The IPL Auction: A response
Written by Anisha // January 12, 2011 // Sport // 10 Comments
Effective auction strategy
This post is a response to Arghya’s very entertaining rant against the IPL auction that was conducted last week. His excellent post brings together two of my favourite subjects: the economics of sports leagues and the inadequacies of the IPL/BCCI.
While I’m only too happy to join in any bashing of the crass exhibitionism displayed by the IPL, I’m not sure I agree with everything that Arghya has said. First, he notes that auctions can end up disgracing players who are old, over-the-hill has-beens who are well past their prime. But surely all such players face some form of gradual disgracing no matter which sport they play (barring those who sensibly and gracefully retire). In the English football set-up, Ganguly might be let go on a free transfer to Wigan. Surely that is just as much a fall in a different format, or, more importantly, is certainly perceived to be so?
Second, Arghya points out that the use of the auction format is unique to the IPL. This is true. So why did the IPL pick the auction format? The answer to this question cuts to the heart of the most important issue of league design: how do leagues maximise revenues? It is widely accepted that one of the biggest drivers of league revenue is balanced competition within the league. All things remaining constant, a more evenly balanced and competitive league will earn higher revenues than a skewed league. In most sports – particularly the most important American sports of football and basketball – this effectively means that revenue will be maximised by an equitable distribution of talent. Exceptional players can really make a difference to a team’s fortunes, so it becomes important to ensure that a handful of teams do not manage to grab all the top players. Typically, this is very hard to do. In the absense of a strong controlling central authority, each club will tend to over-consume talent, because it fails to take into account the negative externality imposed on the league as a whole if it goes out and grabs too many top-rated players. For example, it’s absurd to imagine Real Madrid agreeing that Ronaldo ought to be loaned out to Malaga because talent in La Liga should be more equitably distributed. Since it becomes unrealistic to depend on the clubs themselves to allocate players efficiently, rules are laid down by a central organising authority. Transfer windows are a crucial aspect of allowing intra-league redistributions of talent. The short-term loan of players is another. Salary caps have been contested legally but also form an important part of ensuring that one rich club is restrained from bidding away all the good players by offering higher returns. American leagues also use a reverse draft system where the weakest clubs or franchises are allowed to pick uncapped players straight out of college before the top teams can enter.
Despite all these attempts, it’s very difficult to enforce a ideal distribution of talent. American sport commentators continually bemoan the domination of “big-city” teams. European football takes this domination to another extreme. Only one of two or maybe three clubs can realistically win the top football leagues in Spain, Italy or Germany. England recently got slightly democratic because of huge cash injections by foreign investors and owners but even the English Premier League has only seen three unique winners in the last 15 years. If you look beyond the sometimes intense three-way competition for the top spot, leagues become incredibly one-sided and monotonous. In true ultra-capitalist style, the richest teams grab the best players and stockpile talent. Players from Portugal, Russia and South America join Man Utd and Chelsea and Real Madrid loudly proclaiming that they’ve never wanted to play for anybody else but mostly because they’ve been lured away by sensational earnings and the sheer ego-massaging associated with a ridiculously large transfer fee. Weaker teams fall into vicious cycles bleeding good players, revenue and league table positions. Or else, they remain mired in mid-table mediocrity.
Against this background, the IPL is startlingly different and a lot more democratic. It’s not hard to see why: unlike in other leagues, there is an exceptionally powerful central organiser at the head of this one. The franchises are bullied into submission by the BCCI which runs the IPL like its own personal fiefdom replete with a discretionary “relegation system“. A big part of the democratic talent distribution in the IPL is the auction. Each team can start over again every season, no matter how bad they were the year before. So the auction ensures evenly balanced teams and the evenly balanced league is a big positive on the revenue maximisation front. It would seem that the talent allocation mechanism is actually very efficient. Maybe Lalit Modi isn’t a complete buffoon after all.
Except, there is, of course, one other source of value to a sports club: a loyal fan-base. Europe and even America has invested in its fans for years, building strong links with ordinary people who turn up week after week to watch matches and cheer their teams on, no matter how desperate their standing. The idea of throwing out an entire squad of players every year is unthinkable because fans have strong associations with a team, not just its brand. The stadium gets large investments as well because it is a natural home to these thousands of die-hard supporters. The love and support for a club gets passed down through generations from parent to child and is sustained even through the worst financial crisis in decades. Not only is this “fans forever” story truly heart-warming stuff for all sports fans, the model of developing a fan base is also a viable and sensible long-term source of revenue.
Corporate India, of course, doesn’t get it. Who cares about investments that take years to reap returns, no matter how rich. Who in India cares about long-term horizons when there’s a massive pile of cash to be made in a two-day auction? Who in India cares to go through the trouble of valuing committment and passion – even though these are real and tangible things – when you can easily re-engineer valuations in brands – even though these brands are airy-fairy accounting constructions with a lot of hype and little meaning? The business model of the IPL franchises seems to be driven by a single-minded focus on investing in short-term brand enhancement because the owners are already looking ahead to the point when they cash in their chips and celebrate huge gains. This precludes investing in stadiums and people.
So, I agree with Alok. The people who are screwed over by the IPL auction aren’t over-the-hill players approaching forty who can’t bear to exclude themselves from an opportunity to rake in some more cash. The real losers are us: the fans. With this regular churning of players, my only connection to my supposed team, KKR, is Shah Rukh Khan (and given I despise his movies, that really doesn’t leave me with a lot). The quality of most of our stadiums is terrible considering how much money the IPL reportedly earns. No IPL franchise wants to actually invest in a stadium (our most recently revamped stadiums are Nagpur, Ahmedabad and DY Patil, none of which is home to an IPL team). At least a Kumble can withdraw himself from the impending disgrace of an auction. The fans have to continue to tamely watch whatever crap the BCCI dishes out because we love the darned sport and get exploited for it.
10 Comments on "The IPL Auction: A response"
Terrific post Anisha.
While it is true that a lot of us find the IPL Auction process repulsive, few of us think of what a good solution can be and the reality is that the auction does contribute towards building a more competitive league. Even Rahul Dravid, when asked, supported the idea of an auction, merely for this reason
Don’t you think that a middle ground is possible. Like, for example, if the IPL decides to start afresh – annul all player contracts; everyone goes into the pool such that there is no difference between the domestic and international “stars” and the auction is scrapped.
Now any franchise can buy anyone, the condition being that they cannot more spend than X amount of money (on purchasing the entire squad). It might be hard to keep track of funds and underhand dealings, but surely given the money that the BCCI has, a team could be employed to scrutinise transactions. Do you think this can work?
Or secondly, the auction could happen, but then the player can take the final call about joining 1 of the, say, top 3 bidders – so someone like say a Yuvraj Singh would choose Punjab over Pune, even if Pune is the top bidder, because he identifies with the fan base in his home state
So let me ask you, if the IPL is disbanded tomorrow and you are approached to come up with a fair, sustainable and respectable system of player allotment (consider that money is no constraint here), how would you go about it?
And yes, you’re so right about the fans suffering relentlessly. if you think your link to KKR via SRK is bad, spare a thought for me – one of the only permanent fixtures in the DC outfit is its owner, Gayathri Reddy. She is who I must identify strongly with when I sit down to watch a Deccan Charger’s IPL game over a drink in New Delhi. And to think that I so strongly dislike that ridiculous newspaper. Alas, what has Indian cricket come to.
Hey Daanish, thanks for your comment! You’ve kind of put me on the spot, now. Here’s what I think…
What I hate most about the current system is the fact that teams are mercilessly dissolved overnight between seasons. This doesn’t work for me. The franchises must start to sign contracts directly with their players rather than through the BCCI. Outstanding players can be offered longer contracts, say 3 seasons, while more risky acquisitions can be offered shorter contracts.
Outside of these contracts, there should be a healthy transfer system between teams. Whether or not contracts have run out, teams should be able to transfer players to each other at negotiated prices. This can take place between seasons during a designated transfer window period. Players whose contracts have been completed can also be let go.
After the transfer window, those players that have no contracts and have been let go, those who are uncapped Indians and those who are foreign newcomers who want to join the IPL can then sign up for the auction. This completely reverses the current paradigm of auctioning big name players who already play the IPL and then buying outright the uncapped players. “Price discovery” through an auction could be so much more enlightening with newcomers and relatively unknown talent than the ridiculous hyping that takes place with established players ie Dan Christian’s auction was way more interesting than Gautam Gambhir’s.
What I’ve described is basically a combination of the US rookie drafts and European-style transfers, with an auction thrown in. The problem with Europe is that the leagues tend to be very unequal with a few rich clubs and plenty of struggling ones. The IPL, though, is quite different: it has a strong central authority in the BCCI which can prescribe strict rules on how much money franchises can spend and set up a monitoring system like you described to check abuse. Alternatively, they can just use their arbitrary “base price list” to calculate the “value” of each squad and enforce a cap on the total value.
Ultimately, we will have teams we can truly associate with as opposed to the Gayathri Reddys and Nita Ambanis of the world.
Or the Shahrukh Khans?
Met a white South African girl at one of the India-SA ODIs who was wearing a KKR jersey. Can’t really underestimate the (inexplicable) SRK charisma.
One swallow doesn’t make a summer. For my part, I’m using my jersey as a rag to clean my sink. Getting it back to its rightful place. Ask your South African girl whether she wants another one to feed her SRK charisma. Or anyone else who feels similarly disposed towards him. Will be more than happy to fedex it.
And I thought you were a Shah Rukh fan! This must have something to do with poor old dada
This solution of yours seems close to the ideal situation.
There is unfortunately one problem and this emergence of new teams every now and then. All teams had to be dissolved and an auction held because there were two new teams in the fray- Kochi and Pune. Given that cricket is only played in a fewer countries, there are a very limited number of players on offer. And given that the best ones were already part of the 8 IPL teams, it was unfair playing field for the two new IPL teams
Hence the dissolution had to happen and then the auction
What you have proposed could happen, perhaps in the future. But given that BCCI is always going to launch new teams, I don’t know how this will work.
On a lighter note,
SRK’s (inexplicable) fan following is unbelievable. Like him or not, one cannot deny his truly global super star status. On a recent field visit in the Purnea district of Bihar, we were piloting some tools for a Mother’s Literacy research study in a village. On a GK test, most women could recognize Shahrukh Khan, followed by Sachin Tendulkar, Mahatma Gandhi (who was simply “the man on the note” for most women). No one recognized Nitish Kumar! Incredible results
Arghya, atleast you know that things aren’t as bad as they could be. I mean, atleast KKR won’t be wearing the Lux Cozi crest on their hearts as they enter the field of play
PS: Guys, can you set up a system where if a post is commented on, a person who is a commentator on that same post receives an email notification. I thought that was the purpose of entering one’s email address in the first place. Its just more convenient!
Thanks, Daanish. Agreed, the introduction of new teams necessitated the auction. In my opinion, though, the introduction of new teams is itself the outcome of his desperate urge to rake in the chips while the going is good. This is a subjective view, of course, but the tournament is already so mind-numbingly long and boring that I shudder to think of this year’s edition.
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