IPL - Auctioning our top cricketers
05 Feb 2009
After the buzz of an auction we often ask: have I paid more for this house than it’s really worth? With the second Indian Premier League (IPL) auction taking place in Goa tomorrow, it seems the same reservations emerge when it comes to auctioning our top cricketers – some of whom command prices that would fetch a very nice house!
A study by La Trobe University sports economists has used sophisticated techniques of economic modelling and regression analysis to simulate a ‘fair valuation’ for 20 players selected as most likely to be bought from the 43 who have been short-listed for the IPL auction.
The research – by Dr Liam Lenten, Wayne Geerling and László Kónya from La Trobe’s School of Economics and Finance – lists five Australian players, five from England, with the rest from South Africa, New Zealand, Sri Lanka, Bangladesh and the West Indies.
It suggests, for example, that neither Australian vice-captain Michael Clarke, who has nominated a reserve price of US$1 million, and former English captain Kevin Pietersen, who has asked for US$1.3 million, are worth their reserve price.
In fact, Dr Lenten says that according to his group’s model Andrew Flintoff is worth more than either of them. ‘They might still be sold, but whoever buys them has, in our view, paid too much – which echoes our findings for several of the ”star” players in the 2008 auction.’
Further, ‘lesser-light’ players seem to be sold for less than they are really worth. ‘This is due to the laws of supply and demand; there are simply more players up for auction than are required by the teams.’
Last year for example, he says, there was considerable controversy over Andrew Symonds getting US$1.35 million compared with Ricky Ponting’s $400,000, ‘although our models showed those two valuations to be fairly accurate’.
Unfortunately, the two auctions are not identical. He says the 2009 auction involves fewer players with a lower spending cap of $2 million. ‘Nevertheless, we can still approximate with some reliability.’
Dr Lenten stresses that the model does not predict or forecast. ‘If selling prices differ from our valuations, it suggests that the bidders misvalued the player.’
The La Trobe research will be presented at three economics seminars in the near future, at the Economics Society Tasmanian Branch, University of Canterbury New Zealand, and at the University of Queensland.
Dr Lenten says last year’s inaugural IPL season was arguably the biggest business revolution in the 130-year history of the game, capitalising on the financial windfall generated by the explosive growth in the new, shorter, form of the game, Twenty20 cricket.
‘Eight franchises were auctioned for a total of US$724 million, while the ten-year broadcast rights were sold for US$1,026 million. To allocate players to teams, IPL held its first auction last February in Mumbai. The winning bid was the player’s wage for the tournament.
‘Sports economists around the world were very interested,’ says Dr Lenten. ‘The auction represented an extremely rare opportunity for economists to measure the true value of labour of professional athletes in the sports industry at a single point in time.’
‘We used player career statistics to identify those playing traits valued most highly by teams. We also considered other observable personal characteristics that determine a player’s “marketability” as distinct from their playing talent.’
The resulting model partitioned explanatory variables into distinct groups, categorised by the broad athletic trait described by the statistic. The first two were based on identifiable characteristics and the remainder on career statistics.
The categories were: (i) personal characteristics; (ii) cricketing characteristics; (iii) ability; (iv) experience; (v) accumulated contribution; (vi) expeditiousness/economy; (vii) freak performances; and (viii) familiarity with the Twenty20 format.
Contact: Dr Liam Lenten Tel: + 61 3 9479 3607, E-mail: l.lenten@latrobe.edu.au
Simulated ‘Fair’ Valuations
Reserve
| Name | Country | Reserve | 'Fair' Value |
| Clarke, Michael | Australia | $1,000,000 | $705,000 |
| Clark, Stuart | Australia | $250,000 | $275,000 |
| Tait, Shaun | Australia | $250,000 | $270,000 |
| Bailey, George | Australia | $50,000 | $165,000 |
| Jaques, Phil | Australia | $100,000 | $300,000 |
| Pietersen, Kevin | England | $1,300,000 | $705,000 |
| Flintoff, Andrew | England | $900,000 | $1,385,000 |
| Collingwood, Paul | England | $250,000 | $315,000 |
| Shah, Owais | England | $150,000 | $315,000 |
| Bopara, Ravi | England | $150,000 | $265,000 |
| Bodi, Gulam | South Africa | $100,000 | $405,000 |
| van Wyk, Morne | South Africa | $100,000 | $280,000 |
| Duminy, Jean-Paul | South Africa | $300,000 | $550,000 |
| Franklin, James | New Zealand | $50,000 | $260,000 |
| Ryder, Jesse | New Zealand | $100,000 | $260,000 |
| Ashraful, Mohammad | Bangladesh | $75,000 | $180,000 |
| Thushara, Thilian | Sri Lanka | $100,000 | $195,000 |
| Weerartne, Kaushalya | Sri Lanka | $50,000 | $155,000 |
| Edwards, Fidel | West Indies | $150,000 | $235,000 |
| Taylor, Jerome | West Indies | TBA | $250,000 |
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