Vivek Kaul: Seven lessons in economics from the IPL auction

There is very little traffic on the street where I live.

The kids who live in the building are in school.

Their mothers, probably done with their chores for the morning, are resting after having a carb-heavy lunch. They’ll get busy again once their kids are back.

The Maharashtra assembly elections are over. The results have been declared. The celebrations have been made: No loudspeakers are on.

And Bob Dylan is singingAbandoned Love,a song that I hadn’t heard before today. It’s a quiet afternoon. I have just finished having breakfast and am thinking about the auction for the Indian Premier League (IPL) twenty-twenty (T20) cricket tournament that happened a few days ago.

On any other day, I would probably have had my version of a carb-heavy lunch by now and would have been taking an afternoon nap. But given the lack of any responsibilities and the usual lack of interest in most things on most days, I woke up at only around 12.30 pm today. And for some reason, I woke up thinking about the IPL auction. The mind works in funny ways.

Now, before I start talking about the IPL auction, it’s important to understand the meaning of two terms: market and auction.

At its most basic level, a market is a place where buyers and sellers meet to exchange goods, services, commodities and currencies. Further, it need not be a physical space, it can be virtual as well, like stock markets are these days.

Most auctions involve a public sale of goods or services or a skill, and the person or the firm bidding the highest price ends up buying the thing being sold. The thing being auctioned can be a piece of land or telecom spectrum or a sportsperson agreeing to play for a team for a certain number of years.

The IPL auction involves 10 teams playing in the T20 tournament bidding for cricket players who will represent them over the next three years. Now, given that the players are being sold through a market auction, there are several lessons in economics that can be learnt.

1) As the IPL auction was being carried out, a lot of people had a problem with the fact that human beings were being sold to the highest bidder. To them, it just didn’t feelmorally right. Well.

What is happening in an auction? Teams are making a bid for cricketers and the entire dynamic is playing out in the public eye. Most markets don’t work like that. Things happen behind the scenes and don’t play out in the public eye, and hence, the moral angle doesn’t really come in. In an auction, we can see how the equilibrium between demand for an asset and its supply is arrived at, through the price at which the asset is bought, and thatpossiblydisturbs us.

Every cricketer starts with a base price. And then teams bid for him. Let’s say a cricketer puts in a minimum base price of ₹30 lakh. One team bids for him at that price. Another team which also wants him in the team bids ₹35 lakh. The original team then ups the bid to ₹40 lakh. And so the auction goes, until no team is willing to offer a higher price for the cricketer. At that price the cricketer is sold to the team offering the highest price. (I know there are complications to this with the right-to-match option that is available to teams, but I am trying to make a larger point here.)

Now, why do teams bid for any cricketer? Because they feel that that cricketer will help them perform well in the IPL andperhaps even help the team win the tournament. Or that the cricketer comes with a certain brand value. This will help fill up the stadium on match days and also attract advertisers, in turn helping the team earn revenue.

The point, for the lack of a better term, right or wrong, is that the teams put a certain value to a certain cricketer. And that analysis/information/thinking/data, whatever you might call it, gets incorporated in the price bid that the team makes for the cricketer. They see value in a cricketer and are ready to pay a price for that player.

Further, the value in a certain cricketer may not just be seen by one team but by multiple teams. How does this information get incorporated in the money that a cricketer can make by playing the IPL tournament? It gets incorporated in the bids that teams make for him. And through these bids the market, right or wrong, arrives at a certain price.

While morally this might not seem right to certain people, an auction in this case is the best way to go about things. The analysis/information/thinking/data of different teams gets factored into the price at which any cricketer is bought. Now, whether that cricketer is worth that price or not, and performs well in the IPL, is a different question altogether.

2) At its heart, economics is the study of scarce resources—like cricketers are. As Thomas Sowell writes inBasic Economics, scarce “means that what everybody wants adds up to more than there is".

So, while hundreds of cricketers register for the IPL auction, the number of cricketers who have the capability to stand out in the tournament are few and far between. Which is why teams chase a cricketer once they have identified his potential and really want him to be in the team. This ensures that auction prices for very few cricketers reach very high levels and what the economists call thewinner’s curse kicks in.

As Richard Thaler writes in Misbehaving—The Making of Behavioural Economics: “When many bidders compete for the same object, the winner of the auction is often the bidder who most overvalues the object being sold."

The history of IPL is littered with such examples. Consider the case of Yuvraj Singh. The left-handed batting all-rounder was purchased for ₹16 crore in 2015 and ₹14 crore in 2014. However, he fell short of delivering value for the hefty price tag. In 2015, his batting average was a modest 19 runs per innings with a strike rate of 118 (meaning, on average he scored 118 runs for every 100 balls he faced, which isn’t really great when it comes to T20 cricket).

A similar scenario unfolded with Chris Morris, the South African bowling all-rounder. Ahead of the 2021 IPL, a fierce bidding war saw the Rajasthan Royals (RR) secure him for an unprecedented ₹16.25 crore, making him the highest-priced player in IPL history at the time.

Despite the hype, Morris delivered a mixed performance. Over 11 matches, he claimed 15 wickets at an average of 25 runs and an economy rate of 9.2 runs per over. His contributions with the bat were underwhelming. Overall, his season was lacklustre and arguably did not justify the massive investment made by RR. And we haven’t heard of him since.

Or take the case of what happened in 2023. The Australian fast bowler Mitchell Starc was bought by the Kolkata Knight Riders (KKR) for a whopping ₹24.75 crore, the most expensive buy in the IPL up until then. Starc had afairly average tournament and took 17 wickets in 14 matches at an average of a little over 26 runs per wicket, which was significantly lower than his T20 bowling average of 19.5 runs per wicket before the tournament had started. The market corrected for this winner’s curse and Starc was bought for ₹11.75 crore by Delhi Capitals for the 2025 season.

The moral of the story, as Thaler puts it, is:“When a team falls in love with a certain player, they’re convinced every other team feels the same way. They rush to outbid everyone else to secure that player."

In this year’s auction, Venkatesh Iyer was bought for ₹23.75 crore by KKR. The team outbid Royal Challengers Bangalore (RCB) in what turned out to be a fierce bidding war. KKR had given up on their captain Shreyas Iyer and also Venkatesh Iyer, both of whom played for the team in 2024. For some reason they wanted Venkatesh Iyer back in the team. And that’s possibly because in domestic cricket, Venkatesh Iyer plays for Madhya Pradesh, a team which has been coached by Chandrakant Pandit, the head coach of KKR. Venkatesh has been a decent IPL player. But is he worth ₹23.75 crore? 2025 will tell us that.

3) Now, the winner’s curse is not limited to famous international cricketers for whom teams end up overpaying. Teams also end up overpaying for unknown potential.
Take the case of Pawan Negi. Before the 2016 season, Delhi Daredevils (now Delhi Capitals) purchased him for ₹8.5 crore. While Negi boasts a strong overall T20 record as a left-arm spinner,his IPL performances were largely unremarkable, except in 2017 when he claimed 16 wickets in 12 matches.

A similar story applies to Murugan Ashwin, who was acquired by Rising Pune Supergiant (a now-defunct team) for ₹4.5 crore before the 2016 season. Like Negi, his performances failed to stand out. Another example is K.C. Cariappa, touted as a mystery spinner. He was bought by Kolkata Knight Riders for ₹2.4 crore in the 2015 auction but struggled to live up to the expectations. Priyansh Arya, who was sold to the Punjab Kings for ₹3.8 crore, is this year’ssurprise pick. Let’s see how he performs in 2025.

Last year’s auctions were also littered with such examples. Chennai Super Kings (CSK) shelled out ₹8.4 crore for Uttar Pradesh batsman Sameer Rizvi, who was being touted as the “right-handed Suresh Raina"—a nod to the legendary left-hander who was a standout performer for CSK in the past.

Meanwhile, Gujarat Titans secured Robin Minz, dubbed “Jharkhand’s Chris Gayle", for ₹3.6 crore. The 21-year-old wicketkeeper-batsman was yet to make his debut for his state team (he has made his debut since).

Another Jharkhand wicketkeeper-batsman, Kumar Kushagra, was snapped up by Delhi Capitals for ₹7.2 crore. Gujarat Titans made a significant investment in Spencer Johnson, a left-arm fast bowler from Australia, purchasing him for ₹10 crore.

There were price corrections for all these cricketers this year. Rizvi was bought for ₹95 lakh. Kushagra and Minz were bought for ₹65 lakh each. Johnson was bought for ₹2.8 crore. Now, this fall in price wasn't necessarily because of a lack of performance. Minz didn’t play the 2024 tournament due to an accident. Kushagra played four matches and got a chance to bat with only a few balls remaining. Rizvi played eight matches but could face only 43 balls in total. Johnson played five matches and took four wickets.

The competition to get into an IPL team is so huge that teams move on from players very quickly. Very rarely does a player keep getting chances over and over again, because there are always newer exciting players coming along and older players keep getting back in the reckoning.

Of course, there are exceptions to any rule. Prithvi Shaw, who wasn’t picked up by any team this year, is an excellent example of this. His exceptional talent ensured that he ended up playing79 IPL matches despite a lacklustre performance over the years. And then there is Arjun Tendulkar: an exception to the rule.

The broader point here is that any market is rarely efficient in the short term, meaning that prices paid for resources are not necessarily what they deserve. But over a period of time marketsusuallyadjust and get their pricing right. The term to mark here isusually.

4) Of course, this does not mean that every relatively unknown talent that teams bet on underperform. Not at all. There are success stories as well. Jasprit Bumrah, Hardik Pandya, Varun Chakravarthy and quite a few others who were relatively unknown players before playing the IPL.

And there is Pravin Tambe, in case you have forgotten about him, dear reader. A player who made his IPL debut at the age of 41 and managed to play four seasons of the tournament, which was a real achievement.

There is a broader point to be made here. As Martin Wolf puts it in a different context inThe Crisis of Democratic Capitalism, economic decision-making encourages “independent trial and error in an environment of fundamental uncertainty". And that’s something which happens in the IPL as well.

Teams try out newer players, newer strategies and newer combinations in the hope that something works and gives them that extra edge. When that something doesn’t work, it usually gets quickly junked and teams move on. This trial and error doesn’t alwaysnecessarily get captured in all the analysis that happens around the tournament.

5) The luck of the draw also plays a very important role in the kind of money that a player ends up getting. This is primarily because each team is allowed to spend ₹120 crore to build a team of 18 to 25 players. So, when a particular player’s name comes up in an auction is very important.

Not surprisingly, the two most expensive players, Rishabh Pant and Shreyas Iyer, were sold on the first day of the auction almost as soon as it started. This is when teams had the maximum amount of money to spend. Of course, players who are likely to be in most demand are also auctioned ahead of others. So, that also makes a difference.

But this leaves less money for the team to buy other players. Or to put it in the words of the Abba song,the winner takes it all. Or what economists like to call the ‘economics of superstars’ is at work. An analysis carried out byThe Times of India suggests that the top three players bought by teams cost a substantial part of a team’s budget.

The Punjab Kings spent 52.4% of their budget in buying its top three players. Lucknow Super Giants (LSG) came in next at 49.2%. The lowest was 37.5% for Delhi Capitals. Punjab Kings bought Shreyas Iyer at ₹26.75 crore, IPL’s second-most expensive purchase. And LSG bought Rishabh Pant for ₹27 crore, IPL’s most expensive purchase.

As Alan B. Krueger writes inRockonomics—How the Music Industry Can Explain the Modern Economy: “Small differences in talent can generate large differences in economic rewards." And that’s why the ‘economics of superstars’ exists. The hope in 2025 is that Pant and Iyer can achieve what most others won’t be able to. Iyer was the captain of KKR, which won the tournament in 2024. And Pant is a once-in-a-generation player.

6) This, I think, is the most interesting point of the points that I will end up making in this piece. The IPL teams had an option of retaining a certain number of players. And these players were assured a certain amount of money. They were not a part of the auction.

Let’s take the example of Jasprit Bumrah, the world’s best fast bowler across different formats. He was retained by Mumbai Indians for ₹18 crore. Now, compare this with Yuzvendra Chahal, a very good leg-spinner, whose best days areperhaps behind him if his performance in the 2024 tournament is anything to go by. He was bought for ₹18 crore by Punjab Kings.

In which world is this fair? Bumrah is a much bigger brand. Being a brand is also very important in the IPL. If Virat Kohli wasn’t associated with RCB, how many fans would the team reallyhave? On the whole, Bumrah is also clearly a better bowler, though it has to be said that Chahal has been a gun bowler in the IPL.

There are two points that come to mind. First, Bumrah was able to lock in a price. He did not have to go through the risk of going through an auction, where there are many dynamics at play. In that sense, Bumrah was able to lock in areasonably high price and thus lower his risk.

Second, luck always plays an important role in superstar markets. If that wasn’t the case then Washington Sundar, whose India career has been revived by the new coach Gautam Gambhir, wouldn’t have been sold for just ₹3.2 crore, and Priyansh Arya, a more or less unknown player who has next to no experience at the top level, wouldn’t have gone for ₹3.8 crore.

The point being that while talent is important, the ability of teams to judge talent is often not 100% right. As Krueger writes: “Talent is often hard to judge and predict, luck also plays a significant role in determining winners in superstar markets. Luck refers to the myriad random factors and chance occurrences that can lead one person to rise to the top and another, equally talented person to fall behind."

In Bumrah’s case, luck has another role to play. Bumrah is a part of Mumbai Indians (MI), a team full of superstars. MI retained four other players: Rohit Sharma, Suryakumar Yadav, Hardik Pandya, and Tilak Varma. These players were also paid high amounts, in the process limiting the money that could be possibly paid to Bumrah. Do remember that there is a cap on the total amount of money that every team can spend.

6) Batters cost more than bowlers.The Times of India analysis referred to earlier suggests that, on average, a batter cost ₹6.3 crore, whereas a bowler cost ₹4.8 crore. The reason for this is simple. A bowler can only bowl a maximum of four overs. A batter can bat for all the 20 overs. In that sense, the time that a batter has to make an impact in a match is higher. An asset that can be used more is likely to be more valuable. Also, most people come to watch fours and sixes hit in a T20 match, and not bowlers take wickets.

7) This is another interesting point. If you followed all the analysis on all the conventional news media outlets during the IPL auction, and the cricketers who appeared as experts, then all the teams ended up buying the best players: The players they wanted. This stems from the fact that there is amarket for lies. Plus, these former players, other than being speaking experts on the game, are also looking for an IPL gig where they can possibly be paid higher, and, more importantly, be in direct touch with the game they loved playing. This will add to their market value more in the years to come than just being a talking head. Hence, almost no former player called out any deficiencies in any team.

I guess that’s all I wanted to say about the IPL auction. It’s around 4.35pm now.

It’s still nice and quiet. The traffic will soon hit the roads. And the children in the building I live in will be running up and down the corridors. The mothers will be shouting to each other from across floors, discussing their routine for the day gone by and pulling down the clothes they had hung to dry out after washing.

And in all this noise, Bob Dylan willstillbe singing: “I want you so bad". A song I have heard hundreds of times before.