Home >Industry >Media >IPL auction: The factors in play

On 12 and 13 February, 514 players will participate in the Indian Premier League (IPL) auction for the next three editions of the league, starting this year. The teams will pick 192 of them, spending an aggregate 274.5 crore (this is the amount left in their purses after retaining up to five players).

The first thing to note about the IPL auction is that from the point of view of a player, it is a zero sum game. The total annual salary of the 216 (27 players each in eight teams) players is capped at 480 crore ( 60 crore per team), so if there is a protracted bidding battle for a particular player, leading to a high price, it means the players coming after him in the auction will have to collectively do with less.

For the retained players, the teams have had a fixed amount docked from their salary quota, irrespective of the salary they negotiate with these players. So Mumbai Indians and Chennai Super Kings, who have each retained five players, only have 21 crore of their total purse of 60 crore left. Rajasthan Royals, who have also retained five players, have 22.5 crore to play with, as some of the players they retained fall under the so-called “uncapped" category comprising those who have not played any international cricket for their countries, and also those from the so-called associate members of the International Cricket Council.

The most interesting aspect of the auction will be how the 274.5 crore that is left in the teams’ purses will be distributed between the 192 players that need to be recruited. Also of interest will be the identity of these 192 players.

Two things set this IPL auction apart from the earlier versions—firstly, the currency is Indian rupees (earlier auctions were in US dollars), presumably to insulate the teams from any sharp fall in the rupee. Secondly, earlier, the salaries for uncapped Indian players were fixed, and teams had to negotiate with these players outside of the auctions. For the first time, these players have been brought into the auction, which might help them realize their market value. As a consequence, the amount available for capped Indian and foreign players could come down.

In the previous major auction in 2011, each team bought an average of fourteen players, choosing to build the rest of their squads from players not part of the auction (mostly uncapped Indian players). Rajasthan Royals, for example, bought only eight players at the auction (including the two they retained). This time around, each team will need to build its full squad from the auction.

In 2011, teams spent anywhere between 60% and 90% of their auction budgets on recruiting their five best paid players. If we were to assume that each of the uncapped players was paid $50,000 (the maximum possible payment as per then rules) and each team had a squad of 27 players, then the amount spent on the top five players varies between 60% (Kochi Tuskers) and 77% (Rajasthan Royals). We can use these numbers to analyse how teams will spend their money in the auction this week.

Based on the last auction’s price points can we predict the price points at which players will be sold at this auction? We can take a stab at this. For example, we know that the top player in the last auction went for 2.8% of the total available budget. The top two players cumulatively went for 5.3% of the total budget. The top ten players went for 23% of the total budget, and so forth. Can we translate this to this year’s auction, taking into account the players retained in the auctions, and the fact that there are only eight teams?

In the last auction, with 10 teams and assuming a squad of 27 per team, one player constituted 1/270 of all chosen players. This time round, one player constitutes 1/216. Hence, if the top player got 2.8% of the budget the last time, this time the top player should get 2.8% * 270/216= 3.5% of the total budget. This would translate to about 16.8 crore. We are not saying that someone will go for exactly that amount, but based on last time’s distribution it is likely that someone will go for that much.

Using this formula, and taking into account the nominal values of the players retained, it is likely that three players will be sold for over 12.5 crore, the amount a franchise has to pay to retain their top player according to IPL rules. The top 12 players (which includes seven of those retained by their franchises; only seven teams retained players) will between them garner 150 crore, and the top 20 players (including 13 of those retained) will collectively go for 215 crore. The top 30 players will go for 288 crore. Note that we can only predict at the aggregate levels using this formula, and can’t pinpoint who the players will be that will get the above valuations.

Finally, let us look at the factors that teams need to take into account while deciding how much to bid for a player:

1.Nationality: At least 16 of the 27 members of each squad need to be Indians. At least seven out of the playing 11 need to be Indians. Hence, if you have an Indian and a foreigner of similar skills, this means that the former should go for a much higher fee than the latter.

2. First team versus back-up players: While building the team during the auction, it is important for teams to know who their first team players are going to be, and who are going to be their backup players. While it helps to have good bench strength, knowing whether a particular player is going to be a first choice pick will enable the team to put an appropriate premium.

3.Competing commitments: If a player misses a portion of the IPL due to competing international commitments, he is paid by his team on a pro rata basis. However, the full season’s salary is taken into account while calculating the team’s salary cap. Hence, any player who is likely to have international commitments during the next three IPLs should go for a discount. Since the situation at ICC is unclear, we do not know the next two years’ schedules.

All we can say is that players from the English and Sri Lankan Test teams are likely to go for a discount. In fact, recognizing this, former Sri Lankan captain Kumar Sangakkara has withdrawn from this year’s auctions, hoping to get a better deal next year.

4. Squad balance: Teams are used to thinking in terms of traditional cricketing classifications such as “fast bowler" or “middle order batsman". In their pursuit for fast bowlers at the last IPL auction, Royal Challengers Bangalore ended up loading themselves with several fast bowlers of a similar nature—great in the opening overs but lousy at the “death" (Vinay Kumar, R.P. Singh, Jaydev Unadkat, Pankaj Singh, Abhimanyu Mithun), thus rendering their team unbalanced. Teams would do well to avoid similar mistakes this auction.

5.There is no room for Moneyball: Moneyball is the concept made famous by the Michael Lewis book (recently made into a movie starring Brad Pitt) of the same name, describing the effort by the Oakland A’s to craft a team of undervalued players in order to take on teams with much bigger budgets.

The structure of the IPL auction, though, means that it will be difficult, if not impossible, for teams to go after players otherwise undervalued. Take for example Karnataka opener Mayank Agarwal, who had a fantastic season last year for the Royal Challengers Bangalore. Given that he is otherwise little known, some team might try to get him for a low price.

However, given the open outcry nature of the auction, if this team decides to enter the bidding for Agarwal, they are likely to flag off to the other teams that they see some value in him that the others don’t. And this can end in a bidding war for Agarwal till the point where he is no longer undervalued.

6. Total budget left: It isn’t just how much money a particular team has left that matters, but the total budget left across all teams. If you simply think of it in terms of a certain number of rupees left to buy a certain number of players, you will notice that the lesser the total budget available is (for a given number of players remaining), the lower will be the average price of each player.

So if one team ends up over-paying for one particular player, not only does it end up eating into its own purse, it also results in the valuation of players yet to be auctioned to drop.

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