You recently testified in a high-profile antitrust lawsuit brought by NBA icon Michael Jordan against NASCAR. What was it about?
NASCAR is the governing body for premier stock car racing. It organizes a regular season of 36 races followed by a series of final races that determine the winner of the Cup Series Championship. The core issue was whether NASCAR engaged in anticompetitive conduct that harmed stock car racing teams that participate in the competitions.
Interestingly, the teams are independent contractors that operate under time-limited charter agreements with NASCAR. The last charter was set to expire at the end of 2024. As the season was ending, NASCAR presented team owners with a take-it-or-leave-it offer with a deadline of midnight on September 6, 2024. Not signing meant that the teams would not be able to compete in the 2025 season. But signing meant that the teams had to agree to a provision whereby they couldn’t bring an antitrust claim.
NASCAR owns a large number of the venues and has exclusive contracts with many they don’t own. And it required that all the teams invest in cars that embodied ‘Next Gen’ technology—which NASCAR controls through patents and IP.
Thirteen teams signed. Two teams, 23XI Racing—co-owned by Michael Jordan—and Front Row Motorsports, did not sign, and they subsequently brought a private antitrust lawsuit against NASCAR. They alleged that NASCAR had gained control over race venues, the equipment, and the teams themselves. The result, they alleged, was that NASCAR virtually eliminated opportunities for the teams to supply their services outside of NASCAR.
How did you come to testify?
I was contacted by Jeffrey Kessler, the lawyer representing Michael Jordan and the other plaintiffs. Mr. Kessler is a famous antitrust litigator who was part of bringing free agency to the NFL and loosening the NCAA’s control over student athletes.
I got to know Mr. Kessler when I served as an expert in what is commonly referred to as Deflategate, the 2015 controversy over whether Tom Brady, then quarterback of the New England Patriots, had organized an effort to deflate footballs below the level that was allowed in a game against the Indianapolis Colts.
We hadn’t been in contact for years, but Mr. Kessler reached out to see if I was available. I had heard about the NASCAR lawsuit and thought the plaintiffs had a strong case. After learning more, I said yes.
Why did you think the plaintiffs had a strong case?
The key thing for me was the tracks. These huge tracks and related infrastructure are what economists refer to as specialized assets. Compared to the number of arenas that could host elite basketball or stadiums for football or even Formula One racing sites, there are many fewer tracks that are suitable for premier stock car racing. NASCAR both owns a large number of the venues and has exclusive contracts with many they don’t own. The result is that there are not enough non-NASCAR venues to allow a rival league or association to enter.
In addition, NASCAR put controls on the cars. Rather than setting parameters that teams could meet with their own ingenuity, NASCAR required that all the teams invest in cars that embodied “Next Gen” technology—which NASCAR controls through patents and IP.
That makes it harder for teams to join a rival league. Once the teams invest in building the cars, the drivers and the pit crews become knowledgeable about the equipment—there’s a learning curve associated with that—the teams would incur a lot of costs to race outside of NASCAR. To me, that’s NASCAR exerting monopoly power—or more precisely, monopsony, which is monopoly power on the buy side, since NASCAR purchases the services of the teams.
What was your role in the lawsuit?
Prior to the trial, I wrote three reports and was deposed for nine hours. When the case went to trial, I testified on liability and damage on days six and seven.
As part of my testimony, I presented industry analysis of not only NASCAR, but other U.S. sports. I explained that provided that the three key inputs are available—venues, equipment, and teams—then entry by competitors is possible.
Entry isn’t a common phenomenon in sports, but if you take a longer view, entry does happen. In my lifetime, the American Football League entered professional football as a rival to the NFL in 1960. And the American Basketball Association entered professional men’s basketball in 1967. More recently we saw the Saudi Arabia-backed LIV golf tour enter and compete with the PGA. NASCAR, by contrast, has not experienced any entry in 70 years.
Nobody has done a systematic study of how entry benefits teams and players. But there was a lot of anecdotal evidence that supports the idea that competition is good for both the teams and the players. For example, after LIV started to bid away star golfers, the PGA responded with increased compensation. That’s also what is happening now with potential entry into women’s professional basketball.
How did you determine damages?
One method is to look at a “before” period and compare economic outcomes before the conduct was in place and after. The other approach is to find a benchmark industry that can serve as a comparison. Since there wasn’t data available to do a “before” comparison in this case, I considered eight other sports industries to find a benchmark. No benchmark is perfect, but I found that Formula One was a good option.
I determined damages by comparing the percentage of league revenue going to the teams. It was substantially higher for Formula One than NASCAR—45% versus about 25%. The revenue going to teams was even higher in other sports, including baseball and MLS soccer, but overall Formula One was the better comparison.
What number did you come to for monetary damages?
The damages had two components. How much more would the teams have received during the three-year damages period? And how much higher would the market value of the teams have been? Calculating that, the total damages to the two teams was $364.7 million.
I should note that with private antitrust enforcement, if plaintiffs win, then damages are trebled and defendants pay the plaintiffs’ legal fees. So, if the jury had found NASCAR liable for $364.7 million in damages, the association would’ve been required to pay over $1 billion. I believe I presented a solid argument that strengthened the plaintiffs’ case. In addition, NASCAR made what I considered a critical mistake: they didn’t present an alternative damages amount. So, the jury was going to have to choose between $364.7 million or zero. They had no basis for anything in between.
NASCAR claimed it was impossible to increase payments to the teams. One of their experts had claimed that paying competitive rates would put NASCAR out of business. That wasn’t a plausible argument. NASCAR has a great balance sheet, a great credit rating, very little debt, and a $7.7 billion media rights agreement.
The case was settled before the trial finished. Why do you think that happened?
I think there were a lot of reasons why the case settled, but certainly one was that the defendants were looking at the possibility of a billion-dollar award plus paying the legal fees for the two teams. And, as I observed the trial, the jury was not buying NASCAR’s defense. The parties settled on the ninth day of the trial.
Over my 40-plus years testifying in cases, this was particularly enjoyable because it was such a high-profile case. NASCAR’s fans are so committed. And of course the presence and role of Mr. Jordan made it a thrill. He was in the courtroom every day. His entries and exits were well covered. He’s a charismatic figure. It was clear that he was absorbing the whole dynamic of the courtroom. I was such a fan of what he did in the athletic domain. It was impressive to see that he was so commanding in an entirely different arena.
Did you interact with him?
I did. We chatted a little bit before I testified. I told him that I’d been a graduate student at University of Chicago during his ascendancy with the Chicago Bulls. After I testified, we had a meaningful conversation. I asked how the Bulls got over the hump to beat the Detroit Pistons in 1991 after having lost to them in the playoffs in the previous three years.
What went into the settlement of the NASCAR lawsuit?
The details of the settlement have not been released. But what we do know indicates that Michael Jordan was in this for the whole sport, not just for himself and his co-plaintiffs.
As a result of the settlement, all of the teams will shift from time-limited charters to permanent charters. That’s a big deal because time-limited charters really hurt sponsorship options. Both teams and sponsors want a long horizon for plans and investments in building the brands.
Non-permanent charters also made it more difficult to recruit drivers. And most importantly, if charters are time-limited, NASCAR has the ability to say, sorry, you’re out or we’re going to go in a different direction.
My back-of-the-envelope estimate of the value of switching to permanent charters is about $60 million per car. The two plaintiffs had six cars between them. That’s a lot of added value. But the other 13 team owners collectively have 30 cars. So, while 23XI Racing and Front Row Motorsports took the risk in bringing the lawsuit, most of the benefits from the shift to permanent status went to the other team owners.
We also know another dimension to the settlement is that NASCAR will increase the guaranteed payments to the cars. To what level hasn’t been disclosed, but that’s another large aggregate benefit, and most of it goes to non-plaintiffs.
Clearly there was a lot at stake for the teams and their owners. How about for fans?
Anti-competitive conduct is bad for fans. There was a lot of churn among NASCAR teams. And to clarify, I’m not talking about changes in ownership. That happens all the time in sports. But NASCAR teams were going out of business. In fact, there was a striking case where the team that won the 2017 Cup Championship went out of business a year later. The financial difficulties of many of these exiting teams were well known. The result was the team identity would end—the number, the driver, all of that. The relationship between the teams and the fans is stronger in an environment where teams endure.
Are there lessons from this NASCAR lawsuit that are applicable outside of sports?
I don’t know if it has direct implications for other cases, but it’s part of a greater focus on monopsony. The Biden administration initiated a policy that placed emphasis on monopsony power in labor markets. There’s been high-profile academic writing about it, including in the Harvard Law Review. And there have been several major cases around claims of the exercise of monopsony power and harm to employees.
You have provided expert testimony in more than 30 cases. What drew you to that role?
I should note that most of the time, I provided deposition testimony. Not many cases involve testifying in court.
Antitrust policy and enforcement has been a life-long interest. Between my master’s and PhD, I worked for the antitrust division of the Department of Justice for a number of years. I really enjoyed it. Antitrust cases involve applications of economics where it’s not obvious how to go about finding an answer. And the cases, like the NASCAR case, are consequential. I like grappling with how to present the ideas in a report and the verbal sparring that is part of litigation.
During the time I was a business school dean at Virginia, Chicago, and Yale, I continued to do academic research, but providing testimony was another way to stay connected with economics. And with each case I learned a lot about a specific industry. Over time that made me a better dean. I could relate to students going into those fields. I could talk with senior executives about their industries.
You mentioned that you testified in Deflategate. What was the setting and was there an economic issue involved?
I testified at an arbitration hearing requested by the NFL Players Association to contest the NFL’s decision to suspend Tom Brady for four games.
There was no economic issue, just the question of whether the data used by the NFL to demonstrate that the footballs used by the Patriots when they were on offense had been deflated. I presented a statistical technique called difference-in-difference analysis. I corrected for the fact that the Patriots footballs were tested before the Colts footballs. Given that the footballs were brought from the cold into a warm locker room, the timing mattered. The NFL hadn’t accounted for that factor. My bottom line was that the NFL’s findings couldn’t be relied on.
Roger Goodell, the NFL commissioner, presided over the 10-hour hearing. I sat through the whole thing. Except for the time when I testified, I sat right behind Brady. He maintained perfect posture for the whole day. No phone, no texting, no fidgeting, just 100% focused on what was going on. After I testified, Brady thanked me and like Jordan, he exuded charisma, leadership, something that makes you want to do your best.
Of all the cases I’ve been involved with, these two stand out. If anyone had ever asked which two exceptional athletes I’d want to meet, my answer would have been Tom Brady and Michael Jordan.
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