IPL auction is bad economics

This season, the IPL is facing challenges that require it to restructure some of its core components.

First and foremost, there is a need to replace the auction system with a comprehensive draft system. Drafts are a mechanism used by professional sports leagues to ensure parity among teams in a systematic manner.

Through drafts, salary structures are decided through a ‘minimum-wage' agreement, which is arrived at after discussions between the league and player associations. The associations use the power of collective bargaining to arrive at an agreement that benefits players at every professional level on the basis of seniority and experience.

The players' earnings will increase over the minimum wage, depending on unique skills-related escalation clauses/bonuses, clearly stipulated within their contracts and subject to the salary caps mandated by the league.

This is important for the IPL, given the unwanted attention drawn towards spot-fixing and facilitation fees for uncapped players. By mandating a dynamic salary structure where a meritorious uncapped player can consistently earn a premium retainer for his ability, while earning performance bonuses for outperforming contractual expectations, the league can essentially reduce corruption and enhance the veracity of the matches.

This is also in line with the basic laws of economics, as it does not place an artificial wage floor or ceiling, unlike the current IPL auction.

It would be fair to say that most leagues' player drafts are sophisticated processes that have evolved over decades. They are determined on the basis of the players' representatives/associations negotiating salary floors (for each player) and caps (for each team) with the commissioner's office, and also with individual teams. The outcome of these negotiations determines, among other things, the range and strictly mandated league-specific regulations governing drafts, team selection, salary caps, player loans and trades, salary arbitration and free agency. This process is known as collective bargaining.

For the IPL's image, an authorised IPL players' association is a must, in order to prevent any future mishaps, such as the ones featuring Ravindra Jadeja, Manish Pandey, and now, the spot-fixing allegations.

There is a lack of understanding and knowledge of protocol that numerous uncapped players face. Which is why there must be a players' association that guides, advises and protects young players who are not allowed any form of representation, and who may end up making ill-advised decisions that can cost them their careers and their reputations. A players' association can be the official communication body that interacts directly on behalf of the players with the IPL governing council and the teams.

American-european model

The IPL draft should be a hybrid model, borrowing from the North American and the European Leagues, and could be implemented in IPL-VI or IPL-VII.

The draft should be for all the players who have made themselves available for the IPL, and the players can be placed in the draft on the basis of seniority and international stature (“marquee players”).

The draft could then be divided into sessions and rounds within those sessions, and the teams will be allotted draft picks on the basis of performance.

A lottery system to determine the selection order for the teams can be used. There should be a standardised allocation of time between picks and between sessions.

The salary floors will be allocated for each session and round and will be stipulated by the governing council or the commissioner's office, to ensure parity and a level playing field.

Salary Cap

Players will be selected on the basis of draft picks, and there shall be no mention of the amount each player shall make during the draft itself. Market forces will determine the value of a player, therefore, ensuring that the meritorious players are selected in the earliest rounds and sessions of the draft. Ideally, the draft should take place every three years.

A soft salary cap should be implemented. A soft cap has a fixed ceiling for each team's payroll, and exceptions on the basis of standardised bonus clauses or other exemptions that can be triggered as the IPL draft becomes more sophisticated.

If, for example, $10 million is the salary cap, then with the exclusion of said exceptions, each franchisee must adhere to this salary cap for the team's retainer payroll.

However, the floors and ceilings of the retainer component will depend on which round the player is picked in the draft. It will not apply to performance and other threshold bonuses that each team can factor into its contracts with the players.

uncapped component

Crucially, there should also be an uncapped component in the salary cap. At least 15 per cent of the salary cap must be spent on Indian players with or without IPL experience, but who have not yet been selected to represent India.

Failure to use this component will result in penalties such as a team foregoing the subsequent draft picks. At present, an artificially imposed wage ceiling for uncapped Indian players defies the laws of economics and also unfairly penalises them merely because India has a strong national team. For Indians, it merely limits earning capability and serves as a negative pecuniary externality — a penalty for having a strong national squad with barriers to becoming a capped player.

The placement and positioning of players in the draft will be in terms of seniority and overall marquee status. One important change from the system now is to determine seniority by experience in IPL seasons, not by age or first-class cricket seniority.

Player loans could be effective in the IPL, as teams that are no longer competitive in the playoffs can loan their players to contending teams, subject to the parties concerned agreeing to the terms and conditions that govern loans. It can be explored.

The proposed draft isn't perfect, and nor will each aspect of it likely pass muster. But in a fast-evolving variant of a cherished sport that clearly needs an overhaul, the draft along with the proposed player association could be the first steps towards an enduring and sustainable system where market forces merge with passion in a hybridised league.

(The author is a sports attorney at J. Sagar Associates. Views are personal.)

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