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About Amit Varma

Amit Varma is a writer based in Mumbai. He worked in journalism for over a decade, and won the Bastiat Prize for Journalism in 2007. His bestselling novel, My Friend Sancho, was published in 2009. He is best known for his blog, India Uncut. His current project is a non-fiction book about the lack of personal and economic freedoms in post-Independence India.




Bastiat Prize 2007 Winner

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10 February, 2016

How Much is Pawan Negi Worth?

Pradeep Magazine is unhappy that Pawan Negi got more than a million dollars at the recent IPL auction. He writes:

Ever since a new cricket format and a new business model – the IPL – in the name of sport has been created in India, this accepted rationale of how sport functions is being challenged each passing year. Among the many questions being debated is the relationship of talent with the wages earned and the impact it will have on the very foundations of cricket in the country.

That is where Pawan Negi and most of his tribe become relevant to this debate. Here is a young talent, not sure of his place in the India team, a surprise selection for the T20 World Cup, who has all of a sudden been catapulted ahead of his much superior seniors and showered with riches — and even he can’t understand why.

Magazine implies that Negi has gotten more money than he is worth—and I don’t have an opinion on that. However, consider the larger philosophical question of who should determine Negi’s value as a player? Should it be the mandarins at the BCCI, or the selectors? Should it be knowledgable journalists who have covered the game for years like Magazine himself? Should it be the owners of IPL franchises, an assorted mix of businessmen and filmstars who may not know much about cricket?

The clue to the answer is to ask yourself who has the best incentives to put in the work to determine Negi’s value. Who is actually putting his money where his mouth is? If Magazine makes a judgment about a player that is wrong, it doesn’t matter, journalists get things wrong all the time. There is not much of a reputational downside. If the Indian selectors get it wrong, ditto, they move on and pick someone else the next time, and only a whole bunch of ludicrous selections can affect their position. If the IPL bosses get it wrong, on the other hand, they lose money. Hard, cold cash. For this reason, the incentives are highest for IPL bosses to put in much work in scouting and analytics, and by all accounts they do exactly that. So insofar as there can be said to be a ‘correct’ price for Negi, the IPL auctions are the closest mechanism available right now of arriving at that. (And of course, econ 101, prices are determined by supply and demand, and you need a market for that.)

Of course, the IPL auctions are not a free market. All players would probably get paid much more if spending caps did not exist. Also, Negi would probably have gotten much less if he was first up in an auction where no team had retained or picked a player yet, and he did get lucky that he came up for auction when there was a scarcity of available players like him, teams had holes to fill, and the demand for what he could supply went up. That’s just luck, and it’s fine. If he doesn’t perform, he won’t get paid this much next time.

An aside: Magazine also says in his piece:

In this bizarre game, where players are bought and sold in an auction, is there any cricketing logic that governs these decisions?

This is a common, and badly phrased, complaint: of cricketers being bought and sold like cattle. But that is not what is happening. Their services, as represented by contracts they have willingly signed, are being bought and sold. It is principally the same thing that happens when you check out different employers to see where you want to work, except that the mechanism is different. Cricketers are not being degraded here, but honoured and valued in a much better way than men in board rooms with nothing at stake could manage.

Posted by Amit Varma in Economics | India | News | Sport

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