of market power.

58
HMG at 4.1.1.

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C. The Product and Geographic Markets for Attendance at MLS Soccer


Matches

99. MLSs product is a season-long series of competitive soccer matches in the context of

league competition that culminates in a championship series. Access to view the soccer

matches that constitute this product is sold in two separate markets. First, fans buy

tickets to watch the game live, usually at a home teams stadium. Second, MLS licenses

the right to broadcast its games to television networks, which broadcast games either

regionally or nationally. Buying a ticket to view a soccer game live at a stadium is not a

substitute for licensing the right to broadcast a soccer game for profit. Therefore, the

relevant markets that include these different sets of rights to view or broadcast soccer

matches must be analyzed separately.

1. The Relevant Product Market that Includes the Live Viewing of


Soccer

100. Attending a soccer match is a form of entertainment. To determine the boundaries of the

relevant product market, we must determine the other forms of entertainment that are

substitutes for attending a soccer match for the attendees of soccer matches.

101. Unfortunately, there is a limited amount of evidence on this point. Attending a soccer

match is a form of entertainment that exists in a marketplace with a wide array of

entertainment options. Figure 4 shows the relative popularity in terms of attendance of a

range of entertainment options based on the number of people who report engaging in the

activity. Professional soccer, as provided by MLS, is not among the most popular

entertainment options that are tracked.

47
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Figure 4
Popularity of MLS v. Other Entertainment Options
Spring 2016 Spring 2017
90

80

70

60
Attendance/Visitors (Millions)

50

40

30

20

10

Source: Nielsen Scarborough 2017 USA+ Release 1 (Statista).

102. Assessing the boundaries of the relevant market for attending soccer matches requires

evaluating what other entertainment options soccer match attendees will substitute for

going to a soccer match. Soccer matches are attended by diehard fans who have season

tickets and attend every match, and by other fans with a much more casual attachment to

the game, such as a family which attends only a couple of matches a season. When

selling tickets it is generally not possible to charge more to the diehard fan than to the

more casually interested fan. Therefore, prices are set to attract the most profitable

number of casually interested fans, who are more willing to substitute to alternative forms

of entertainment in the face of a price increase.

103. The evidence on season-ticket sales and attendance shows that there are more-loosely

attached fans at games. Figure 5 shows MLS game attendance and the share of season

tickets sold by teams reporting season ticket sales. For each team, a significant share of

48
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attendees buys tickets to single games. These soccer fans are more likely to substitute

other entertainment for soccer if the price of attending soccer matches rises.

Figure 5
Ratio of MLS Season Ticket Sales to Attendance
2017
50,000
64.2%
45,000

40,000

35,000

30,000
76.0% Season Tickets
71.9%
25,000
51.4%
72.5% 74.7%
53.6% 46.0% 60.0%
71.6%
20,000 74.6%
37.4% 59.9%

15,000

10,000

5,000

Note: Figure only includes teams that reported season ticket sales for 2017 in Sports Illustrateds "Behind the MLS Ambition Rankings" Series.
Attendance averages are as of October 10, 2017, and so do not reflect all regular season games in 2017.
Sources: League website; Sports Illustrated, "Behind the MLS Ambition Rankings" Series, March 3-6, 2017; ESPN club regular season statistics.

104. Evaluating the other forms of entertainment in the same market as attending an MLS

game depends on the viability of available alternatives, which may depend on the season,

weather, and other events, sporting and otherwise, that are scheduled around the same

time as an MLS game.59 Moreover, the hypothetical monopolist test indicates that the

question is whether a price increase would drive fans away in amounts that made the

price increase unprofitable. Even if a large number of fans were to substitute other
59
Rodney Fort, Sports Economics, Third Edition, (Boston: Prentice Hall, 2011) at page 21 (Changes in the
price of other entertainment alternatives also shift sports demand functions. All entertainment options can
be considered as alternative consumption possibilities, from opera to Little League.).

49
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entertainment, thus rendering a price increase by an MLS team unprofitable, there is no

reason to believe that fans would all go to another sporting event, such as a Division II

soccer game. In fact, the people seeking alternative entertainment need not congregate at

any specific alternative event. Some may go to the movies and some may go to the beach,

and so forth. Thus, highly detailed information would be necessary to determine the

degree of substitutability of different forms of entertainment for attending a soccer game,

and that information is not available. For that I reason, I do not specify the boundaries of

a specific product market.60 Fortunately, the exact boundaries of the relevant product

market need not be determined because it is possible to put reasonable bounds on the

geographic markets for attending an MLS soccer game, which sufficiently determines the

scope of competition between MLS and NASL.

2. The Relevant Geographic Market for the Live Viewing of Soccer

105. We can assess the boundaries of the relevant geographic market for products that

compete with the live viewing of a soccer match. A fan who chooses not to go to a

soccer game and to engage in some other form of entertainment as the result of a 5%

increase in the price of attending the match is unlikely to travel outside of the

metropolitan area where the fan lives (and, for the most part, where the soccer match is

located) when choosing a substitute form of entertainment. This is apparent because a

typical MLS ticket costs about $40, which indicates that a 5% increase is about $2.61

Thus, fans may choose to consume less soccer during the season, but they are unlikely to

60
Professor Szymanski does not define a relevant product market containing attendance at a Division I soccer
game.
61
A fan may view the cost of a soccer match as the full cost of attending the match, which includes parking,
food, and possibly other purchases that are complementary to watching the match.

50
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travel to another city for alternative entertainment as the result of a small but significant

non-transitory increase in the price of attending a soccer match.

106. This analysis implies that the relevant geographic market for attending a soccer match is

roughly the metropolitan area where the match is played, and possibly smaller, depending

on time of travel, tolls, and other factors. The implication of geographic markets being

localized in metropolitan areas is that there is virtually no competition in ticket sales for

fans between teams playing in different cities. Figure 6 is a map that shows the locations

of MLS teams. As can be seen in this figure, with the exception of New York City,

teams are generally located several hundred miles apart. Some fans may occasionally

travel to see a particular match, but few would travel between cities to avoid a small price

increase. This implies that MLS games do not generally compete with each other for fans

attending games.

Figure 6
MLS: Team Locations

Sources: League and team websites.

51
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107. Figure 7 is a map showing the locations of NASL teams. Like MLS teams, they are

located in cities that are typically hundreds of miles apart, indicating that NASLs teams

do not compete with each other for fans to attend matches. As it turns out, the potential

for competition between MLS and NASL for fans is quite limited as well. Figure 8 is a

map showing the current overlap of metropolitan areas where there is both an MLS team

and an NASL team. There are two metropolitan areas indicated on this map, the New

York area and the San Francisco Bay area.62 Thus, in their current forms, NASL is in a

position to compete for only a small share of MLSs fans for attendance at games.

Figure 7
NASL: Team Locations

Sources: League and team websites.

62
Note that NASL has made it known to USSF the San Francisco team has not committed to return to the
NASL for 2018. See letter from NASL to USSF, August 15, 2017; see also Gulati Declaration at 208
and 215.

52
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Figure 8
MLS and NASL: Common Team Locations

Note: San Francisco Bay Area includes San Jose, CA; New York Area includes Harrison and Montclair, NJ.
Sources: League and team websites.

108. Even where teams are in the same larger metropolitan area, they may not draw from the

same fan base. Consider the New York City area, where the NASL Cosmos play in New

York (i.e., Brooklyn). The two local MLS teams, the Red Bulls and New York City

FC play in Harrison, NJ and New York City (i.e., the Bronx), respectively. There are

potential fans who live between these venues, but many fans may not see the venues (and

therefore the teams that play at them) as good substitutes. For example, soccer fans in

New Jersey may view attending a Cosmos game in Brooklyn as a poor substitute for

attending an MLS game in New Jersey. New York City residents may have the same

view with regard to substituting attendance at a match in New York City for a match in

New Jersey.

53
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D. Competition between MLS and NASL for Attendance

109. Whether the New York MLS teams and the NASL Cosmos compete for fans to attend

games is not important to this analysis. Similarly, whether MLS teams have some degree

of market power in their metropolitan markets that includes the sale of access to MLS

matches is not relevant. No matter how market boundaries might be reasonably drawn,

there is very little competition between MLS and NASL for ticket sales because the clubs

in question potentially compete for fans in only two of the 22 cities in which MLS has

teams.

110. MLSs experience in New York also illustrates that large cities can accommodate more

than one successful soccer team. New York City FC plays its matches at Yankee

Stadium and drew on average 27,196 fans per game in 2016. The New York Red Bulls

play at Red Bull Arena, which has a capacity of 25,000, and drew about 20,620 fans per

game in 2016.63 Thus, the two teams in New York City are among the higher drawing

teams in the MLS despite being in the same city. To the extent soccer matches draw

some attendees elastically from other entertainment events, it is to be expected that

multiple teams can thrive in the same metropolitan area if they provide a high enough

quality of play to engage fans.

111. With NASLs planned expansion, direct competition between NASL and MLS teams

could increase. However, it is not clear whether the expansion teams are, in fact,

meaningful potential competition. I understand that there is limited information on the

backers and financing behind some of the NASL expansion teams. For example,

63
In contrast to the MLS teams, the New York Cosmos play in MCU Park, which has a capacity of 7,000,
and drew approximately 3,800 fans per game in 2016.

54
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testimony indicates that the teams in Atlanta and Detroit have made little progress toward

actually joining the league. 64 Another potential new member, according to Professor

Szymanski, is Boston City FC,65 which appears to exist, but currently plays on a field at a

Catholic high school, which is likely to limit the competitive threat they pose to the New

England Revolution.66

112. In the Los Angeles area, the LA Galaxy plays in the StubHub Stadium in Carson, CA.

NASL plans for an expansion team, California United, to play in Titan Stadium on the

campus of California State University, Fullerton. The two stadiums are located

approximately 25 miles apart. Certainly some potential fans live between the two venues,

but the two venues potentially draw significantly from different catchment areas. Even if

not, the population of the greater Los Angeles area is quite large and can likely support

several professional soccer teams. In fact, MLS plans an expansion team in Los Angeles

with a soccer-specific stadium.67

113. Overall, there is very little competition between NASL teams and MLS teams for fans to

attend games as the result of the two leagues largely operating in different cities, and

NASLs expansion does not materially change this conclusion. Thus, the incentive for

USSF to discriminatorily apply the Professional League Standards against NASL would

not be expected to benefit MLSs ticket sales materially. In fact, it would not even affect

MLS or its teams in most metropolitan areas where they are located.

64
See the Gulati Declaration at 208, 213, and 215.
65
Szymanski Declaration at footnote 20.
66
Szymanski Declaration at footnote 20. See also Boston City FC at http://www.bostoncityfc.com/stadium,
accessed on October 16, 2017.
67
See MLS at https://www.mlssoccer.com/topic/expansion, accessed on October 15, 2017 and LAFC at
https://lafc.com/stadium/, accessed on October 15, 2017.

55
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114. As described below, Plaintiffs claims regarding USSFs incentive to discriminate against

NASL involves their relationship through SUM, which is responsible for both USSFs

and MLSs sponsorship, television, licensing and royalty revenues. SUM has nothing to

do with ticket revenues at MLS games. Thus, any purported market power in the sale of

tickets to view soccer competitions in MLS league matches in the metropolitan areas

discussed herein does not provide USSF an economic incentive to discriminate against

NASL in the application of the Professional League Standards.

115. Moreover, USSF has acted in ways that are inconsistent with the theory that it wants to

limit competition between MLS and NASL teams. For example, USSF has worked to

sustain the viability of the New York City Cosmos, an NASL team that operates in the

same greater metropolitan area as two MLS teams. If USSF could benefit by reducing

competition between NASL and MLS teams for fans attending games, USSF would not

have an interest in helping a team that potentially competes with MLS teams survive.68

As explained above, the failure of a professional soccer team or league, including NASL,

would be detrimental to USSFs goal of growing the popularity of soccer in the United

States.

E. The Relevant Markets for Broadcast Rights

116. Not all fans can attend soccer matches in person. To reach more soccer fans, MLS

licenses the rights to broadcast its games to television networks. Determining the

boundaries of the relevant product market that includes the broadcast rights to MLS

matches requires a brief review of the economics of commercial-supported television

networks.

68
Gulati Declaration at 180-185, 200, and 217.

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1. Television Networks and the Demand for Content

117. Television networks obtain the rights to programming either by licensing programming

or creating it themselves. Networks broadcast the programming they license to television

viewers. Advertising-supported networks do not earn revenue directly from television

viewers, however. Instead, networks charge advertisers a fee to place their commercials

in the shows that the networks broadcast. This means that a television networks demand

for programming is directly the result of advertisers willingness to pay to insert

advertisements in the programming. It is the advertisers that pay the bills at advertising-

supported networks, and the advertisers that are the primary customers of the network,

not the viewers. In fact, the viewers attention is the product that television networks

sell to their advertisers.

118. Advertisers place commercials in programs that television networks broadcast in order to

influence television viewers to buy their products. The amount that advertisers are

willing to pay to place a commercial spot in a program depends on the number and

characteristics of viewers the advertiser can reach by advertising in that program.

Programming that draws more viewers in the advertisers target demographic is more

valuable to the advertiser than other programming. Advertisers goal is to have as many

viewers in their target audience as possible view their ads at the lowest possible cost.

They do not care if the audience is reached through soccer programming, other sports

programming, or some other type of show altogether. Thus, advertisers substitute one

type of programming for another as they assemble a portfolio of ad placements.69

69
This is fundamental to advertising: In order to measure the relative cost efficiency of a media vehicle or a
media schedule, you can calculate how much audience each media vehicle delivers for the money.
Calculating cost efficiency allows the buyer to select media vehicles that deliver the most audience for the

57
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2. MLS Matches Compete in a Broad Programming Market

119. The value of a license to broadcast MLS games depends on the number and

characteristics of the viewers it will attract. Networks sell their viewers attention to

advertisers, but advertisers simply want to reach their viewers at the lowest possible cost.

Therefore, if a hypothetical monopolist network that controls all MLS programming

attempted to raise advertising rates, advertisers would simply shift their advertisements to

other networks programming that gave them access to their target demographic groups at

competitive rates.

120. The implication of the analysis above is that MLS competes in a broad market with many

other types of programming when licensing the rights to broadcast its games. This result

follows from the willingness of advertisers to switch among programs to reach their

target audiences as inexpensively as possible and the ability of networks to turn to other

programming if MLS demands an above-competitive price for the rights to broadcast its

matches. The relevant geographic market encompasses the sources of supply of

programming that compete with MLS programming. Thus, the geographic market must

be at least as large as the United States.

F. Market Power in the Market in which MLS Licenses Broadcasters

121. Clearly, if a license to broadcast MLS matches does not allow a broadcaster to charge

above-competitive rates to advertisers, the network will not pay an above-competitive

rate for a license for MLS matches, even if it must compete with other networks for the

MLS license. The economic reasoning is clear: rather than pay an above-competitive

money. Along with audience and impact, cost also plays and important role in the return on investment
of different options. Planners and buyers want to get the most communication possible for their money.
Ronald Geskey, Media Planning & Buying in the 21st Century, 2011, at pages 166-167.

58
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price to MLS to broadcast its programming, any network considering broadcasting MLS

games would turn to some other source of programming. Advertisers would be willing to

advertise during this alternative programming, paying based on the audience the

programming generates.

122. There is little doubt that MLS represents a very small share of the programming on

television and even a very small share of the sports programming on television. Figure 9

shows that MLS television viewership has been growing. However, as shown in Figure

10, MLSs television viewership is quite small compared to the viewership of the four

traditional sports in the United States. Notably, soccer viewership is only 8.5% of

football viewership in 2017 and soccer is only 3.5% of all sports viewership in 2017.

Figure 9
MLS TV Viewership
Spring 2009 Spring 2017
14

12

10

8
Viewers (Millions)

0
2009 2010 2011 2012 2013 2014 2015 2016 2017

Note: Annual numbers represent the number of people that watched a league event on US broadcast TV within the last twelve months.
Source: Nielsen Scarborough 2017 USA+ Release 1 (Statista).

59
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Figure 10
TV Viewership by League
Spring 2009 Spring 2017
160

140

120

100
Viewers (Millions)

80

60

40

20

0
2009 2010 2011 2012 2013 2014 2015 2016 2017
NFL MLB NBA NHL MLS

Note: Annual numbers represent the number of people that watched a league event on US broadcast TV within the last twelve months.
Source: Nielsen Scarborough 2017 USA+ Release 1 (Statista).

123. Figure 11 shows the total national broadcast rights revenue for the four major US sports

and soccer (including MLS and certain games for the Mens and Womens US National

Teams combined). This figure reflects the value of the advertising that broadcasters earn

from televising games of the different leagues because competition among broadcasters

will lead them to pass through their advertising revenue, with the broadcasters retaining

enough revenue to earn a competitive return on their investments. Soccers income from

national television licensing deals is $90 million per year. In contrast, the NFL earns

more than $7 billion, or more than 75 times the value of soccers broadcast rights. In fact,

the licensing revenue earned by soccer is less than 1% of the licensing revenue earned by

the other sports combined. This result demonstrates that soccers share of advertising,

even when limited to advertising on sports television, is extremely small. Figure 11

shows the broadcast revenue for all soccer programming.

60
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Figure 11
Revenue from National Broadcast Rights
Average Annual Value (in billions)

$7.01

DISH

DirecTV

Univision

Rogers (Canada)

Turner

NBC

CBS
$2.60 Fox

ABC/ESPN

$1.65

$0.60

$0.09

NFL NBA MLB NHL Soccer


Note: MLB also has a deal with Rogers (Canada) that is not included in this data because terms of the deal were not publicly released.
Sources: "How Much Do the NFL and TV Partners Make a Year?," Outkick the Coverage, Mar 1,2017; "NBA to announce 9-year, $24 billion
TV deal with ESPN, Turner", SB Nation, Oct 5, 2014; "Baseball Scores $12 Billion In Television Deals," Forbes, Oct 2, 2012; "The NHL's New
Broadcast Deal With Rogers Communications Signals Canadian Team Expansion," Forbes, Nov 26, 2013; "MLS, U.S. Soccer officially
announce new TV deal with ESPN, Fox, Univision," Philly.com, Dec 13, 2015; Rogers adds baseball TV rights to hockey with wide-ranging
MLB deal, The Toronto Star, January 9, 2014; How The Deal Between DISH and MLB Helps Pave The Way For In-Market Streaming,
Forbes, April 1, 2015.

124. MLSs very small share of advertising revenue implies that it could not benefit by

withdrawing games from broadcasters to attempt to raise soccers advertising revenue

and thus increase the license fees from broadcasters to MLS. If the price of advertising

on an MLS broadcast is above the competitive level based on its viewership, an

advertiser would simply move its advertisements to another program. Broadcasters will

not pay more for programming than they expect to earn from it, which implies that the

license fees MLS can negotiate will reflect the competitive advertising rates that

broadcasters earn when airing MLS matches.

61
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G. The Contract between USSF and SUM Does Not Transfer Money from MLS
to USSF as Plaintiff Alleges

125. Plaintiff asserts that USSF and MLS have a direct economic link because USSF has a

contract with SUM to license USSFs soccer properties.70 Plaintiff claims this contract

creates a powerful economic incentive for the USSF to protect MLSs monopoly

position as the sole mens top-tier Division I league located in the U.S. and Canada.71

This is a key component of Plaintiffs theory of anticompetitive harm. However, the

contract Plaintiff asserts is the source of USSFs anticompetitive motives does not

provide the incentives Plaintiff asserts.

126. USSFs contract with SUM would create an economic incentive for USSF to favor MLS

over NASL only if USSF received increased amounts of money under the terms of its

contract with SUM when SUM increased its revenue from licensing MLS soccer

properties. I understand that this is not the case. Payments to USSF under its contract

with SUM depend on the revenue SUM generates selling USSFs soccer properties

only.72 USSF does not receive higher payments from SUM in the event that MLS makes

more money from its licensing of television broadcasts or other MLS properties.

127. If USSF cannot share in the benefits of MLSs purported market power, USSF has no

economic incentive to do anything to enhance or extend MLSs market power. This is

particularly the case because the exercise of market power would entail withholding

soccer from fans, which is contrary to USSFs goal to expand soccer in the United States.

70
Complaint at 105.
71
Complaint at 105.
72
See also the US Soccer/SUM Licensing Agent Agreement (especially at the defined terms Soccer
Properties, Licensed Marks, Player Rights, and Marketing Opportunities in the agreement).

62
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H. Plaintiffs Theory of Anticompetitive Harm Is Unfounded

128. Analysis of the markets in which MLS sells the rights to view soccer matches shows that

the USSF could not confer market power on MLS. As described above, MLS and NASL

both have teams in only two metropolitan markets where soccer fans could potentially

substitute attendance at an NASL game for attendance at an MLS game, or vice versa.

Moreover, there is no claim that USSF benefits from increased revenue from MLS ticket

sales.

129. The market in which MLS licenses broadcasts of MLS matches is broad because

advertisers have alternatives for reaching their target demographic groups, and television

networks can find other programming options to substitute for MLS programming if

MLS demands license fees that are above-competitive levels. MLS has a very small

share of the programming market. Given MLSs small share, USSF cannot confer

market power on MLS in the market for licensing content by discriminating against

NASL. Moreover, even if MLS were to gain from reduced competition with NASL in

the market for television content, USSFs contract with SUM does not provide for

additional payments to USSF in that circumstance.73 Thus, the anticompetitive economic

motivation that Plaintiff claims to have identified as influencing USSFs application of

the Professional League Standards does not exist.

130. If USSF has no anticompetitive economic incentive to discriminate against NASL in

favor of MLS, USSFs enforcement of its Professional League Standards must be based

on other incentives. My analysis shows that the Professional League Standards are

procompetitive because they promote investment and protect the public goods

73
See also US Soccer/SUM Licensing Agent Agreement (see 6 of the agreement).

63
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surrounding soccer in the United States. Thus, the Professional League Standards are

consistent with USSFs stated mission to grow soccer in the United States and require no

alternative explanation.

VIII. Analysis of Professor Szymanskis Economic Analysis

131. Below, I address some of the errors in Professor Szymanskis analysis of competition in

the relevant market that contains league-based professional mens soccer competition.

My fundamental conclusions are that Professor Szymanski mischaracterizes the

incentives created by SUMs representation of USSFs soccer properties and that

Professor Szymanski has not analyzed the correct relevant market to reliably evaluate

whether MLS has market power. As a result, Professor Szymanski has no basis to assert

that USSF has an economic incentive to favor MLS over NASL. Similarly, his analysis

provides no foundation for his conclusion that MLS has market power in the relevant

markets pertinent to the injunction sought by Plaintiff.74

A. Professor Szymanskis Analysis of the Financial and Professional


Connections between USSF and MSL

132. Professor Szymanski begins his analysis by describing the relationship between USSF,

SUM, and MLS. He asserts that the close relationship between MLS, SUM, and USSF

represent a significant conflict of interest for USSF[,] in part as the result of Don

Garbers serving as Commissioner of MLS, CEO of SUM and sitting on the governing

council of USSF.75 I understand that USSF has retained an expert on governance who

74
I disagree with many aspects of Professor Szymanskis analysis. Below, I address some of the serious
flaws in his economic analysis. My work in this matter, however, is at an early stage, and I do not address
each of my disagreements with Professor Szymanski. I will update my review of Professor Szymanskis
economic analysis as appropriate and as my work in this matter progresses.
75
Szymanski Declaration at 17.

64
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will address whether USSF has instituted procedures that protect against conflicts of

interest. I restrict my analysis to the economic incentives that Professor Szymanski

claims to have identified.

133. Professor Szymanski insinuates that USSFs relationship with SUM, which operates as a

subsidiary of MLS, 76 creates conflicts of interest that may lead USSF to discriminate

against NASL. SUM manages MLSs soccer properties, such as licensing matches to

television networks, lining up sponsorships, licensing MLS trademarks, and so forth.77 In

2004, IMG, which had previously been USSFs marketing agency, indicated it was no

longer interested in serving in that capacity.78 In addition, USSF had not been getting the

kind of sponsorship results it sought from the soccer properties controlled by the

Federation. Over time, SUM was able to negotiate an agreement that USSF found more

acceptable. According to Mr. Gulati, SUM proposed an arrangement to the USSF that

would guarantee a substantial annual minimum amount of marketing revenue with

additional upside if SUM exceeded certain revenue generation milestones. 79 USSF

receives 70% of the revenue above the thresholds.80 The guaranteed component was

particularly attractive to the USSF because it provided a measure of financial certainty

and security which would allow the USSF to better plan for the future growth and

76
See Bloomberg at: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=58275017,
accessed on October 9, 2017.
77
MLS Digital Properties and Soccer United Marketing, MLS, at https://www.mlssoccer.com/advertise/,
accessed on October 9, 2017; MLS seeks to buy back stake from Providence, Sports Business Daily, at
http://www.sportsbusinessdaily.com/Journal/Issues/2016/04/18/Finance/MLS-Providence.aspx, accessed
on October 9, 2017.
78
Gulati Declaration at 228.
79
Gulati Declaration at 229.
80
US Soccer/SUM Licensing Agent Agreement at 6.

65
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development of the sport knowing that it had a guaranteed stream of revenue for the life

of the agreement.81 This agreement was entered into in 2004 and has since been updated

and amended.82 Mr. Gulati indicates that negotiations for the contract were held at arms

length.83

134. Professor Szymanskis analysis of the contract appears generally consistent with mine.84

He recognizes that SUM must make a minimum payment to USSF and that USSF and

SUM share in revenue above certain thresholds based on a 70/30 split, with 70% going to

USSF. However, Professor Szymanski goes on to describe that after SUM pays USSF

what its contract specifies, SUM distributes the remaining profits to its MLS majority

shareholders.85 Professor Szymanski asserts that the profits from SUM explain why the

MLS franchise fee is $150 million despite MLSs being a loss-making entity. Professor

Szymanski implies that the franchise fee includes an interest in SUM. He concludes that

the apparent importance of SUM to the value of a stake in MLS suggests that MLS

owners profit from SUM and properties that ultimately belong to USSF.86

135. Of course, Professor Szymanskis conclusion that it is MLS that benefits from USSF

soccer properties completely undermines Plaintiffs assertion that USSF has an economic

incentive to favor MLS and disfavor NASL. For USSF to have an economic incentive to

favor MLS and disfavor NASL, USSF must benefit financially from doing so that is,

81
Gulati Declaration at 229.
82
US Soccer/SUM Licensing Agent Agreement at 6.
83
Gulati Declaration at 229.
84
Szymanski Declaration at 19.
85
Szymanski Declaration at 19.
86
Szymanski Declaration at 19.

66
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USSF must gain from the increased value of MLSs soccer properties that result from

MLSs purported increased market power flowing from USSFs discriminatory conduct.

Professor Szymanski finds the opposite. Rather than finding that USSF shares in the

value of MLS soccer properties, Professor Szymanski finds that MLS is siphoning off the

value of USSF soccer properties to the benefit of MLS owners.

136. Of course, if USSF does not benefit economically from its purported efforts to enhance

and maintain MLSs alleged market power, Plaintiff and Professor Szymanskis theory of

anticompetitive harm falls apart.

B. Professor Szymanski Does Not Analyze the Correct Relevant Market

137. Professor Szymanski undertakes to define the relevant market in which MLS is purported

to have market power. However, Professor Szymanski analyzes the wrong market and

adduces evidence regarding the scope of competition and the existence of market power

that are not economically pertinent to relevant market analysis. His analysis does not

even address the question of market power in the licensing of television broadcasts,

which is the alleged source of USSFs incentive to favor MLS and disfavor NASL. With

no reliable relevant market analysis, Professor Szymanskis conclusions regarding market

power are economically baseless.

1. Professor Szymanskis Analysis of the Relevant Market Teams and


Team Owners

138. Professor Szymanski attempts to define the relevant markets for (1) top-tier mens

professional soccer leagues located in the US and Canada, and (2) second-tier mens

professional soccer leagues located in the US and Canada.87 After stating the relevant

87
Szymanski Declaration at 25.

67
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markets, Professor Szymanski correctly defines the next task, which is to identify the set

of products that are most likely to be close competitive substitutes for the relevant

product.88 Professor Szymanski, however, does not properly identify the product that

a soccer league sells.

139. Professor Szymanski recognizes that teams sell tickets, concessions, sponsorships,

television rights, etc.89 He also recognizes that there is a distinction between league-

based competition and ad hoc competition.90 These facts clearly indicate that MLS sells

soccer competition in the form of a season of league-based matches. For the most part,

MLS earns revenue by selling tickets to matches, licensing television broadcasts, and

attracting sponsors. 91 However, without meaningful explanation, Professor Szymanski

does not address the scope of the markets in which he recognizes leagues and their teams

earn the bulk of their revenue or that Plaintiff identifies in the complaint. This is a

fundamental error.

140. Rather than define the relevant markets for ticket sales, licenses to broadcasts, and

sponsorships, Professor Szymanski focuses his analysis on the services that leagues

provide to teams and their owners. Professor Szymanski asserts MLS is currently a

monopoly supplier of top-tier professional mens soccer leagues in the US and Canada.

88
Szymanski Declaration at 25.
89
Szymanski Declaration at 23.
90
Szymanski Declaration at 4.2.
91
The Complaint also identifies these product markets. Complaint at 38 (The customers in the markets for
top-tier and second-tier professional soccer leagues located in the U.S. and Canada are fans who purchase
tickets or licensed merchandise of the leagues, sponsors who purchase the reputational, promotional and
other benefits of association with the leagues and their clubs, and broadcasters who obtain the rights to
distribute games.).

68
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Demand for these services comes from teams/owners/promoters wishing to play in these

forms of season-long league based competitions.92

141. Professor Szymanskis market definition analysis addresses the price of buying teams in

different leagues and the question of whether buying an NASL team is a substitute for

buying an expansion MLS team.93 Based on the large difference in the price of buying an

MLS expansion team and buying an NASL team, Professor Szymanski asserts that the

two teams are not in the same market for the wealthy owners who might consider buying

a professional soccer team. Professor Szymanski also addresses whether the prices of

teams in other leagues would constrain the price of an MLS team. He concludes without

evidence that [f]or would-be owners, a change in the franchise price for a major (or

minor) league baseball, basketball, football, or hockey team is unlikely to have a

substantial effect on prices for soccer teams.94

142. Professor Szymanskis analysis is completely backwards. If we assume that sports team

owners are profit-maximizing business people, the value of sports teams are driven by the

value of their expected discounted cash flows. Thus, if more people become interested in

soccer as the quality of play in the United States rises, and there is no change in the

popularity of other sports, the value of soccer teams will rise relative to the value of other

teams. There would be no substitution by owners of soccer teams to owning other sports

teams. It is simply the case that soccer is now generating more revenue and cash flow

and that the investment value of the teams has risen relative to other teams.

92
Szymanski Declaration at 37 (emphasis added).
93
Szymanski Declaration at 42-43.
94
Szymanski Declaration at 46.

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143. As an analogy, when the price of Ford stock rises because the market realizes that it has a

new successful model of pickup truck, we do not expect investors to substitute to other

stocks. The value of Ford has increased because of factors specific to Ford that make

investors believe it will generate greater cash flow in the future, warranting the increase

in its share price. Given investors expectations, they do not substitute to other

investments because of the price increase of Fords stock. Ford has become more

attractive to own as the result of its improved prospects, and investors hold it at the

higher price.

144. It is impossible to determine whether a league has market power by examining the value

of its teams. Soccer teams will increase in value as they draw more fans to games and as

their television license fees rise as the result of increased TV viewership. In this

framework, increasing team values reflect the increased quality of the product and the

increased fans that it draws. In any event, it is not possible to distinguish between high

team prices that result from market power or high team prices that result from selling a

high-quality product that consumers want to buy. Market power is in no way a

prerequisite for sports team prices or the value of any business to be high.95

95
Szymanski compares MLS expansion team fees to NASL expansion fees. This analysis cannot discern
whether MLS expansion fees reflect the expected income associated with high-quality soccer or whether
they reflect asserted market power in the markets for tickets, broadcast licenses, and sponsorships.
Professor Szymanski has also asserted that the price of an MLS expansion franchise is high because MLS
siphons money off of USSF through SUM. Szymanski at 19. Professor Szymanski cannot distinguish
among the possible causes of high MLS expansion fees. Thus, he has no basis to assert that MLS team
prices are high as the result of market power rather than some other reason.

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2. Professor Szymanskis Analysis of Whether Fans View Attending


Events of Different Sports as Substitutes

145. Professor Szymanski reviews the literature on addressing whether fans see different

sports as being direct substitutes for each other.96 He recognizes that this literature does

not address the question of whether would-be sports franchise owners see buying teams

in other sports as a substitute for buying a soccer team, but asserts that this literature

addresses a related question.

146. Professor Szymanski does not describe why the literature on fan substitution is related to

the question of whether sports team owners view owning teams in different sports as

substitutes. It is possible that if fans were to stop watching one sport and instead started

watching another, team values in the first sport would fall and team values in the second

sport, which was gaining fans, would rise. This, however, does not tell us anything about

whether would-be team owners view teams from different sports as substitutes. Instead,

this example shows that team prices reflect the net present value of the cash flow they

generate. In short, fan substitution tells us nothing about owner substitution. Moreover,

owners willingness to substitute their uncommitted investment dollars among

investments, even sports investments, is not economically relevant to assessing whether

MLS has market power.

147. The literature on fan substitution of one sport for another generally finds that when fans

cannot attend one sporting event, such as during the National Hockey League (NHL)

lockout, they do not appear to substitute en masse to other sports.97 For example, during

96
Szymanski Declaration at 47.
97
For a discussion of this literature see Jason Winfree, Fan substitution and market definition in professional
sports leagues, The Antitrust Bulletin, Vol. 54, No. 4, Winter 2009.

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the NHL lockout, NBA teams and minor league hockey teams experienced relatively

minor increases in attendance. This suggests that different sports, including professional

hockey at a lower level than the NHL, were not the primary substitutes for NHL hockey

fans.98

148. The study of the effect of the NHL lockout on fan substitution between sports does not

provide clear answers on where fans go when a change in price or quality leads them to

choose not to attend a sporting event. When unable to attend one sporting event, fans

seem not to congregate at other sporting events occurring at approximately the same time.

Of course, this implies that the fans must be doing something other than attending a

sporting event, which the study of NHL attendance explicitly does not address.99 The

people substituting away from attending hockey games appear to have substituted some

type of non-sport entertainment. Thus, the study of the NHL lockout is consistent with

substitution by sports fans to a broad group of alternative activities.

149. Based on the finding in the limited literature addressing the substitution of fans between

live sporting events, Professor Szymanski concludes that a would-be hypothetical

monopolist of either top-tier or second-tier mens professional soccer would be able to

98
Daniel Rascher, Matthew Brown, Mark Nagel, and Chad McEvoy, Where did National Hockey League
fans go during the 2004-2005 lockout? An analysis of economic competition between leagues,
International Journal of Sport Management and Marketing, 2009, at page 186.
99
Daniel Rascher, Matthew Brown, Mark Nagel, and Chad McEvoy, Where did National Hockey League
fans go during the 2004-2005 lockout? An analysis of economic competition between leagues,
International Journal of Sport Management and Marketing, 2009, at page 186. (Of course, this does not
include all of the possibilities for a sport competing with non-sports forms of entertainment (e.g., movies,
the beach). This paper addresses competition for live in-person attendance between the same sport at
different levels of competition and different sports at the same level of competition.)

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impose a price increase without fear of losing profit from substitution away by would-be

owners to other non-soccer entertainment options.100

150. This conclusion is irrelevant to the present inquiry and economically unfounded.

a) Professor Szymanski focuses on the wrong market. MLS primarily earns revenue by

selling tickets to fans attending matches and by selling broadcast rights and

sponsorships. These are the markets that must be evaluated for market power, not the

market for teams sold to would-be owners who could readily deploy their investment

dollars elsewhere.

b) Sports leagues in general, and MLS in particular, do not primarily profit by selling

expansion franchises. Expansions are relatively rare and have costs for leagues and

the owners of the other teams in the league. Moreover, there is no scope to exercise

market power over well-informed, sophisticated investors considering buying sports

teams with their uncommitted investment funds.

c) A lack of fan substitution does not alter the above conclusion. Team prices reflect the

expected net present value of cash flow that the team will generate. If a league

increased the price of an expansion franchise above the value of the expected net

present value of cash flow, prospective owners would not buy the team as an

investment. Raising the price of a team to a potential owner has no effect on fans, all

else equal.

d) High team prices are economically uninformative about market power. Elsewhere in

his report, Professor Szymanski asserts that the price of an MLS expansion franchise

100
Szymanski Declaration at 48.

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is high because MLS siphons money off of USSF through SUM. Thus, he has no

basis to assert that MLS team prices are high as the result of market power rather than

some other reason.

e) Professor Szymanski is not consistent in his economic analysis of market power. If

MLS has market power in the market for ownership of top-tier soccer teams, MLS

must be withholding teams from the market in order to elevate their prices. When

criticizing USSFs standard requiring Division II leagues to have a minimum number

of teams, Professor Szymanski asserts that [l]eagues have a natural incentive to

expand if profitable opportunities exist.101 If Professor Szymanski believes leagues

naturally expand to fill profitable opportunities, he has no basis to assert that MLS is

withholding teams from the market by failing to expand. If MLS has no incentive to

withhold teams from owners, MLS is not exercising market power.

151. For the reasons stated above, I find that Professor Szymanskis analysis of the relevant

market is economically misguided. Having defined the wrong relevant market, Professor

Szymanskis analysis is incapable of addressing whether USSF and MLS have market

power in any market for viewing or licensing mens soccer competitions in the United

States and Canada.

C. Professor Szymanski Has No Basis to Assert that USSF and MLS Have
Market Power in This Relevant Market

152. Professor Szymanski asserts that the alleged conspirators have market power in this

relevant market.102 Presumably this relevant market is the market for teams sold to

101
Szymanski Declaration at 96.
102
Szymanski Declaration at 4.4.

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would-be owners. This conclusion is economically baseless. First, one of the asserted

conspirators, USSF, does not participate in the market for selling expansion franchises

to would-be soccer team owners. Thus, USSF cannot have market power in the market

for soccer league services to team owners.

153. Second, the value of a soccer team equals the expected net present value of its cash flow.

No investor will pay more than this amount for the team as an investment. Thus, there is

no ability to extract monopoly prices from investors seeking to buy sports teams, as long

as the investors invest based on standard investment principles.

154. Third, Professor Szymanski asserts monopoly power is the power to control prices or

exclude competition. 103 MLSs alleged market power is not the mechanism of

exclusion that Plaintiff or Professor Szymanski asserts. Rather, Plaintiff and Professor

Szymanski assert that it is USSF that has excluded NASL from competing in the top tier

of professional soccer in the United States and now threatens to exclude NASL from the

second tier of US soccer.104 USSFs asserted power to exclude has nothing to do with

market power in either the market that Professor Szymanski defined or the relevant

markets I have defined. Rather, the asserted exclusion results from USSFs application

of the Professional League Standards.

155. In Professor Szymanskis economic framework, MLSs market power serves only as the

economic payoff to USSF for discriminating against NASL to the benefit of MLS. As

noted previously, Professor Szymanski does not assert to have found a financial

relationship between USSF and MLS that benefits USSF as MLS increases revenues.

103
Szymanski Declaration at 54.
104
Szymanski Declaration at 54.

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Rather, Professor Szymanski identifies a relationship in which MLS is asserted to be

siphoning money off of USSFs soccer properties to enhance its bottom line rather than

the other way around. 105 Such a financial relationship cannot serve as the economic

motive for USSF to discriminate against NASL.

D. Professor Szymanskis Conclusions Regarding the Professional League


Standards Are Economically Unfounded

156. Professor Szymanski asserts that the Professional League Standards are financial,

administrative and technical conditions that are unrelated to the competitive outcome

of on-field competition. As a result, the hierarchy imposed by the Professional League

Standards is inherently artificial and anti-competitive. 106 Professor Szymanski

concludes there is no valid procompetitive justification for divisional structure as

implemented by USSF. 107 This conclusion is economically unfounded and, in some

cases, contradicted by Professor Szymanskis own testimony.

a) Contrary to his assertion above, Professor Szymanski recognizes elsewhere that the

USSF may have a legitimate interest in promoting rules that benefit consumers,

improve quality, increase output, and ensure competition.108 As described above,

the Professional League Standards provide teams and leagues with incentives to

invest in the sport of soccer (expanding output) and are reasonably related to the

success of the league and the quality of competition it produces for fans. Professor

Szymanskis testimony indicates that any questions about the Professional League

105
Szymanski Declaration at 19 (This suggests that MLS owners profit from SUM and properties that
ultimately belong to USSF.).
106
Szymanski Declaration at 59.
107
Szymanski at 6.1.
108
Szymanski Declaration at 64.

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Standards are at most questions of degree, not whether the standards can serve

procompetitive ends.

b) One of the Professional League Standards requires that teams have some degree of

national coverage based on the number of time zones in which they have teams in the

continental United States. Professor Szymanski asserts that the regulation of time

zone coverage also makes little economic sense.109 Elsewhere, however, Professor

Szymanski recognizes that a growing footprint can be attractive to broadcasters who

seek to reach television audiences. Thus, Professor Szymanski explicitly recognizes

that a league with national coverage has greater appeal than a regional league.110

Thus, Professor Szymanski contradicts his assertion that time zone coverage is not a

reasonable measure of the success and appeal of a league. Moreover, Professor

Szymanskis comparisons to leagues in countries with a single time zone are

obviously uninformative. Professor Szymanski also fails to recognize that the four

major US sports with which soccer competes for sports fan interest are present in all

four continental US time zones (see Figure 3B).

c) Professor Szymanski asserts that the Professional League Standard covering the

number of teams in a league is unlikely to be procompetitive. Such a conclusion

seems not to recognize that the requirement to have more teams provides a direct

incentive for leagues to expand output. However, once again, Professor Szymanski

contradicts himself. Professor Szymanski asserts that league competition is different

from one-off games in ways that matter to fans, such as season-to-season competition

109
Szymanski Declaration at 91.
110
Szymanski Declaration at 96.

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with a stable league membership, rankings, and championships.111 Clearly league

competition requires some minimum number of teams and fans are likely to want to

attend more games if there is a wider variety of visiting teams. Thus, greater numbers

of teams, at least to some point, will tend to increase fan interest within Professor

Szymanskis theory of the differences between league competition and one-off games.

d) Professor Szymanskis report provides direct evidence of USSFs procompetitive

incentives underlying the Professional League Standards. Professor Szymanski

describes that as early as 1975, the USSF had Professional League Standards that

required professional leagues to maintain sufficient geographic coverage and

maintain at least eight teams in competition. Clearly, the USSF saw the benefits of

standards even when professional soccer in the United States was in its infancy. The

early use of standards indicates that they were motivated by USSFs goal of

increasing the popularity of soccer rather than as a means of anticompetitive

discrimination.

e) Similarly, by the time the 1995 Professional League Standards were promulgated,

MLS was selected as the vehicle for building a national Division I soccer league.112

The standards at that time would have established targets for MLS to hit or maintain

rather than serving any exclusionary or anticompetitive purpose. The next application

111
Szymanski Declaration at 32.
112
Oral Testimony of Sunil Gulati, Iain Fraser, et al, Plaintiffs, vs. Major League Soccer, LLC, Defendants,
United States District Court of Massachusetts, October 5, 2000 at pages 1636-1637 and 1747; Oral
Testimony of Sunil Gulati, Iain Fraser, et al, Plaintiffs, vs. Major League Soccer, LLC, Defendants, United
States District Court of Massachusetts, October 11, 2000 at pages 1952-1953; Oral Testimony of Alan
Rothenberg, Iain Fraser, et al, Plaintiffs, vs. Major League Soccer, LLC, Defendants, United States District
Court of Massachusetts, October 30, 2000 at pages 3418-3422.

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for Division I status did not occur until NASLs request in 2015.113 The long history

of Professional League Standards prior to any claims that they are anticompetitive

undermines Professor Szymanskis conclusion that they have no procompetitive value

and are unrelated to a leagues success and fans perception of the league.

f) With regard to stadium size, Professor Szymanski recognizes that NASLs current

teams meet the Professional League Standards Division II requirement that stadiums

seat 5,000 spectators.114 Yet, Professor Szymanski seems to find that the presence of

teams with small stadiums in various European leagues calls USSFs stadium-size

regulations into question. However, Professor Szymanski appears to ignore the fact

that other professional soccer leagues, and entities that oversee other sports, mandate

minimum stadium sizes in a manner consistent with USSF. For example regulations

covering stadium size are seen in other professional soccer leagues, including the J

League in Japan and the Liga Nacional de Ftbol Profesional in Spain, both of which

set minimum capacities of 15,000 for their Division I teams. These two leagues also

have seating capacity requirements of 10,000 and 6,000, respectively, for their

Division II teams. 115 In addition, other prominent soccer organizations require a

minimum number of stadium seats in order to host a championship match. 116

Furthermore, league regulations on minimum seating capacity in stadiums are also

113
Gulati Declaration at 65 and 133-137.
114
Szymanski Declaration at 103.
115
See Japan Football Association Stadium Guideline at https://www.jfa.jp/documents/pdf/basic/07/01.pdf,
accessed on October 10, 2017; Reglamento General de la Liga Nacional de Ftbol Profesional, La Liga,
2016, at http://files.proyectoclubes.com/alaves/201507/03161522reglamento-lfp.pdf, accessed on October
10, 2017.
116
For example, UEFA and FIFA require minimum seating accommodations of 8,000 and 30,000 for major
international matches. See UEFA Stadium Infrastructure Regulations, 2010 Edition; FIFA Football
Stadiums: Technical recommendations and requirements, 5th Edition.

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observed in professional and college sports in the United States. For example, the

NFL set a minimum seating capacity of 70,000 for all NFL stadiums built in the

1970s onwards, and the NCAA sets an average attendance requirement of 15,000 for

all Football Bowl Subdivision teams.117

157. Professor Szymanskis testimony shows that the Professional League Standards have

procompetitive benefits and are associated with league success and stability and fans

perceptions of a league. Moreover, Professor Szymanskis analysis does not provide a

basis for his universal condemnation of the Professional League Standards.

1. Promotion and Relegation Are Not Needed to Justify Assigning


Leagues to Divisions

158. Professor Szymanski asserts that without promotion and relegation, there is no

procompetitive basis to impose a divisional structure. Professor Szymanski bases this

conclusion, in part, on comparisons to soccer leagues in countries where the membership

in the top-tier leagues is based on promotion and relegation rather than on professional

league standards. According to Professor Szymanski, some of these leagues play at a

higher level than MLS and have greater popularity, but would not meet some of USSFs

Professional League Standards.

159. As described above, the Professional League Standards provide incentives for leagues to

expand output, encourage investment in and promotion of soccer, and are related to

league characteristics that influence fans perception of the league. Thus, they are

procompetitive rather than anticompetitive. Claims that the Professional League

117
See Judith Long, Public/Private Partnerships for Major League Sports Facilities, 2013; Divisional
Differences and the History of Multidivision Classification, NCAA, at http://www.ncaa.org/about/who-
we-are/membership/divisional-differences-and-history-multidivision-classification, accessed on October 10,
2017.

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Standards are not perfectly related to some aspects of team performance do not make

them misleading or anticompetitive. This is particularly the case where, as Professor

Szymanski finds for professional sports, it is very easy for fans to gain experience and

realize product quality quickly.118

160. International comparisons are also not helpful for assessing the competitive effects of

USSFs Professional League Standards. There is no doubt that the Professional League

Standards are specific to the United States, its geography, the current popularity of soccer

in the United States, and so forth. USSFs promotion of soccer in the United States faces

different obstacles than the promotion of soccer in Europe, where it is the most popular

sport in most countries, and has been so for many decades.

161. The Professional League Standards must also be evaluated based on the environment in

which they were first promulgated. The first Professional League Standards of the

specificity of the current standards were enacted in 1995. The 1995 Professional League

Standards were developed as MLS was getting off the ground. Launching MLS required

billions of dollars of investment.119 The original MLS team owners would have been less

willing to invest if they believed that the league would not be financially stable and if

they did not believe they would share in the leagues success. Thus, at the time MLS was

launched the owners would have been less willing to invest had promotion and relegation

been part of the long-term plan for the league. To the extent that establishing divisional

118
Szymanski Declaration at 67. See also Szymanski Declaration at 84 (The primary interest for fans in
any sports league is the quality of play on the field. By its nature, information on this aspect of the leagues
is widely collected and disseminated and easily available from a variety of media outlets that can be feely
accessed.)
119
Gulati Declaration at 224.

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standards on objective criteria rather than on promotion and relegation increased

investment in MLS, the current system should be viewed as procompetitive.

2. Division III Leagues Have Found Success

162. Professor Szymanski asserts that designating NASL as a Division III league will

negatively affect NASL because some owners are unwilling to support a Division III

league. The evidence shows that Division III leagues can grow and succeed.

163. Professor Szymanski acknowledges that fans can easily ascertain on-field product

quality,120 and observation tells us it is nearly universal that games including compelling

teams (e.g., one or both consistently demonstrating a top quality of play, winning

championships, having world-class players, etc.) generate significant fan interest. I have

reviewed data on attendance at games in MLS, NASL and USL and find that NASL and

USL have reported comparable average attendance figures over the past year, with NASL

attendance figures being slightly higher for the prior two years. Figure 12 shows average

reported attendance for NASL and USL for the years 2015-2017. As this figure shows,

NASL drew nearly 6,000 fans per game, on average, across the league in 2015, more than

4,700 in 2016, and more than 4,300 in 2017. Over this same time period, USL drew

more than 3,300 fans per game, on average, across the league in 2015, more than 3,400 in

2016, and about 4,300 in 2017.

120
Szymanski Declaration at 67. See also Szymanski Declaration at 84.

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Figure 12
Average Attendance at USL and NASL Games
7,000

6,000 5,912

5,000 4,749
4,365 4,325

4,000

3,370 3,439

3,000

2,000

1,000

0
2015 2016 2017
NASL USL

Note: 2017 averages are as of October 9, 2017, and so do not reflect all regular season games.
Sources: ESPN NASL regular season statistics; ESPN USL regular season statistics; USL Total Attendance Soars by 33 Percent in 2016, USL,
Sep 28, 2016; NASL Annual Reports, 2014 and 2015.

164. These attendance figures provide an indication that, to at least some degree, teams in

NASL and USL draw comparable numbers of fans to the live games they play.

Something more than the designation of Division II or Division III must influence

the ability of these teams to draw fans to their matches. Economic reasoning can provide

insight, because, in the case at hand, on-field skill at playing the game of soccer is not the

only high-quality attribute of relevance. It is clear that those investing in professional

soccer teams have economic interests in long-term stability of the league(s) in which they

operate. This is important for our analysis because fundamental to this dispute is the

assertion that a Division III designation will seriously undermine the ability of NASL to

compete with MLS and USL.121

121
Complaint at 52 and Szymanski Declaration at 130.

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165. I have investigated the marketplace outcomes of teams operating in both NASL and USL.

I began this examination with USL, and, as can be seen in Figure 13, USL currently

includes 30 clubs, spanning the entire United States.

Figure 13
USL: Team Locations

Sources: League and team websites.

166. USL did not always include 30 clubs, and examining the history of the league makes it

clear that a Division III designation in and of itself is not harmful to a leagues ability to

compete and grow. After playing as part of Division II in 2010, USL became a Division

III league in 2011, and remained Division III through the end of the 2016 season.122 As

Figure 14 shows, the league more than doubled in size during its time in Division III,

from 12 teams in 2011 to 29 teams in 2016 (three teams joined in 2017, one folded, and

one moved down to the Premier Development League (PDL), leaving USL with 30

122
USL was part of Division II in 2010. See Division 2 Professional League to Operate in 2010, USSF, at
http://www.ussoccer.com/stories/2014/03/17/12/20/division-2-professional-league-to-operate-in-2010,
accessed on October 9, 2017; and was in Division III each year 2011-2016. See USSF Annual General
Meeting, years 2012-2014 and 2016.

84
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teams).123 In addition to significantly growing the number of teams in the league despite

its Division III status, USL has also managed to retain a large number of teams from their

first season onwards: Figure 14 indicates that of the 36 teams that joined USL at any

point in the 2011-2016 period, 75% remained in the league from the start of their first

season through the end of the 2016 season.

Figure 14
USL Team History
2011 Present
Antigua Barracuda FC 2011 - 2013
Charleston Battery 2011 - Present
Charlotte Eagles 2011 - 2014
Dayton Dutch Lions 2011 - 2014
FC New York 2011
Harrisburg City Islanders 2011 - Present
Orange County SC 2011 - Present
Orlando City FC 2011 - 2014
Pittsburgh Riverhounds 2011 - Present
Richmond Kickers 2011 - Present
Rochester Rhinos 2011 - Present
Wilmington Hammerheads FC 2011 - 2016
Phoenix Rising FC 2013 - Present
VSI Tampa Bay FC 2013
Current Teams
LA Galaxy II 2014 - Present
OKC Energy FC 2014 - Present Joined MLS
Sacramento Republic FC 2014 - Present
Austin Aztex 2015 Joined PDL
Charlotte Independence 2015 - Present
Colorado Springs Switchbacks FC 2015 - Present
FC Montreal 2015 - 2016
Folded
Louisville City FC 2015 - Present
New York Red Bulls II 2015 - Present
Portland Timbers 2 2015 - Present
Real Monarchs SLC 2015 - Present
Saint Louis FC 2015 - Present
Seattle Sounders FC 2 2015 - Present
Toronto FC II 2015 - Present
Tulsa Roughnecks FC 2015 - Present
Vancouver Whitecaps FC 2 2015 - Present
Bethlehem Steel FC 2016 - Present
FC Cincinnati 2016 - Present
Orlando City B 2016 - Present
Rio Grande Valley FC Toros 2016 - Present
San Antonio FC 2016 - Present
Swope Park Rangers 2016 - Present
Ottawa Fury FC 2017 - Present
Reno 1868 FC 2017 - Present
Tampa Bay Rowdies 2017 - Present

2011 2012 2013 2014 2015 2016 2017 2018

Note: Puerto Rico United, River Plate Puerto Rico, and Sevilla FC Puerto Rico not shown - teams removed from USL on May 10, 2011 due to
financial difficulties.
Sources: United Soccer League, Transfermarkt,; Austin pro soccer franchise will roll in 2019 in 5,000 seat COTA venue, American
Statesman, August 9, 2017; Charlotte Eagles to Participate in Premier Development League in 2015, Charlotte Eagles, 2014; Major League
Soccer names Orlando City SC as 21st franchise, set for 2015 debut, MLS, November 19, 2013; Dayton Dynamo Look to Tap Into Ohios
Soccer Renaissance with Downtown Stadium Move, Midfield Press, December 2016; Montreal Impact associates with Ottawa Fury FC in the
USL, MLS, December 9, 2016; USL Pro Announces Discontinuation of FC New York, Empire of Soccer, November 1, 2012; Wilmington
Hammerheads FC Awarded PDL Franchise, USL PDL, September 19, 2016; USL Pro to see teams fold; MLS to field squads; new team
partnership, ODFC News, November 17, 2013.

123
I do note that a number of these teams are owned by, or affiliated with, MLS clubs.

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167. This general stability and growth of USL for the duration of its Division III status can be

contrasted with that of NASL through its tenure as Division II league. NASL began as a

Division II league in 2011,124 and as Figure 15 shows, NASLs inaugural season included

eight teams. Through the end of the 2017 season, NASL still consisted of eight teams.

While the count of teams in NASL fluctuated from year to year, the league was able to

show no sustained growth over the entire period it maintained Division II status.

Furthermore, of the 17 teams that joined NASL at any point between 2011 and 2017,

only eight remained in the league from the start of their first season through the end of

the 2017 season, a retention rate of less than 50%.

124
Note that in its Application for Membership to United States Soccer Federation in 2010 (2010 NASL
Application), NASL embraced the organizational structure of soccer that USSF was overseeing in the
United States (The league has established itself based upon the following fundamental principles:
Commitment to developing a strong second division soccer league in the United States, which will
complement the first division and will contribute to building the sport at the grassroots level; [D]evelop
an infrastructure to fuel the growth of the game at the second division level 2010 NASL Application at
page 1; This included application of USSFs Professional League Standards (The League complies with
all of the USSF Professional League Standards for a Division II Mens Outdoor League (the Standards).
Set forth herein is a demonstration that the League will comply with each of the Standards that apply at the
league level.) 2010 NASL Application at page 4; see also the following discussion of each of the
Standards at pages 4-5.

86
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Figure 15
NASL Team History
2011 Present
Atlanta Silverbacks 2011 - 2015

FC Edmonton 2011 - Present

Fort Lauderdale Strikers 2011 - 2016

Minnesota United FC 2011 - 2016

Montreal Impact 2011

North Carolina FC 2011 - Present Current Teams


Puerto Rico Islanders 2011 - 2012 Joined MLS
Tampa Bay Rowdies 2011 - 2016
Joined USL
San Antonio Scorpions 2012 - 2015
Joined NPSL
New York Cosmos 2013 - Present
Folded
Indy Eleven 2014 - Present
Legal Issues
Ottawa Fury FC 2014 - 2016

Jacksonville Armada FC 2015 - Present

Miami FC 2016 - Present

Puerto Rico FC 2016 - Present

Rayo OKC 2016

San Francisco Deltas 2017 - Present

2011 2012 2013 2014 2015 2016 2017 2018

Sources: Standings, NASL; NASL Suspends Operation of Atlanta Silverbacks, NASL, Jan 11, 2016; Fort Lauderdale Strikers Begin New
Chapter with Bill Edwards Acquisition, The Florida Squeeze, June 20, 2017; Minnesota United FC to join MLS in 2017, debuting at TCF Bank
Stadium, MLS, August 19, 2016; Passionate Montreal named as 19th MLS City, MLS, May 7, 2010; USL Announces Addition of Ottawa
Fury FC, USL, October 25, 2016; Tambalea el futuro de los Islanders, Primera Hora, August 19, 2013; NASL to open 2017 season with eight
clubs, NewsOK, January 6, 2017; NASL Releases Statement on San Antonio Scorpions, NASL, December 22, 2015; USL Expands with
Additions of Tampa Bay Rowdies, Ottawa Fury FC, USL, October 25, 2016.

168. Additionally, as indicated in both Figures 14 and 15, both USL and NASL have seen

teams move across leagues in both directions (i.e., moving up to MLS or down to lower

developmental leagues). Two teams (Minnesota United FC and Montreal Impact) from

NASL, and one (Orlando City FC) from USL, have moved up to join MLS in Division I.

In the other direction, the Atlanta Silverbacks moved from NASL to the National Premier

Soccer League (NPSL), and the Charlotte Eagles, Dayton Dutch Lions, and

Wilmington Hammerheads FC (all from USL) moved to PDL.

169. Comparison of the history of the success of USL and NASL illustrates that the

designation of a league as Division II or Division III does not determine the success (or

87
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lack thereof) of the league itself or of its member teams. The histories of the USL and

NASL also call into question Plaintiffs claim that NASL has been injured by its

designation as a Division II league under the Professional League Standards. There is no

economic basis to find that NASLs loss of teams over the last several years is the result

of its Division II status because there was no change in NASLs divisional designation to

negatively impact NASL. Some other cause is needed to explain NASLs fall from

contending for Division I status to now failing to meet the standards for Division II.

E. Procompetitive Justifications for Professional League Standards

170. USSF has long had Professional League Standards, and those of relevance here were in

place starting in about 1995, with occasional updates since that time. Thus, USSF has

found that setting league standards promotes soccer in the United States since before

there were or even could be plausible claims that the standards had anticompetitive

effects. In fact, when NASL applied for Division II status in 2010, it explicitly

recognized USSFs authority to have Professional League Standards and to assign

leagues to divisions based on them.125 These factors indicate that USSFs Professional

League Standards have procompetitive effects. USSF would have no reason to

promulgate them when it did if USSF did not anticipate they would make soccer a more

stable and popular sport in the United States. Moreover, NASL asserts that the

Professional League Standards have no procompetitive basis after experiencing a

sustained period of disappointing growth relative to other leagues. Moreover, Professor

Szymanski has not identified an economic connection between USSF and MLS that

would give USSF an economic interest in conferring alleged market power on MLS,

125
2010 NASL Application at pages 1 and 4-5.

88
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particularly at the expense of failing to fulfill its mission of promoting soccer in the

United States.

171. Professor Szymanskis claim that he has been unable to identify any procompetitive

benefit that might hypothetically offset the competitive harm caused by the USSF

Standards is inconsistent with his description of circumstances in which market outcomes

can be improved by regulation.126 One such circumstance involves externalities (effects

on parties that are not considered when taking an action based on ones own costs and

benefits), and another involves public goods (goods which are non-excludable in the

sense that there is no way to keep people from using or consuming them, usually without

payment).127

172. Sports leagues offer many examples of externalities and public goods that need to be

managed. Within leagues, teams make decisions about locations, the quality of team to

field, and many other decisions that affect other teams in the league. If a team makes

these decisions with an eye toward maximizing its own profits, the effects on other teams

are externalities that need to be managed. USSFs mission is to make soccer a more

popular sport in the United States. USSF invests heavily in the US National teams,

which create substantial interest in soccer, invests in youth soccer to build interest in the

sport and recruit young athletes, trains referees, and so forth. These investments create

public goods and USSF cannot keep soccer organizations from taking advantage of them.

Many entities interested in soccer, including for-profit soccer leagues, are able to take

advantage of the publics interest in soccer, are able to employ young athletes trained by

126
Szymanski Declaration at 131.
127
Szymanski Declaration at 82.

89
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USSF, and draw upon the most-talented coaches and referees trained at USSFs expense

rather than their own. They benefit from these resources in a way that contributes to their

bottom lines.

173. These considerations indicate that USSF has an interest in being sure that the public

goods it creates are used to their best effect. In particular, USSF has an interest in

defining what a top-quality soccer experience entails in the United States and ensuring

that the top-tier leagues and teams are financially sound. The USSF has an interest in the

financial viability of leagues and teams because the failure of a prominent league,

particularly one that was designated as Division I, would reflect badly on soccer and

suggest to potential fans that the quality of soccer in the United States is poor and not

worth their time.

174. Professor Szymanski is simply incorrect that there are no reasons for USSF to promulgate

Professional League Standards. As described above, his testimony regarding the benefits

of a broad league footprint and the important characteristics of league play directly

contradict his assertion that the Professional League Standards serve no procompetitive

ends.

I declare under penalty of perjury that the foregoing is true and correct.

Executed October 16, 2017, at Boston, Massachusetts.

__ _
Steven R. Peterson

90
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Appendix A: Curriculum Vitae


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APPENDIX A
CURRICULUM VITAE

Steven R. Peterson, Ph.D.

OFFICE: Compass Lexecon


200 State Street
9th Floor
Boston, MA 02109
(617) 520-0200 main
(617) 520-0217 direct
speterson@compasslexecon.com

PROFESSIONAL EXPERIENCE

Compass Lexecon
Boston, MA
Executive Vice President, April 2013 present
Senior Vice President, January 2006 March 2013
Managing Director, August 1999 December 2005

The Economics Resource Group, Inc.


Senior Economist, 1992 July 1999
Economist, 1990 1992

Northeastern University, Boston, MA


Adjunct Faculty, 2011-2017

Harvard University, Cambridge, MA


Teaching Fellow, 1989 1990

EDUCATION

Harvard University, Cambridge, MA


Ph.D. in Economics, 1992
Dissertation: Strategic Aspects of Litigation and Settlement

University of California, Davis


A.B., Economics, 1987, Highest Honors
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TESTIMONY AND CONSULTING EXPERIENCE



Radio Music License Committee
In an Arbitration before the Hon. Vaughn Walker, Kenneth R. Feinberg, Esq., and
Lee A. Freeman, Jr., Esq. between: SESAC, Inc., SESAC, LLC, and SESAC
Holdings, Inc., Claimants v. Radio Music License Committee, Respondent, Expert
Report (December 23, 2016). Reply Expert Report (January 23, 2017). Hearing
Testimony (February 23 and March 10, 2017).

Radio Music License Committee


Radio Music License Committee v. Global Music Rights, LLC. in the United
States District Court for the Eastern District of Pennsylvania. Declaration
(November 18, 2016). Declaration (July 21, 2017).

Sanum Investments Limited
In an Arbitration Under the Rules of the Singapore International Arbitration
Centre between: Sanum Investment Limited, Claimant, versus ST Group Co., Ltd.,
Sithat Xaysoulivong, S.T. Vegas Co., Ltd., S.T. Vegas Enterprise Ltd., Xaya
Construction Co., Ltd. and Xaysana Xaysoulivong, Respondents, Witness
Statement, with Joseph P. Kalt and Eric Henson (April 20, 2016).

National Association of Broadcasters and Pandora Media, Inc.


In re: Determination of Royalty Rates and terms for Ephemeral Recording and
Digital Performance of Sound Recordings, before the United States Copyright
Royalty Judges, Library of Congress. Expert Report (February 23, 2015),
Deposition Testimony (March 24, 2015), Hearing Testimony (May 14, 2015).

National Association of Broadcasters


In re: Antitrust Consent Decree Review: American Society of Composers, Authors
and Publishers/Broadcast Music, Inc. Comments on Behalf of the National
Association of Broadcasters (August 6, 2014).

Leidos, Inc.
United States of America v. Leidos, Inc., in the United States District Court for the
District of Columbia. Expert Report (March 28, 2014).

Radio Music License Committee


Radio Music License Committee v. SESAC, Inc., SESAC, LLC, and SESAC
Holdings, Inc. in the United States District Court for the Eastern District of
Pennsylvania. Declaration (November 14, 2013). Deposition (December 4,
2013). Trial Testimony (December 10, 2013).

BJs Wholesale Club, Inc.


Irene Cappalli v. BJs Wholesale Club Inc. in the United States District Court,
District of Rhode Island. Expert Report (March 15, 2012). Deposition (April 27,
2012). Declaration (February 12, 2013).
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National Marine Fisheries Service


Consultant to National Marine Fisheries Service on market power and excessive-
share limits in the Surf Clam and Ocean Quahog fisheries (2010 2011).

Energy Intensive Manufacturers Working Group


Coalition for Responsible Regulation, Inc. et al. v. United States Environmental
Protection Agency, in the United States Court of Appeals for the District of
Columbia Circuit. Declaration (September 14, 2010).

Amex Construction Company, Inc.


ExxonMobil Oil Corporation v. Amex Construction Company, Inc., in the United
States District Court, Northern District of Illinois, Eastern Division. Expert Report
(February 15, 2010). Deposition (March 2, 2010).

Delta Air Lines, Inc.


Consultant to Delta Air Lines on LaGuardia/Reagan National Airport slot swap
with U.S. Airways (2009 2010).

Imperial Credit Industries, Inc.


In re: Imperial Credit Industries, Inc., in the United States Bankruptcy Court,
Central District of California, Santa Ana Division. Rebuttal Report (April 27,
2007). Trial Testimony (May 22, 2008).

Delta Air Lines, Inc.


Consultant to Delta Air Lines on Delta-Northwest merger (2007 October 2008).

Greater Lakeside Corporation


The Higbee Company v. Greater Lakeside Corporation, Causeway LLC of
Delaware, Broadway Management Corporation, and Jeffrey Feil, in the United
States District Court for the Eastern District of Louisiana. Expert Report
(September 18, 2007). Supplemental Expert Report (September 25, 2007).
Deposition (October 19, 2007).

TransCanada Corporation
Consultant to TransCanada Corporation on acquisition of ANR Group (2007).

Exxon Mobil Corporation


JAAM, Inc., d/b/a Tigerland Exxon v. Exxon Mobil Corporation and Mon Valley
Petroleum, Inc., in the United States District Court for the Western District of
Pennsylvania. Expert Report (January 12, 2007).

Finova Capital
In Re: Finova Capital Corporation and Finova Mezzanine Capital, Inc., in the
United States Bankruptcy Court for the District of Delaware. Expert Report (May
19, 2006). Deposition (August 2, 2006).
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Volvo Cars of North America, Inc.


Bay Ridge Volvo American, Inc. et al. v. Volvo Cars of North America, Inc., in the
United States District Court Southern District of New York. Expert Report (June
1, 2005). Deposition (August 17, 2005). Supplemental Expert Report (November
11, 2005).

Israel Electric Corporation, Ltd.


Israel Electric Corporation Ltd. vs. the Public Utilities Authority, the Minister of
National Infrastructures, the Minister of Finance, the Israel Securities Authority
and the Government Corporations Authority (Request for Injunction): In the
Israeli Supreme Court, No. /04, August 2004. Statement (August 30, 2004), with
Joseph P. Kalt and Paul B. Vasington.

Flying J, Inc.
Flying J, Inc. v. Comdata Network, Inc., in the United States District Court of
Utah (Northern Division). Declaration (June 22, 2004). Damages Report (June 22,
2004). Deposition (October 6, 2004). Hearing Testimony (November 19, 2004).

Musicmatch, Inc.
Gracenote, Inc. v. Musicmatch Inc., In the United States District Court Northern
District of California (Oakland Division). Expert Report (February 17, 2004).
Declaration (February 24, 2004). Deposition (March 2004).

Monica Pappas, Bill DeVitt, and Monica Pappas Associates


The Healthcare Financial Group, Inc., v. Monica Pappas DeVitt et al., in the
District Court, Arapahoe County, Colorado. Filed written expert testimony on
lost-profits damages (February 2003).

Ticketmaster Corporation
Evaluated damages from asserted anti-competitive conduct (2003).

Amoco Production Company, Amerada Hess Corporation, and Shell Western E&P, Inc.
Assessed fair market value of CO2 for payment of royalties. Analyzed issues of
market structure of CO2 industry and marketability of CO2 at the well (2002).

American Airlines
Conducted analysis of market structure, capacity additions, and pricing in an
antitrust suit asserting predatory conduct (2001).

For a Mutual Insurance Company


Conducted market research and performed benchmarking analyses to establish
pricing approach and prices for new internet services (2000).

Bass Enterprises Production Company


Assessed fair market rental value of oil-bearing property temporarily taken by the
federal government (2000).
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Boeing Company
Filed declaration of behalf of Boeing Company (Delta Launch Services, Inc.) for
a NASA administrative proceeding regarding release of contract information
under the Freedom of Information Act (2000).

Honeywell, Inc.
Conducted study of damages arising from monopolization in the market for ring
laser gyroscope inertial navigation systems. Conducted analysis of damages
arising from patent infringement (1998).

British Airways, Plc.


Conducted study of the competitive effects of British Airways proposed alliance
with American Airlines. Advised on and assisted with presentations before the
European Commission (1998).

HarperCollins Publishers
Brother Records, Inc., et al., v. HarperCollins Pub. Inc., et. al. Filed written
expert testimony on damages in libel litigation (December 1997).

Northeast Utilities
Before the Federal Energy Regulatory Commission, OA97-237-000, ER 97-1079-
000, and EC97-35-000. Conducted analysis of competition in the New England
generation market. Filed affidavit in support of NUs Answer to Requests to
Reject or Condition Approval of Market-Based Rates (with Frank A. Felder) (July
1997).

McDonnell Douglas Corporation


McDonnell Douglas Corporation v. National Aeronautics and Space
Administration, in the U.S. District Court for the District of Columbia.Filed
affidavit describing how the public release of cost and price information affects
negotiations and competition in markets for launch services (November 1996).

Pennzoil
Before the Federal Energy Regulatory Commission, Docket No, IS95-35-000.
Provided written direct testimony (October 1996) and oral testimony (January
1997) on the cost of capital of oil pipeline facilities.

Pennzoil
Before the Federal Energy Regulatory Commission, Docket No. IS94-37-000 and
Docket No. IS 94-23-000. Provided written direct testimony (April 1995) and oral
testimony (November 1995).

BP Exploration (Alaska) Inc.


Modeled the costs and benefits associated with increased enhanced oil recovery
activities within the Prudhoe Bay Unit (1995).
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1816

Burlington Northern Industries-Santa Fe Pacific Corporation


Performed cost-benefit analysis of the proposed Burlington Northern/Santa Fe
merger. Analyzed the benefits accruing to shippers from expanded single-line
service (1994 1995).

PUBLICATIONS AND RESEARCH

Using Economics to Identify Common Impact in Antitrust Class Certification,


American Bar Association, Section of Antitrust Law, Economics Committee Newsletter,
Vol. 11, No. 1, Spring 2011 (with Andrew Lemon).

Rigorous Analysis to Bridge the Inference Gap in Class Certification (with Andrew
Lemon), Journal of Competition Law and Economics, March 2011.

Oil Price Volatility and Speculation (with Kenneth Grant), The Energy Daily, August
25, 2009.

Understanding Todays Crude Oil and Product Markets (with Kenneth Grant and
David Ownby), American Petroleum Institute, 2006.

Understanding Natural Gas Markets (with Charles Augustine and Bob Broxson),
American Petroleum Institute, 2006.

Regulatory Failure in the California Electricity Crisis (with Charles Augustine), The
Electricity Journal, August/September 2003.

Market Power Analysis in a Dynamic Electric Power Industry (with F. Felder), The
Electricity Journal, April 1997.

Testing the Merits of Providing Customized Risk Management (with Frank A. Felder
and Sarah E. Tobiason), 17th Annual North American Conference of the United States
Association for Energy Economics, International Association for Energy Economics,
October 1996.

Competition Between Regulators and Venue Shopping by Natural Gas Pipelines in


California (with Joseph P. Kalt), 14th Annual Conference of the Advanced Workshop in
Regulation and Public Utility Economics, May 1995.

Environmental Regulation and International Competitiveness: What Does the Evidence


Tell Us? (with Adam B. Jaffe, Paul R. Portney, and Robert N. Stavins), Journal of
Economic Literature, Vol. 33, March 1995.

Implementation of the Core of a Two Person Exchange Economy without Integer


Games or Refinements of Nash Equilibrium (with Simon Grant, Stephen King, and Ben
Polak), Economics Letters, 1992.
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1817

OTHER REPORTS AND PRESENTATIONS

The Economic Impact of Delta Air Lines Seattle Expansion, (with Bryan Keating).
August 14, 2015.

Antitrust Analysis of Aftermarkets, American Bar Association, Section of Antitrust,


2010 Spring Meeting (with Edward Schwartz and Paula Render).

Do Environmental Regulations Impair Competitiveness? A Critical Review of


Economic Studies (with Barry Galef and Kenneth Grant). Prepared by ICF Consulting
Group and The Economics Resource Group, Inc., for the Office of Policy Analysis and
Review, Office of Air and Radiation, U.S. Environmental Protection Agency, September
1995.

Indexing Natural Gas Pipeline Rates (with Amy B. Candell, Joseph P. Kalt, Sheila M.
Lyons, and Stephen Makowka). Explored indexing as a form of Incentive regulation for
natural gas pipelines and created the Pipeline Producer Price Index that could be used to
implement indexing proposals. The Economics Resource Group, Inc., April 1995.

Environmental Regulations and the Competitiveness of U.S. Industry (with A. Jaffe, P.


Portney and R. Stavins), U.S. Department of Commerce, Economics and Statistics
Administration, Washington, DC, NTIS No. PB-93-193514, July 1993.

HONORS AND AWARDS

Jacob K. Javits Fellow, Harvard University, 1987 1991

Phi Beta Kappa, University of California, Davis, 1987


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1818

Appendix B: Materials Considered


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1819

Appendix B: Materials Considered


Legal Filings
1. Complaint, North American Soccer League, LLC, Plaintiff, against United States
Soccer Federation, Inc., Defendant, United States District Court Eastern District
of New York, September 19, 2017;
2. Memorandum of Law in Support of Plaintiffs Motion for a Preliminary Injunction,
North American Soccer League, LLC, Plaintiff, against United States Soccer
Federation, Inc., Defendant, United States District Court Eastern District of New
York, September 20, 2017;
Testimony
3. Oral Testimony of Sunil Gulati, Iain Fraser, et al, Plaintiffs, vs. Major League Soccer,
LLC, Defendants, United States District Court of Massachusetts, October 5, 2000;
4. Oral Testimony of Sunil Gulati, Iain Fraser, et al, Plaintiffs, vs. Major League Soccer,
LLC, Defendants, United States District Court of Massachusetts, October 11,
2000;
5. Oral Testimony of Alan Rothenberg, Iain Fraser, et al, Plaintiffs, vs. Major League
Soccer, LLC, Defendants, United States District Court of Massachusetts, October
30, 2000;
6. Oral Testimony of Alan Rothenberg, Iain Fraser, et al, Plaintiffs, vs. Major League
Soccer, LLC, Defendants, United States District Court of Massachusetts,
November 3, 2000;
Declarations and Expert Reports
7. Expert Declaration of Stefan Szymanski, North American Soccer League, LLC,
Plaintiff, against United States Soccer Federation, Inc., Defendant, United States
District Court Eastern District of New York, September 20, 2017;
8. Declaration of Sunil Gulati, North American Soccer League, LLC, Plaintiff, against
United States Soccer Federation, Inc., Defendant, United States District Court
Eastern District of New York, October 16, 2017;
9. Written evidence submitted by Professor Stefan Szymanski, House of Commons
Football Governance Culture, Media, and Sport Committee, July 29, 2011;
United States Soccer Federation Documents
10. Bylaws of the United States Soccer Federation, May 1, 2017;
11. Bylaws of the United States Soccer Federation, September 1, 2016;
12. USSF Audited Financial Statements, Years ended March 31, 2016 and 2015;
13. USSF Audited Financial Statements, Years ended March 31, 2015 and 2014;
14. US Soccer/SUM Licensing Agent Agreement;
15. US Soccer Mens Professional Outdoor League Standards, adopted May 21, 1995;
16. US Soccer Mens Professional Outdoor League Standards, adopted April 20, 1996;
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17. US Soccer Womens Professional Outdoor League Standards, adopted July 17, 1997;
18. US Soccer Indoor Soccer Professional League Standards, adopted February 12, 2000;
19. United States Soccer Federation Professional League Standards, adopted 2008;
20. United States Soccer Federation Professional League Standards, adopted August 9,
2010;
21. United States Soccer Federation Professional League Standards, adopted May 29,
2012;
22. United States Soccer Federation Professional League Standards, adopted February 28,
2014;
23. United States Soccer Federation Professional League Standards, proposed changes
2015;
24. United States Soccer Federation Board of Directors Meeting Minutes: June 15, 2008;
September 24, 2008; November 22, 2008; February 5, 2010; February 17, 2013;
June 1, 2013; October 11, 2013; December 8, 2013; February 28, 2014; June 1,
2014; October 10, 2014; December 7, 2014; February 13, 2015; May 31, 2015;
July 5, 2015; September 8, 2015; December 6, 2015; January 13, 2016; March 8,
2016; April 28, 2016; May 19, 2016; June 26, 2016; September 23, 2016; October
5, 2016; December 6, 2016; February 9, 2017; March 3, 2017; June 8, 2017; July
26, 2017;
25. US Soccer Board of Directors Meeting Presentation, September 8, 2015;
26. National Council Meeting Draft Minutes: June 2, 2013; March 1, 2014;
27. NASL Compliance with Pro League Standards (Division II Outdoor Mens League)
11/2011, 2012 application;
28. NWSL Proposed Teams Compliance with Pro League Standards (Division I Outdoor
Womens League) 7/2014, application for 2015;
29. NASL Compliance with Pro League Standards (Division II Outdoor Mens League),
application for 2010;
30. USL Compliance with Pro League Standards (Division II Outdoor Mens League),
application for 2010;
31. US Soccer Federation 2000 Strategic Business Plan, Phase I August 2000;
32. US Soccer Federation 2000 Strategic Business Plan, Phase II October 2000;
33. US Soccer Federation Phase III Business Plan, May 11, 2002;
34. US Soccer Federation Phase IV Business Plan, November 2003;
35. Bylaws of the United States Soccer Federation, 2016-2017;
36. Bylaws of the United States Soccer Federation, 2017-2018;
37. United States Soccer Federation Policy Manual, 2000-2001;
38. United States Soccer Federation Policy Manual, 2001-2002;
39. United States Soccer Federation Policy Manual, 2016-2017;
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40. Policy Amendments Passed by USSF Board of Directors Since Last National Council
Meeting, March 10, 2017;
41. United States Soccer Federation Policy Manual, 2017-2018;
42. United States Soccer Federation Policy Concerning Conflicts of Interest and Business
Ethics;
43. US Soccer Federation 2011 Annual General Meeting Booklet;
44. US Soccer Federation 2012 Annual General Meeting Booklet;
45. US Soccer Federation 2013 Annual General Meeting Booklet;
46. US Soccer Federation 2014 Annual General Meeting Booklet;
47. US Soccer Federation 2016 Annual General Meeting Booklet;
Soccer United Marketing Contracts
48. Official Sponsor Agreement between Soccer United Marketing and Allstate Insurance
Company, January 1, 2001;
49. Letter Agreement from SUM to Anheuser-Busch, February 16, 2011;
50. Official Sponsor Agreement between Soccer United Marketing and AT&T Services,
April 8, 2013;
51. Official Sponsor Agreement between Soccer United Marketing and BP Lubricants
USA, January 1, 2012;
52. Official Sponsor Agreement between Soccer United Marketing and Brown-Forman
Corporation, January 1, 2011;
53. Official Sponsor Agreement between Soccer United Marketing and The Coca-Cola
Company, January 1, 2015;
54. Official Sponsor Agreement between Soccer United Marketing and Continental Tire
The Americas, January 1, 2013;
55. Official Sponsor Agreement between Soccer United Marketing and Johnson &
Johnson Consumer Companies, December 1, 2014;
56. Official Sponsor Agreement between Soccer United Marketing and Panasonic
Corporation of North America, October 4, 2011;
57. Official Sponsor Agreement between Soccer United Marketing and Nike, October 22,
1997;
58. Letter of Agreement from SUM to Pepsi-Cola, January 3, 2012;
59. Official Sponsor Agreement between Soccer United Marketing and Tag Heuer,
branch of LVMH Swiss Manufactures SA, March 2016;
60. Official Sponsor Agreement between Soccer United Marketing and VISA, 2011;
61. Letter of Agreement from ESPN to SUM, August 4, 2006;
62. Memorandum of Understanding between SUM and USSF and ESPN, May 2, 2014;
63. Memorandum of Understanding between SUM and USSF and FOX, May 2, 2014;
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64. Memorandum of Understanding between SUM and USSF and Univision, May 2,
2014;
65. Memorandum of Understanding between SUM and NBCUniversal Media, August 10,
2011;
66. Television Rights Agreement between SUM and Univision, August 2006;
National American Soccer League Documents
67. NASL Annual Report 2012;
68. NASL Annual Report 2013;
69. NASL Team Financials 2013;
70. NASL Team Financials 2014;
71. NASL Annual Report 2014;
72. NASL Club Financials 2015;
73. NASL Annual Report 2015;
74. NASL Annual Report 2016;
75. NASL Update to USSF Pro League Standards Task Force, NASL presentation,
December 5, 2015;
76. NASL Application for Division I, for 2016 season, May 2015;
77. NASL Application for Division II for 2011 season;
78. 2015 NASL Non-domestic Players
79. Certificates of NASL Team Holdings, 2009;
80. Certificate of Formation of NASL, 2009;
81. NASL Team Questionnaires, 2010 for Carolina Railhawks, FC Edmonton, Miami FC,
Montreal Impact, Puerto Rico Islanders, FC Tampa Bay Rowdies;
82. NASL Team Compliance Matrix, 2010;
83. NASL Appendum to Application for Membership to United States Soccer Federation,
for 2011 season;
United Soccer League Documents
84. USL Waivers Requested Update 2016;
85. USL Supplement to USSF Annual Report, December 9, 2009;
86. USL PRO 2012 USSF Annual Report;
87. USL PRO 2013 USSF Annual Report;
88. USL PRO Compliance Summary (Post-Season 2012);
89. USL PRO Compliance Summary (Post-Season 2013);
90. USL PRO 2012 League Status Presentation, prepared for US Soccer Federation;
91. USL PRO Prospectus, 2013;
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92. USSF Division II Sanctioning Application, USL, September 3, 2015;


93. USSF Annual Report, USL, November 20, 2015;
Major League Soccer Documents
94. MLS Response to United States Soccer Federation Professional League Standards,
2012;
95. MLS Annual Report to US Soccer, December 2013;
96. MLS Annual Report to US Soccer, November 20, 2015;
97. MLS Response to United States Soccer Federation Professional League Standards,
2013;
98. MLS Response to United States Soccer Federation Professional League Standards,
2015;
99. Major League Soccer 101, June 2017;
Documents from Other Soccer Organizations
100. Alterations in the Articles since January 1912, FIFA, May 24, 1924;
101. Statutes, Regulations, Standing Orders of the FIFA, 1958;
102. FIFA Statutes, April 2016 edition;
103. Bylaws of the United States Olympic Committee, March 9, 2017;
104. UEFA Stadium Infrastructure Regulations, 2010 Edition;
105. FIFA Football Stadiums: Technical recommendations and requirements, 5th Edition;
106. Japan Football Association Stadium Guideline, J-League, 2010;
107. Reglamento General de la Liga Nacional de Ftbol Profesional, La Liga, 2016;
108. Letter from FIFA to Alan Rothenberg, April 13, 1993;
109. English Football League Membership Criteria;
110. Asian Football Confederation Stadium Regulations;
United States Soccer Federation Correspondence
111. Letter from NASL to USSF, May 31, 2015;
112. Letter from NASL to USSF, August 15, 2017;
Academic Literature
113. Franklin Fisher, Christopher Maxwell, and Evan Schouten, The Economics of
Sports Leagues and the Relocation of Teams: The Case of the St. Louis Rams,
Marquette Sports Law Review, Vol. 10, Issue 2 Spring 2000;
114. Franklin Fisher, Christopher Maxwell, and Evan Schouten, The Economics of
Sports Leagues: The Chicago Bulls Case, Marquette Sports Law Review, Vol. 10,
Issue 1 Fall 1999;
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115. Gregor Lentze, The Legal Concept of Professional Sports Leagues: The
Commissioner and an Alternative Approach from a Corporate Perspective,
Marquette Sports Law Review, Vol. 6, Issue 1 Fall 1995;
116. Dennis Carlton, Alan Frankel, and Elisabeth Landes, The Control of Externalities
in Sports Leagues: An Analysis of Restrictions in the National Hockey League,
Journal of Political Economy, Vol. 112, No. 1, 2004;
117. John Jones, The Economics of the National Hockey League, The Canadian
Journal of Economics, February 1969;
118. Jared Bartie, Daniel Etna, and Irwin Kishner, Navigating The Purchase and Sale of
Sports Teams, New York Law Journal, October 26, 2015;
119. Daniel Rascher, Matthew Brown, Mark Nagel, and Chad McEvoy, Where did
National Hockey League fans go during the 2004-2005 lockout? An analysis of
economic competition between leagues, International Journal of Sport
Management and Marketing, 2009;
120. Jason Winfree, Fan substitution and market definition in professional sports
leagues, The Antitrust Bulletin, Vol. 54, No. 4, Winter 2009;
121. Jason Winfree, Jill McClunskey, Ron Mittelhammer, and Rodney Fort, Location
and attendance in major league baseball, Applied Economics, 2004;
122. Brian Mills and Rodney Fort, League-Level Attendance and Outcome Uncertainty
in U.S. Pro Sports Leagues, Economic Inquiry, 2014;
123. Rodney Fort and James Quirk, Cross-Subsidization, Incentives, and Outcomes in
Professional Team Sports Leagues, Journal of Economic Literature, Vol. 33,
1995;
124. Rodney Fort, Inelastic Sports Pricing, Managerial and Decision Economics, 2004;
125. Young Hoon Lee and Rodney Fort, Attendance and the Uncertainty-of-Outcome
Hypothesis in Baseball, Review of Industrial Organization, 2008;
126. Rodney Fort and Jason Winfree, Sports Really are Different: The Contest Success
Function and the Supply of Talent, Review of Industrial Organization, 2009;
127. Rodney Fort, European and North American Sports Differences, Scottish Journal
of Political Economy, Vol. 47, 2000;
128. Roger Noll, Broadcasting and Team Sports, SIEPR Discussion Paper, No. 06-16,
2007;
129. Robert Baade and Richard Dye, The Impact of Stadium and Professional Sports on
Metropolitan Area Development, Growth and Change, Vol. 21, Issue 2, 1990;
130. Robert Baade, Robert Baumann, and Victor Matheson, Selling the Game:
Estimating the Economic Impact of Professional Sports through Taxable Sales,
Southern Economic Journal, 2008;
131. Harrison Campbell, Professional Sports and Urban Development: A Brief Review
of Issues and Studies, The Review of Regional Studies, 1999;
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132. Bruce Johnson, Peter Groothuis, and John Whitehead, The Value of Public Goods
Generated by a Major League Sports Team, Journal of Sports Economics, Vol. 2,
No. 1, 2001;
133. Kaveephong Lertwachara and James Cochran, An Event Study of the Economic
Impact of Professional Sport Franchises on Local U.S. Economies, Journal of
Sports Economics, 2007;
134. Jordan Rappaport and Chad Wilkerson, What Are the Benefits of Hosting a Major
League Sports Franchise? Federal Reserve Bank of Kansas City, 2001;
135. John Siegfried and Andrew Zimbalist, The Economics of Sports Facilities and
Their Communities, The Journal of Economic Perspectives, Vol. 14, No. 3,
2000;
136. John Siegfried and Andrew Zimbalist, A Note on the Local Economic Impact of
Sports Expenditures, Journal of Sports Economics, 2002;
137. John Siegfried and Andrew Zimbalist, The Economic Impact of Sports Facilities,
Teams and Mega-Events, The Australian Economic Review, vol. 39, no. 4, 2006;
138. Donald Alexander and William Kern, The Economic Determinants of Professional
Sports Franchise Values, Journal of Sports Economics, 2004;
139. Brad Humphreys and Michael Mondello, Determinants of Franchise Values in
North American Professional Sports Leagues: Evidence from a Hedonic Price
Model, International Journal of Sport Finances, 2008;
140. Phillip Miller, Private Financing and Sports Franchise Values: The Case of Major
League Baseball, Journal of Sports Economics, 2007;
141. Roger Noll, The Organization of Sports Leagues, SIEPR Discussion Paper, No.
02-43, 2003;
142. Sonia Falconieri, Frederic Palomino, and Jozsef Sakovics, Collective vs. Individual
Sale of TV Rights in League Sports, Edinburgh School of Economics Discussion
Paper Series, No. 85, 2002;
143. Stephen Hall, Stefan Szymanski, and Andrew Zimbalist, Testing Causality
Between Team Performance and Payroll, Journal of Sports Economics, Vol. 3,
No. 2, 2002;
144. John Vrooman, A General Theory of Professional Sports Leagues, Southern
Economic Journal, 1995;
Books
145. Katrien Lefever, Sports/Media Complex in the New Media Landscape, New
Media and Sport, 2012;
146. Stephen Ross and Stefan Szymanski, Antitrust and Inefficient Joint Ventures: Why
Sports Leagues Should Look More Like McDonalds and Less Like the United
Nations, The Comparative Economics of Sport, 2010;
147. Ronald Geskey, Media Planning & Buying in the 21st Century, 2011;
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148. Stephen Dobson and John Goddard, The Economics of Football, Second Edition,
2011;
149. Judith Long, Public/Private Partnerships for Major League Sports Facilities, 2013;
150. Phillip Areeda and Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust
Principles and Their Application, 2017;
151. William Kern, The Economics of Sports, 2000;
152. Rodney Fort, Sports Economics, Third Edition, 2011;
153. Simon Kuper and Stefan Szymanski, Soccernomics, 2014;
154. Wladimir Andreff and Stefan Szymanski, Handbook on the Economics of Sport,
2006;
155. Dennis Carlton and Jeffrey Perloff, Modern Industrial Organization, Third Edition,
2000;
Industry Reports
156. Roger Bell and John Purcell, Over The Line: The Economic Cost of Promotion into
the English Premier League, Vysyble, 2017;
157. High score: Increased game attendance and lucrative media contracts will boost
revenue, IBISWorld Industry Report 71121a: Sport Franchises in the US, May
2015;
Trade Press and Newspaper Articles
158. Kevin Baxter, Mexico's national soccer team finds a great home venue in the
U.S., Los Angeles Times, March 28, 2015;
159. David Hill, MLB History: Owners Prevented from Owning More than One Team,
Fox Sports, June 30, 2017;
160. Brian Quarstad, NASL CEO Aaron Davidson Expressed Continued Optimism in
Receiving Division 2 Sanctioning, IMSoccer News, January 25, 2011;
161. NASL Committed to Securing USSF Sanctioning for 2011, NASL, January 20,
2011;
162. Anthony Crupi, Sports Now Accounts for 37% of Broadcast TV Ad Spending,
AdAge, September 10, 2015;
163. "Behind the MLS Ambition Rankings" Series, Sports Illustrated, March 3-6, 2017;
164. Clay Travis, "How Much Do the NFL and TV Partners Make a Year?," Outkick the
Coverage, March 1, 2017;
165. Mike Prada, "NBA to announce 9-year, $24 billion TV deal with ESPN, Turner,"
SB Nation, October 5, 2014;
166. Christina Settimi, "Baseball Scores $12 Billion In Television Deals," Forbes,
October 2, 2012;
167. Christina Settimi, "The NHL's New Broadcast Deal With Rogers Communications
Signals Canadian Team Expansion," Forbes, November 26, 2013;
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168. Jonathan Tannenwald, "MLS, U.S. Soccer officially announce new TV deal with
ESPN, Fox, Univision," Philly.com, December 13, 2015;
169. Rogers adds baseball TV rights to hockey with wide-ranging MLB deal, The
Toronto Star, January 9, 2014;
170. Maury Brown, How The Deal Between DISH and MLB Helps Pave The Way For
In-Market Streaming, Forbes, April 1, 2015;
171. Daniel Kaplan and Ian Thomas, MLS seeks to buy back stake from Providence,
Sports Business Daily, April 18, 2016;
172. Premier League: Clubs 'risk bankruptcy' with promotion, BBC, October 10, 2017;
173. USL Total Attendance Soars by 33 Percent in 2016, USL, September 28, 2016;
174. Division 2 Professional League to Operate in 2010, USSF, January 7, 2010;
175. NASL Suspends Operation of Atlanta Silverbacks, NASL, January 11, 2016;
176. Kartik Krishnaiyer, Fort Lauderdale Strikers Begin New Chapter with Bill Edwards
Acquisition, The Florida Squeeze, June 20, 2017;
177. Minnesota United FC to join MLS in 2017, debuting at TCF Bank Stadium, MLS,
August 19, 2016;
178. Passionate Montreal named as 19th MLS City, MLS, May 7, 2010;
179. USL Announces Addition of Ottawa Fury FC, USL, October 25, 2016;
180. Esteban Pagn Rivera, Tambalea el futuro de los Islanders, Primera Hora, August
19, 2013;
181. James Poling, NASL to open 2017 season with eight clubs, NewsOK, January 6,
2017;
182. NASL Releases Statement on San Antonio Scorpions, NASL, December 22,
2015;
183. USL Expands with Additions of Tampa Bay Rowdies, Ottawa Fury FC, USL,
October 25, 2016;
184. Kyle Lyttle, Austin pro soccer franchise will roll in 2019 in 5,000 seat COTA
venue, American Statesman, August 9, 2017;
185. Charlotte Eagles to Participate in Premier Development League in 2015, Charlotte
Eagles, 2014;
186. Major League Soccer names Orlando City SC as 21st franchise, set for 2015 debut,
MLS, November 19, 2013;
187. Chris Kivlehan, Dayton Dynamo Look to Tap Into Ohios Soccer Renaissance with
Downtown Stadium Move, Midfield Press, December 2016;
188. Montreal Impact associates with Ottawa Fury FC in the USL, MLS, December 9,
2016;
189. Dave Martinez, USL Pro Announces Discontinuation of FC New York, Empire of
Soccer, November 1, 2012;
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190. Wilmington Hammerheads FC Awarded PDL Franchise, USL PDL, September 19,
2016;
191. USL Pro to see teams fold; MLS to field squads; new team partnership, ODFC
News, November 17, 2013;
192. Doug Pappas, Inside the Major League Rules, Outside the Lines, 2002;
193. Top 20 Professional Sports Leagues Which Failed Miserably (or Hilariously),
Masters in Sports Management, May 20, 2010;
Websites
194. US Soccer (www.ussoccer.com);
195. NFL (www.nfl.com);
196. NHL (www.nhl.com);
197. MLB (www.mlb.com);
198. NBA (www.nba.com);
199. MLS (www.mlssoccer.com);
200. NASL (www.nasl.com);
201. NFL Football Operations (www.operations.nfl.com);
202. ESPN FC (www.espnfc.us);
203. Bloomberg (www.bloomberg.com);
204. NCAA (www.ncaa.org);
205. Transfermarkt (www.transfermarkt.com);
206. MLS team websites;
207. NASL team websites;
208. USL team websites;
Government Publications
209. Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2016, US
Census Bureau, Population Division, March 2017;
210. Horizontal Merger Guidelines, US Department of Justice and the Federal Trade
Commission, August 19, 2010;
211. Video Program Distribution and Cable Television: Current Policy Issues and
Recommendations, US Department of Commerce, June 1988;
Other Documents and Data
212. Nielsen Scarborough 2017 USA+ Release 1, Statista;

And all other materials cited in my Declaration.
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Appendix C: 2017 MLS Team Information



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Appendix C: 2017 MLS Team Information


Team City Stadium Average Attendance Capacity Year Joined
1 Atlanta United FC Atlanta, GA Mercedes Benz Stadium 46,720* 40,000** 2017
2 Chicago Fire Bridgeview, IL Toyota Park 17,368 20,000 1998
3 Colorado Rapids Commerce City, CO Dick's Sporting Goods Park 15,460 18,061 1996
4 Columbus Crew SC Columbus, OH MAPFRE Stadium 15,439 19,968 1996
5 D.C. United Washington, DC RFK Stadium 16,434 19,647** 1996
6 FC Dallas Frisco, TX Toyota Stadium 15,105 16,000 1996
7 Houston Dynamo Houston, TX BBVA Compass Stadium 17,315 22,039 2006
8 LA Galaxy Carson, CA StubHub Center 22,171 27,167 1996
9 Minnesota United FC Minneapolis, MN TCF Bank Stadium 20,537 50,805 2017
10 Montreal Impact Montreal, QC Saputo Stadium 20,006* 20,801 2012
11 New England Revolution Foxborough, MA Gillette Stadium 18,466 20,000** 1996
12 New York City FC New York, NY Yankee Stadium 22458* 28,940** 2015
13 New York Red Bulls Harrison, NJ Red Bull Arena 20,922 25,000 1996
14 Orlando City SC Orlando, FL Orlando City Stadium 25,019 25,500 2015
15 Philadelphia Union Chester, PA Talen Energy Stadium 16,700 18,500 2010
16 Portland Timbers Portland, OR Providence Park 21,144 22,000 2011
17 Real Salt Lake Sandy, UT Rio Tinto Stadium 18,761 21,030 2005
18 San Jose Earthquakes San Jose, CA Avaya Stadium 19,992* 18,000 1996
19 Seattle Sounders FC Seattle, WA CenturyLink Field 43,297 39,419** 2009
20 Sporting Kansas City Kansas City, KS Children's Mercy Park 19,564 18,467** 1996
21 Toronto FC Toronto, ON BMO Field 27,633 30,000** 2007
22 Vancouver Whitecaps FC Vancouver, BC BC Place 21,372 22,120** 2011

Note: (*) Indicates teams which played some home games at a different stadium in 2017.
(**) Indicates stadiums at which capacity is potentially greater.
Average attendance does not include games after October 14, 2017.
Sources: League and team websites; ESPN MLS regular season statistics.