Putting the ‘free’ in markets

I noticed two friends, Anand Ramachandran and Harsha Bhogle, in animated discussion on Twitter this morning. The crux appeared to be that Anand was critical of some of the IPL auction rules as framed, especially the fact that some franchises were gaining advantages on what was supposed to be a level playing field; Harsha’s basic argument appeared to be that in a free market scenario, such inequalities were inevitable. A sub-text to their discussion was whether criticism of the existing playbook was justified; Harsha pointed out that no one had come up with a better solution, while Anand pointed out that a reader could — and in fact, has to the right to — criticize a writer for his latest piece, for example, without necessarily having the ability to do better.

To which I would add merely that criticism is valid, irrespective of the source, and provided it is well thought out criticism as opposed to destructive abuse. I have a job to do, you criticize how I do it, if that criticism is found valid it forces me to think of how that job can be done better, and that is how improvement happens. Leave that thought in the parking lot for now, and consider some news stories that have surfaced over the last 24 hours:

On the second day of the auction, within minutes of the process ending, Vijay Mallya raised some concerns about the question of uncapped players.

The issue was raised a few minutes after Sunday’s auction by Vijay Mallya, owner of the Royal Challengers Bangalore, who said he wondered whether the BCCI could protect the uncapped – read: young – players from being the subject of a bidding war and other forms of poaching.

“Now we look to sign uncapped players and try to complete our team,” Mallya said. “But I urge all the franchises and the IPL governing council to exercise the utmost vigilance while signing uncapped players.”

The IPL has, as Mallya noted, laid down “strict guidelines” for the signing of these players, whose value has increased because of the general dearth of domestic talent and the need to fill squad berths. First, it has laid strictures on how these players can be signed, through a three-way agreement involving player, franchise and the IPL, and with the explicit permission of the board. It is the player’s decision, though, whether he wants to sign the contract and he is free to choose his team.

It has also clearly categorised these uncapped players into three types and set wage limits for each. Those players who made their debut in the last two years will be paid Rs 10 lakhs ($22,000); those in the field for two to five years would get Rs 20 lakhs and those with more than five years’ experience Rs 30 lakhs.

Those two conditions together have raised fears among the franchises – which Mallya vocalised on Sunday – that, far from protecting them from inducements, the system leaves them open to bidding wars that could violate the salary cap. More so because some of these players (see sidebar) could, in open auction, command several times the maximum they can under the BCCI’s rules. The only differentiator in a level playing field, it is feared, will be under-the-table deals.

Mallya’s fears appear well-founded — not least, because if published reports are true, his franchise is as guilty of the practices he warns against as any other. Consider this story:

The fight came to light when Royal Challengers Bangalore threatened to throw the rule book at Karnataka’s Ranji cricketer Manish Pandey — who shot to fame in the 2009 IPL and is among the most talented youngsters — when he showed interest in joining Pune Warriors.

Pandey, 21, is learnt to have rejected an offer from RCB to sign him afresh and shown interest in a deal with the new franchise Sahara Pune Warriors. RCB were offering Pandey fees as per the IPL rule which says domestic cricketers who have played for more than two seasons but less than five should not be paid more than Rs 20 lakh.

Firstly, the whole ‘capped versus uncapped’ player classification makes no sense whatsoever. The IPL is a T20-format tournament; how relevant is having played for India in ODIs and/or Tests to whether you are suited for this shortest version or no? (And while on that — Dan Christian, anyone?) And if that is not relevant, then surely your price must be determined purely on the basis of your suitability for this format? Leave that thought there, too, in the same parking lot — it is one of the by laws in the books the BCCI could do well to revisit.

More to the immediate point, notice the trap Pandey is in? He is within his rights — and within the prescribed format — to turn down the RCB offer; if the RCB then engaged in arm-twisting (complain to the BCCI and get the player banned? WTF?!) to ensure Pandey plays for them rather than seek the best price for his skills, then Mallya is going against the spirit of the IPL, and is guilty of exactly what he warned about.

Ironically, while the RCB is miffed about Pandey going outside his catchment area to snap up lucrative offers, the franchise works the other way when it comes to players outside its own catchment — as with Ambati Rayudu and, in the coming days, most good players now busy with the Ranji finals in Baroda, which has apparently become the next battleground for the franchises. A Rediff report:

Having provided him timely support, Mumbai are once again favourites to retain the right-hander for the forthcoming season of the IPL.

However, Royal Challengers [ Images ] Bangalore could upset their plans and play spoilsport.

Siddharth Mallya [ Images ], director of Sports at RCB, it is learnt, wasted no time after the IPL Players’ Auction, and made a dash all the way to Baroda on Monday morning to snap up Rayudu.

A source told?Rediff.com?that RCB have made Rayudu their priority and are ready to sign him at any cost, within the money-limit suggested by the IPL for uncapped domestic players.

Mumbai Indians will certainly see this as an attempt to poach one of their own players as they were the ones who provided Rayudu a second lifeline.

Another aspect being talked about in the backdrop is how some franchises are working past the salary cap through player retentions. Here’s a related story from the Hindustan Times.

However, after the opening season when the eight teams went into the player auction with a purse of $ 5 million, the cap has been reduced to a farce. While the teams were allowed to spend up to $ 2 million for the second player auction in 2009, last year’s auction exposed the biggest farce when it came to salary cap.

With only 11 slots up for grabs, the the franchises were allotted an upper limit of $ 750,000 but the IPL introduced a further tie-break where teams which were tied had to make an additional secret bid to buy the player. This meant Mumbai Indians and the Kolkata Knight Riders spent at least double the $ 750,000 to buy Keiron Pollard and New Zealand’s Shane Bond respectively.

Come IPL 4 and this farce has been exposed even more. First, the IPL set a total cap of $ 9 million for the whole squad of up to 30 players. It allowed the existing eight franchises to retain up to four players, but reduced the auction cap. Mumbai Indians and Chennai Super Kings who retained four players each went into the auction with a limit of $ 4.5 million. But just because their auction cap was reduced, it did not mean the teams had to pay those players the entire $ 4.5 million.

“The IPL Governing Council came up with a formula that if you retain the first player $1.8 million will be deducted from your packet, if you retain the second then $1.3 million will be deducted and so on,” Royal Challengers Bangalore owner Vijay Mallya said after the glitzy  and highly anticipated two-day auction concluded in Bangalore on Sunday. “But never once did the IPL say that we are obliged to pay the same amount to the players, so it is quite possible that while $1.8 million will be deducted from my auction purse, I need not be paying that player $1.8 million. The IPL is really not concerned with that part of it.”

This effectively means the IPL gave franchises a free hand to pay the retained players. According to the buzz in the IPL fraternity, Mumbai Indians – who retained Sachin Tendulkar, Lasith Malinga, Keiron Pollard and Harbhajan Singh – and Chennai Super Kings – who retained Mahendra Singh Dhoni, Suresh Raina, Albie Morkel and Murali Vijay – have spent anywhere between $8 and 12 million to retain these four players.

These are some of the reasons the IPL auction process is coming in for criticism. Firstly, it loads the dice in favor of players who have been capped in other forms of the game, and against players who are yet to get national call ups, but are uniquely fitted to perform in the T20 format. Second, the lack of transparency in how franchises fill up their squads with uncapped players lends itself to systemic abuse. Third, the catchment area concept favors some teams and actively hinders other teams, a situation compounded by lack of official clarity (does anyone know what Pune’s catchment area is, as compared to Mumbai’s?). Third, it pays lip service to the concept of a level playing field for all franchises, while actively favoring the more moneyed teams (it is no surprise really that Mumbai Indians and CSK were the only two teams in favor of player retentions).

Solutions? Here’s a few: 1. Avoid the handicapping of Indian players on the capped versus uncapped model; all eligible players go into one pool, and the bids they attract are purely on the basis of what franchises think of their abilities. This, incidentally, will also in one shot eradicate the abuse of the system when franchises sign up uncapped players, as in the examples above. 2. Do away with the catchment area concept; franchises should be free to talent-spot across the field. 3. If you want to institute caps, ensure that those caps are common to all franchises (how does it help the IPL as a tournament, for say the Rajasthan Royals to have a lower purse than others, thereby effectively ensuring that at least one team out of ten is not up to par?), and then ensure that there are no backdoor workarounds.

Comments?

PS: Some additional reading: Last year, Shah Rukh was ruing the absence of Pakistan players from his team. This year, he rues the fact that Sourav Ganguly is not playing. Duh!

Kunal Pradhan asks if it is okay for Anil Kumble to be sitting in on the auctions — not conflict of interest on the scale of some others we won’t name, but is it conflict in absolute terms?

From a friend, a piece on the IPL business model; the link to the Amit Varma piece embedded within is also worth your while.

G Sampath in DNA on the auctions.

Got any interesting links to share?

PPS: Lots of comments and questions attached to the previous post about N Srinivasan and other issues. Thanks for the feedback — will get down to responding later in the day/evening, when time permits.