Indian Premier League Spend/thrift

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[Archived from: The Sports Economist, 10 January 2011]

The 2011 Indian Premier League cricketer auction took place on the weekend. This event is a fascinating economic exercise on so many levels, and not just because of the auction framework, but also because it gives us a view into the future, in which pro-sport salaries on the subcontinent may begin to rival those in the major leagues (though this may still be some way off yet). Nevertheless, four players (all Indian), topped the US$2 million-mark, with the wonderfully-named Kolkota Knight Riders outlaying US$2.4 million for the enigmatic Gautam Gambhir.  For a quick summary of the auction outcomes, see:

http://www.espncricinfo.com/indian-premier-league-2011/content/story/496202.html

The inaugural IPL auction in 2008 was such a unique event insofar that all the World’s best cricketing talent was ‘up for grabs’ (except five Indian ‘icon’ players) simultaneously, with very little information about past player performance in the still-fledgling (at the time) Twenty20 form of the game – thus the bidders were relying a lot on information from longer formats of the game. The auction inspired my colleagues Wayne Geerling and László Kónya and I to apply hedonic price models to the 2008 auction data – see this Working Paper.

This time around, the auction was not of quite as much intuitive appeal economically – bidders now have a much better idea of how players perform in the short-form of the sport, while there were options for the franchises to retain players previously on their lists, creating labour-market rigidities not present in 2008.

I am still digesting the big movers (winners and losers), but it seems like a sensible take on proceedings to suggest: (i) the obvious – that the cap, and subsequently wages, are significantly higher overall; (ii) that the prices are more predictable this time around; and (iii) that the ‘superstar’ effects typically observed in pro-sports are even more profound this time.

Much has already been written on not only player values and associated labour-market issues in cricket, but also on the profound effect that Twenty20 and the IPL is having on the business model of cricket (which has really only had one revolutionary change since the first ever Test Match in 1877). What I would like to see economists do is apply some auction theory to this setting – to the best of one’s knowledge; this is yet to be done by anybody.

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