Hindustan Times reports the WTF news of the day:
A Pakistani parliamentary delegation has cancelled its visit to India after none of the country’s cricketers found any takers at an auction for the third edition of the Indian Premier League (IPL).
National Assembly Speaker Fehmida Mirza made the announcement in the House on Wednesday after opposition members raised the issue, terming it a “planned conspiracy” to prevent Pakistani players from featuring in the cash-rich series.
Now, really, if you were in charge of an IPL franchise, what would you do? Your resources are limited, and you want to make sure that every player you bid for and buy actually turns up and plays. If there is a no-show, even if you don’t have to pay the player, you incur an opportunity cost, and there’s a gap in your team. And with India-Pakistan relations being the way they are, it’s quite possible that, like last season, there may be no Pakistan players. All it takes is one more terrorist attack like 26/11.
The rational thing to do—indeed, the responsible thing to do, from your shareholders’ point of view—is to play it safe and not bid for any of Pakistan’s players. As a cricket fan, I find this tragic, because I love watching Umar Gul, Shahid Afridi and Sohail Tanvir in action. But from a business point of view, there was really nothing else the franchises could have done.
All this speculation about government directives and collusion between teams is, thus, pointless. Each franchise looked to its self-interest and made a perfectly rational decision. Such it goes.
As for the anger in Pakistan about their players not playing in the IPL, it is entirely justified. But it should be directed at the Lashkar, not at the IPL franchises.
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And I don’t get this whole business of auctioning players. Why can’t the franchises just negotiate with players on their own? Why do we need the BCCI in the middle, distorting price signals?
If I remember correctly, Lalit Modi had once argued that the auction system and the spending caps in place are necessary so that a franchise like the Mumbai Indians, flush with Mukesh Ambani’s money, can’t buy out all the good players, thus killing the competition. But such a state would be unsustainable—consider these two scenarios:
1. Assume that Ambani has way more money than anyone and can conceivably buy off all the good players. But once he has an XI full of superstars, the attraction of being part of his franchise diminishes for the others. No up-and-coming star will want to be part of his team because they need the exposure more than the extra money—that is where their long-term equity lies. And established stars not guaranteed a place in the XI will also have an issue with the tradeoffs involved, because their long-term brand value can only go down, not up, if they don’t play.
2] Make the far-fetched assumption that Ambani somehow pulls it off, and his team is by far the strongest, and is thrashing everyone else. What happens? Because the matches are one-sided, the crowds lose interest, ratings fall, revenues go down, and it is no longer sustainable for Ambani to be spending those big bucks. He scales down, the players drift to other teams, and we move towards an equilibrium again.
Also, the auctions harm the players more than they help them. A franchise may be willing to pay, say, US$80,000 for a player, but the base price set for him is $100,000. So they don’t bid for him, and both the franchise and the player suffer—after all, where he could have been earning 80k, he’s earning nothing. (At this point, you might want to listen to Milton Friedman on the minimum wage. Here’s the transcript.)
And this affects the superstar players as well, who might command much higher prices than the franchises are allowed to pay. In other words, players and franchises are all made worse off by this auction system—so what’s the point of it at all?