Wednesday, December 08, 2010

IPL Player Retention and Auction Dynamics

The list of players retained by IPL franchises is out and it’s no surprise to see Mumbai and Chennai retain their full quota of four players. Rajasthan have retained two while Delhi and Bangalore have retained just one player each. Some of the choices like Tendulkar, Pollard, Dhoni, Raina and Sehwag are obvious ones. There are a couple of picks that surprised me, namely Shane Warne and Virat Kohli. Not because I don’t think they are good enough to be retained but because I don’t think Bangalore and Rajasthan would have had to bid $1.8 million and $1.3 million respectively should these two players have gone into the auction. I assumed the $1.3 million figure for Warne as Rajasthan also retained Shane Watson. Come to think of it it’s also a stretch to believe Watson would have drawn a bid for $1.3 million let alone $1.8 million.


So how does one explain this? Well, one thing that needs to be noted is the franchises may not be paying the retained players the same amount as that they lose from their auction money. For example, it could very well be that Mumbai Indians are paying Tendulkar, say $2 million, but they’ll lose on $1.8 million from their payroll. Conversely, they could be paying him $1.5 million and still lose $1.8 million before going into the auction. In essence, the amount a franchise pays to a player it retains has been negotiated internally.


It’s easy to understand teams retaining players on a salary higher than what they lose before going into the auction, especially if the owners are as rich as Mukesh Ambani or N Srinivasan. But there is an interesting scenario wherein a team might choose to lose a higher amount from its payroll despite paying him less. In their brief history Rajasthan have been the smallest spenders in the IPL. It hasn’t affected their performances a lot. Afterall, they won the inaugural IPL and were just one win away from a semi-final spot in the last two seasons. It could very well be that Rajasthan got Warne and Watson to settle for a lot less than $3.1 million put together, thereby avoiding a scenario wherein the franchise could get into in a bidding war and either lose them or have to pay an amount greater than what they signed these two for. This may also explain them not retaining Yusuf Pathan who might have declined the salary Rajasthan were offering him. Afterall, he could well go for more than $900,000 or whatever amount Rajasthan were willing to offer. Sure they now have just $5.9 million for the auction, but if Mumbai and Chennai are confident of building a squad with just $4.5 million each then Rajasthan wouldn’t have a problem building theirs with $1.4 million more to play around with.


How does all this affect the auction? For starters, half the teams are going into it with a smaller purse than the other half.


Team

Auction Money (USD)

Players Remaining

Average Price (USD)

Deccan

9 million

25

360,000

Kochi

9 million

25

360,000

Kolkata

9 million

25

360,000

Pune

9 million

25

360,000

Punjab

9 million

25

360,000

Bangalore

7.2 million

24

300,000

Delhi

7.2 million

24

300,000

Rajasthan

5.9 million

23

256,521

Chennai

4.5 million

21

214,285

Mumbai

4.5 million

21

214,285


Some of the spots will be taken up by domestic players who won’t go into the auction. These players include Ambati Rayudu, Siddharth Trivedi, T Suman, Mithun Manhas, Iqbal Abdulla. However, anyone who has played for India will go into the auction. This means players like Cheteshwar Pujara, Umesh Yadav, Abhishek Nayar, Saurabh Tiwary, Ashok Dinda, Venugopal Rao will be able to test the market.


Now we have a situation in which some teams have more leverage going into the auction. But there is another variable in this whole process as teams don’t know the order in which players would be bid on. Hence, there could be a scenario in which a team is forced to bid an excessive amount for a player just because he happened to be among the first few names out of the hat. As a result, they may not have enough money to bid on a lot of other quality players later on in the auction. Mumbai and Chennai are in the weakest position as far as the auction is concerned, but they’ve covered up well through the players they’ve retained. They just need to guard against getting into a bidding war early on in the auction as it would be difficult to have a proper squad if they have to spend $1 million or more on getting a good keeper-batsman (Mumbai) or a wicket-taking fast bowler (Chennai). The other teams could identify the missing pieces in Mumbai or Chennai and try upping the price of players who these two teams might need desperately.


I don’t know if all this sounds interesting to most people. It does to me because I think this is where the businesspeople in the franchises need to think hard about getting the slightest edge over the others. Players will be locked in for three years and if the suits screw up at the auction there will be a lot of trouble on and off the field. One just needs to look at the Kolkata Knight Riders and the Bangalore Royal Challengers from the first season to realize the importance of player acquisition.

14 comments:

  1. I think all this is pretty interesting stuff. Except the IPL Auction, which I despise. Written a post on that yesterday

    http://opinionsoncricket-india.blogspot.com/2010/12/opinions-on-ipl-auctions.html

    I seems Mumbai and CSK go into the auction handicapped. I am sure they can now only bid for services of mid-low tier players

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  2. Gol, I don't think MI or CSK are going into the auction handicapped. A good businessman would look at the situation this way... they have bought the services of 4 players for US$ 4.5 millions, who might have been far more expensive in the open market (something which cannot be said for RCB or RR... as Mahek correctly pointed out).

    And Mahek, the lack of a good wicketkeeper-batsman or a good wicket-taking pacer were MI's and CSK's weaknesses in the first 3 seasons. As of today, all teams are back on even footing... with no team having a good wicketkeeper-batsman or a good wicket-taking pacer.

    If other teams try upping the price of such players, they will be falling into a trap... because they would need these players just as desperately as MI and CSK teams!

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  3. MSD and SRT are no brainers. With others I feel the franchises could have got them for cheaper. Now we will never know. In any case, I don't like this centralized auction thing. These trades need to happen in a window over a few weeks/months. Allow agents into the mix and work out the contracts for players.

    The auction is too crass. But for now India is interested in showing off. Much like how Australia never failed to flaunt their status when they were winning

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  4. Shane Warne is a global brand and also will be helping with the Royals brand in Victoria and Hampshire. So, it is worth the investment for Rajasthan. Besides Watson, I do not know which other current aus player (who has been in IPL) is gonna have his reputation intact after this Ashes (may be Mike Hussey). Perhaps, that's the punt the Royals took on him. Perhaps, they could've got him for less, but losing him would've been a bigger blow.

    The Chennai thing was very straightforward although retaining Albie is a bit of a head scratcher. Surely, they could find another allrounder, no?

    Interesting thing for me was that Banglaore chose not to retain either Kallis or Steyn, a fabulous allrounder or a paceman (more rare).

    The KKR route of not having Dada back -- the crowd puller -- is really baffling. Can someone explain that?

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  5. KKR not securing Ganguly is truly baffling. I thought the idea of icon players was good. The franchises needs the local hero to help their brands. Lets see if it affects ticket sales...may be not. In which case it is not as stupid a move as it sounds

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  6. Gol, I'm not too fond of the televised auction either. I'd rather have silent bids. The reason I don't want owners to directly negotiate with players or their agents is it makes the process vulnerable to cheating. The big teams could easily sign the best players by offering them an IPL salary and paying them a premium through other deals. Ravindra Jadeja's case last year was a classic example in which he was negotiating a contract worth 2 crores even though as a classified U-19 player he wasn't entitled to anything more than 40 lakhs. Things like this have happened in other sports as well. Earlier this year the Melbourne Storm, an NRL team, were stripped of 5 titles and fined almost $1.7 million for breaching the salary cap by keeping a second set of books.

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  7. Shridhar, not all teams are on even footing because some teams have more money to spend during the auction.

    While these teams also need to fill their rosters, a major distinction is that by driving up the price for a particular kind of player they can ensure less competition later in the auction. It's not that there are only a couple of quality fast bowlers or keeper-batsmen. There are quite a few of them out there. Likewise for spinners, batsmen and allrounders. But by driving up the price for players who come up in the early part of the auction these teams can then buy the ones who come later for a lower price just because some franchises won't have enough money left on their salary cap.

    Let me give you an example. Let's assume McCullum is up for auctioning early on. Delhi get into a bidding war with Mumbai and string them along till they drive up McCullum's price to $1 million. Now Mumbai have just $3.5 million left for 20 players. Later on, Kevin Pietersen is up for auction. Now Mumbai just can't get into a bidding war for him even though their middle order has just Pollard & Rayudu.

    This is just an example of how I'd go about increasing my chances of buying good players at a lower price.

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  8. Subash, we don't know how much Rajasthan have invested in Warne as franchises haven't disclosed the salaries of retained players. It's hard for me to believe Warne would have drawn a bid of $1.3 million, which is why I said that Rajasthan may have signed him for an amount lower than what they believe Warne might get in the auction. Ditto for Watson.

    Albie might be a good pick for Chennai because he's an allrounder and may well draw a bid of $500,000 in the auction. Also, Chennai hadn't retained a single bowler so they needed to retain one. One could ask why not Bollinger or Murali, but we need to remember that players also have to agree on being retained. It could well be that these two may not have wanted to settle for the salary Albie settled on. Bear in mind Murali may not play 3 more seasons, Australia don't actively keep their players free during the IPL, and neither of them can bat.

    The Ganguly one is quite obvious. There is no way anyone is going to bid $1.8 million for him so Kolkata will easily buy him for a much lower price in the auction. I don't think they're stupid enough to overlook the massive local support Ganguly brings or the perils of losing a lot of fans if he plays for another team.

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  9. @Golandaaz and Subash : Ganguly will all his Local Hero stuff and crowd pulling stuff can be easily bought at the auction for less than $ 1.8 million, he has retired from international cricket a good 2 years ago..it was a business decision..I am sure KKR will do their best to get Ganguly in the auction, which i believe would be at a much lower price than $ 1.8 million. and both of you Oh so convineiently forget Yuvraj Singh (who is worth more than Ganguly if he applies himself) and Rahul Dravid who are in the same category

    @Mahek :

    First of all the order in which players are drawn from the HAT is not all lottery, the players are pooled according to their base price and you have a fair idea about what you want what you bid for.

    and these contracts ate not locked in for 3 years, they are locked in for 2 years and can be extended for 1 more year by mutual consent (at least for the retained players this is the rule)

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  10. Aditya, they do split players into categories based on the base price as well as their primary trade. But once they're split the names do come out of a hat. I'm not sure teams have as fair an idea about what do bid for.

    I thought I read somewhere that the contracts were locked in for 3 years. It could well be the 2+1 system as you mentioned. Can you provide a link to this information?

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  11. Mahek, what I am trying to suggest is that its a two-way road. Like in the example you used of McCullum, the strategy could well backfire on Delhi if they try too many price upping strategies. I am sure that seasoned businessmen will be quick enough to recognise this.

    And when I say Mumbai Indians are not disadvantaged despite having just another USD 4.5 million to spend, it is because with these 4 players in the bag, Mumbai Indians know that they don't need to get dragged into too many bidding wars.

    And say for example, if another team wants to negate Mumbai's Pollard power by bidding for Pietersen, then they may well have to pay over USD 1.8 million to win his services.

    Assuming that each team would want 4-5 big names in their ranks, they will in any case have to shell out about USD 5 million at the auction. Mumbai Indians have done nothing different here.

    Just as much as we may go on debating the various permutations and combinations regarding bidding strategies, it will be interesting to see finally what the frachisees come up with on the given days.

    The strategies used by Pune and Kochi will also be worth watching... because they are coming in without any baggage of the past!

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  12. Shridhar, you're quite right about franchises having to pay over $1.8 million for certain players. However, the chances of it happening now are less as opposed to in a situation where all teams have $9 million for the auction.

    In my post I've mentioned Mumbai and Chennai being in the weakest position as far as the auction is concerned but have also covered up well with the players they have retained. It will be interesting to see the amount each team pays for its four costliest players. If they spend more than $4.5 million we can safely say Mumbai and Chennai benefited from retaining the players.

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