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.

In through the out door

And here we go again — since before the start of this season, there have been persistent rumors that the KXIP franchise is looking for buyers. Another story on this lines — this one suggests that where it was earlier assumed one of the partners might move out, we seem set for an exodus.

Hmm. Why? Not much money in it, despite reports such as these? Or, as in the heyday of the Internet bubble, a case of selling off at an inflated valuation and getting out while the getting’s good?

Kochi: essential reading

Aditi Phadnis adds to the information on the Kochi franchise and its travails.

RSW got the first inkling that something was not quite kosher when they got a message that their bid should be below $300 million. They consulted among themselves and kept the bid at $333 million (Rs 1,533 crore). Sahara bid $370 million (Rs 1,702 crore). Videocon’s bid was $320 million, Adani bid $315 million. Theirs was the closest and they got the franchise.

The members wanted to pop the cork. Too early, cautioned their leader. Get the letter of franchise first. They met IPL Commissioner Lalit Modi in Delhi. The daughter of one of the ministers was present in the room. This was when suggestions were made that they should take $50 million and walk away.

The group was first amused, then flummoxed. “Suppose we walk,” asked one, “who is going to give us $50 million?”

An investment banker, was the laconic reply.

“Come on,” said the leader. “I am an investment banker. I know no one will pay this order of money.”

“A client of an investment banker,” they were told.

The group conferred among themselves and said prestige was involved. “We won’t go,” they said.

Union minister with a home in Bombay. Daughter standing in. How much clearer does it need to be?

IPL clips

#1. GS Vivek and Debesh Bannerjee, in the Indian Express, on the after-match commitments of the players:

A top player speaks about the effect on their body clock. “We return to the hotel from the match around midnight and get ready for the party. Most of these parties go on till the wee hours. When the players get up around afternoon, it’s time to catch a flight to the next destination,” he says. “There are days when the game is over in three hours while the party goes on for six hours. Off-the-field fatigue is more than the tiredness on field.”

Regulars speak of exhausted players dozing off on couches — a Chennai Super Kings young spinner being the most recent example. Others of inebriated cricketers being helped to their rooms at dawn. Delhi Daredevils coach Greg Shipperd is among the few to express his reservations openly. “At times it is hard on players. It is up to the individuals and team management to ensure that they strike the right balance,” he says.

While IPL organisers refuse to comment on the issue, the official line of the franchise is that it is not mandatory for players to attend. Delhi Daredevils’ Chief Operating Officer Amit Mathur says the players aren’t forced to come for parties. “Anyways the parties are usually held at team hotels. Since most of the time, the day after the game we travel, the practice sessions are optional,” he says.

However, there hasn’t been a single party where players haven’t showed up. The unwritten rule is that top stars need to make an appearance. There have been cases when players have expressed wish to spend time in their rooms but have been prevailed upon by owners to drop in for a while.

#2. Apropos the above, Ramachandra Guha examines why Kochi and Pune got lucky at the auction for the two latest franchises:

This maldistribution of IPL franchises undermines its claim to be ‘Indian’, and is in defiance of sporting history and achievement as well. The truth is that citizenship and cricket have been comprehensively trumped by the claims of commerce. Uttar Pradesh, Madhya Pradesh, and Bihar are three of the poorest states in the Union. On the other hand, Tamil Nadu and Maharashtra are among the most prosperous. Karnataka, Kerala and Andhra Pradesh are somewhere in the middle, but they have this further advantage — all have witnessed a spurt in industrial and urban development in recent years, and all have properly functioning international airports for the cricketers — or gladiators — to come and go from.

There are other advantages that Kochi and Pune have over Lucknow or Indore. Both towns have an active night life, for example, with pubs and hotels where the staff speak English, and where the players, the support staff, and the hangers-on can spend time after the matches. Considerations such as these, and not love of cricket or competence at cricket, is what the new entrants share with existing franchisees such as Bangalore, Delhi, Hyderabad, and Mumbai.

The Indian Premier League may be more appropriately renamed the League of Privileged Indians. For this tournament both reflects and further intensifies a deep divide between the India of wealth and entitlement and the India — or Bharat — of poverty and disenfranchisement. Writing about the dangerous growth of inequality in India, the economist, Amartya Sen, warned some years ago that if present trends continued, half of India would look like the American state of California, the other half like sub-Saharan Africa. Since he made this comment, California has been beset with an acute — and apparently irreversible — fiscal crisis. Perhaps we might then substitute the state of Massachusetts for it. But the point remains; there are indeed two Indias, the one which is awarded IPL franchises, and the other which is not.

#3. “Match fixing” is a bogey that is repeatedly raised when results don’t go quite the way the form book seems to prescribe. For you, a cautionary tale: it is rarely, if ever, about fixing a match; the real money lies in spread betting, in laying wagers about moments in the game and about individual performances, and not on the match outcome itself. Check out what is happening in the England county circuit [related, here’s Scyld Berry on the implications for English cricket]:

English county cricket faces a test of its integrity with two Essex players under investigation for what is believed to be ‘spot fixing’, where bets are placed on elements of a match rather than the actual result. On Friday Essex police confirmed they were involved over ‘match irregularities’ and since then speculation has been rife over the depths to which potential corruption has spread.

Sources close to the investigation have told Cricinfo that anyone found guilty would face “very serious punishments” but the concern for the game is how to crack down on the illegal betting market in an era of satellite television and easy internet access.

More later — now back to what is already proving to be a bad Monday morning.

Bubble, bubble, toil and trouble

Here’s the latest from the IPL:

Even before it could set about building a team, the franchisee ran into trouble with the Board of Control for Cricket in India, which returned the agreement papers.

IPL sources claimed the Kochi franchisee reportedly gave 25% of its shareholding for life to some unknown entities, free of cost when it has itself bid almost Rs 1,500 crore to obtain the franchise. The sources told TOI the consortium has been asked to present its case and sign the agreement, mentioning all its partners, in Mumbai by Monday.

However, sources in the Kochi camp denied that any such transfer of stake had taken place. They also insisted that they would submit the agreement papers to BCCI on Friday itself.

Does any of this, or all of it, remind you of the Internet, in those glorious bubble years?

Anyway. This is, as politicians and journalists both like to say, a “developing situation”, and we are “keenly monitoring the developments”. Stay tuned.

Related, here’s Samanth Subramaniam on the IPL — in, of all places, Huffington Post:

So why, when I watch the tournament now, do I watch it with equal measures of fascination and repugnance? Not because the IPL is a symbol of capitalism – far be it for me, a willing beneficiary of India’s adventures in money-making, to complain about that – but because it’s a symbol of capitalism gone horrifically wrong. The IPL purports to be a free market but is in fact controlled by one man: Lalit Modi, whose power and stature have grown so Rabelaisian in merely three years that Bollywood has already asked to mine his life for subject material. (One player, Ravindra Jadeja, dared to try negotiating a new contract for himself this year. He was promptly banned for the remainder of the season.) The IPL pursues revenues at the expense of other valuable resources: Test cricket, but also domestic cricket, the inevitable breeding grounds for young talent. In its grubbing for money, in fact, the IPL is dismissive of anything old-fashioned, anything aesthetic; even the four seconds between one ball and the next, held sacrosanct through more than a century of cricket, have been sold for inconsequential advertisements. Meanwhile, owners buy teams for staggering quantities of money and with the fuzziest possibilities of recovering their investment; they desire only to dice up the risk and sell it in parts to sponsors and other companies, a practice that should surely sound familiar to us today.

Link courtesy Cricinfo’s Surfer.