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SANTOSH HARHARE/HINDUSTAN TIMES
IPL AUCTION
Teams stick with homegrown talent
B Y R AHUL J AYARAM & G OURI S HAH
···················································
BANGALORE
W
hat seemed like a yawn-inducing Day 2 of the Indian
Premier League (IPL) auction got a shot of adrenaline
towards the end. After the regular round of bidding got
over, there was a special round of bidding held over unsold
players that franchises seemed interested in.
Twenty-eight players, including the likes of Mohammad Kaif
and Murali Kartik, were sold the second time their names came
up for bidding. In all, 55 of the remaining 264 players got sold.
The message from the first day of the auction at the ITC Gardenia hotel in Bangalore was repeated on Day 2: player reputations can go take a walk.
The pursuit of young local talent and the fading appeal of international star power formed another point hammered home
on the second day. The fates of Brian Lara, Sourav Ganguly and
Chris Gayle, who didn’t spark any interest from the 10 franchises on Saturday, came visiting the likes of Sri Lankan legend
Sanath Jayasuriya, New Zealand all-rounder Jacob Oram, English spinner Monty Panesar, South African fast bowler Makhaya
Ntini, West Indian express bowler Fidel Edwards, England allrounder Dmitri Mascarenhas, Australian pacer Peter Siddle, Sri
Lankan bowler Chaminda Vaas, all-rounder Farveez Maharoof
(who has had some good performances in previous IPL seasons)
and some of England’s Ashes-winning team members such as
batsman Ian Bell and fast bowler Chris Tremlett.
It appeared, over the course of two days, that English players
didn’t cut any ice with the franchises.
Vijay Mallya, owner of Royal Challengers Bangalore, said:
“The English players were a little overpriced… They should have
been priced more aggressively.”
Ness Wadia, team owner, Kings XI Punjab, agreed.
The vivacity of Day 1 of the auction—and its conductor Richard Madley—was hardly visible on Day 2, especially after lunch.
The session had just a handful of players who were bid for.
The biggest sale of the day was Australian player Daniel Christian, for whom Deccan Chargers bid $900,000. But that was perhaps an aberrant note in proceedings marked by interest for Indian talent.
If international players got the cold shoulder, the Indians got
a warm reception. Pacer R. Vinay Kumar was bought by the Kochi team for $475,000 after a lot of jostling with Royal Challengers Bangalore. Medium pace bowler Munaf Patel went for
$700,000 to Mumbai Indians, after heavy bidding by Deccan
Chargers and Pune Warriors. Veteran medium-pacer Ajit Agarkar was bought by Delhi Daredevils for $210,000. Fast bowler
Umesh Yadav was bought by Delhi Daredevils for $750,000.
Experts said the high price tags this year, especially those
pinned on to young Indian players such as Gautam Gambhir,
who was snapped up by Kolkata Knight Riders for $2.4 million
on Saturday, reflected the limited supply of Indian players. With
each of the 10 IPL teams hoping to pick seven good Indian players, it is only natural to see teams competing against each other
for these players, said Ram Tamara, director, Nathan Economic
Consulting India Pvt. Ltd, an economic consulting firm with expertise in sports economics.
“For the first three seasons, the teams picked big international
names because they needed to showcase it as a global franchise.
But going forward, they are being more realistic about what is
needed for a winning team, which is performance,” Tamara
said.
He added it was only logical that teams would bet on Indian
players who were young, fit, and could go through the grind of
the IPL. “Even in the case of Yusuf Pathan ($2.1 million) and Irfan Pathan ($1.9 million), they may not be consistently good
performers, but they are potential game-changers.”
Indranil Das Blah, chief operating officer, Kwan Entertainment and Marketing Solutions Pvt. Ltd, said the auctions will set
the tone for team sponsorships and player endorsements in
coming days.
[email protected]
KOLKATA KNIGHT RIDERS
PUNE WARRIORS
MUMBAI INDIANS
DELHI DAREDEVILS
Irfan Pathan
India
$1.9 mn
Umesh Yadav
India
$750,000
Robin Uthappa
David Warner
India
Gautam Gambhir
India
$2.4 mn
Yusuf Pathan
India
$2.1 mn
Jacques Kallis
South Africa
$1.1 mn
Lakshmipathy Balaji
India
$500,000
Manoj Tiwary
$2.1 mn
Australia
Yuvraj Singh
Venugopal Rao
$1.8 mn
$700,000
$750,000
India
India
Angelo Mathews
Morne Morkel
$950,000
$475,000
South Africa
Sri Lanka
Ashish Nehra
India
$850,000
Graeme Smith
South Africa
$500,000
murali kartik
india
Rohit Sharma
Ashok Dinda
$2 mn
$375,000
James Hopes
Andrew Symonds
$350,000
Aaron Finch
India
Australia
$850,000
Munaf Patel
$400,000
Callum Ferguson
India
Shakib al Hasan
$300,000
Mitchell Marsh
Davy Jacobs
$425,000
Brett Lee
$290,000
Tim Paine
$400,000
Eoin Morgan
$270,000
Wayne Parnell
$350,000
Brad Haddin
$160,000
jesse ryder
$325,000
Jaidev Unadkat
$150,000
Jerome Taylor
$250,000
Ryan ten Doeschate
$100,000
Nathan McCullum
$150,000
James pattinson
$100,000
alfonso thomas
$100,000
$100,000
India
$475,000
Bangladesh
Australia
England
Australia
India
The netherlands
australia
australia
$700,000
south africa
australia
$190,000
australia
Clint McKay
South Africa
new zealand
australia
$110,000
India
australia
australia
$300,000
Naman Ojha
India
$270,000
Ajit agarkar
India
$210,000
Matthew Wade
australia
$100,000
colin ingram
south africa
$100,000
Andrew McDonald
australia
new zealand
$80,000
Roelof van der Merwe
australia
$50,000
travis birt
australia
$20,000
robert frilinck
James Franklin
$100,000
moises henriques
south africa
australia
West indies
$50,000
aiden blizzard
New Zealand
$20,000
south africa
south africa
Retained players
Sachin Tendulkar, Harbhajan Singh, Kieron
Pollard, Lasith Malinga
Retained player
Virender Sehwag
$20,000
SPORTS 11
mint
MONDAY, JANUARY 10, 2011, DELHI ° WWW.LIVEMINT.COM
T20 raises the bar for business
B Y R AM T AMARA
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he advent of the Twenty20 format represents a major
evolutionary change in the history of cricket. In the
1980s, World Series Cricket promoted by Australian tycoon Kerry Packer led to the One-Day cricket revolution. With
the Twenty20 format, the length of the cricket match has been
further shortened and is now comparable (in terms of duration) to other major professional sports in the US and Europe—football, baseball, basketball, etc. While the Twenty20
format was introduced by the counties in England, the Indian
Cricket League (ICL) and the Indian Premier League (IPL) have
added a new dimension by making Twenty20 cricket a franchise sport. Twenty20 cricket is now following the path of the
American and European franchise sports.
All these developments are extremely interesting for an economist. Economists have in the last 20 years been looking at
sports as a way to explain theories of human behaviour. Most
of the initial work in the area of sports was conducted by labour economists, but now sports economics has become an independent discipline of applied economics, and it even boasts
high-quality journals dedicated to this subject. Also, the services of economists and statisticians are now actively used by
some leading sports teams and sporting event organizers to determine strategies relating to selection of players, measurement
and evaluation of performance, and structuring tournaments.
T
What is sports economics?
Sports economics is the application of economic theories to
explain the behaviour of sportspersons, teams, and organizers
of sporting events. From the point of view of the sportsperson
the issue centres around work-leisure choice, that is, the
amount of effort that he or she should expend given the net expected payoff (expected winnings minus the cost to be incurred
to win). For the teams, it is the identification of the type of
player/players who will maximize the teams’ revenue, measurement of the work effort of the players and ascertaining the optimal salary that is to be paid. For the tournament/league organizer it is the structure of the tournament that will elicit highest
ROYAL CHALLENGERS
BANGALORE
IPL KOCHI
provided in a manner that is attractive to fans/consumers.
The league organizer
In the long run, the level of competition in the Twenty20
leagues will determine the viability of the franchise system. Therefore, it is the task of the league organizers—the
Board of Control for Cricket in India (BCCI) in the case
level of competition and enhance fan appeal for the
of the IPL—to structure the league in such a manner that
tournament/league.
there is enough competition to keep the fans excited
Statistics are key to sports. The abundance of data (of
about watching a Twenty20 league game. Professional
good quality) makes sports a viable forum for econosports leagues in the US have striven for “parity” among
mists to test their theories. For instance, in the early
the teams in order to make it exciting for the viewers.
days (1970s), economists used sporting data to test the
In order to achieve this, it is important for the league
relation between pay and performance and the effect of
ECONOMICS OF
to (a) structure the tournament in a manner that prosuperstars. A seminal article by Nobel laureate Sherwin
motes competition—selecting between playoff system,
Rosen and his colleague Edward Lazear in 1981 on
PART-I
round robin, relegation system, etc., (b) provide incentournaments spawned a large wealth of literature looktives to make it worthwhile for the teams to compete,
ing at the efficiency of rank order tournaments as a
such as structuring the right revenue-sharing mechanism
means of compensating workers.
from gate receipts, television rights, sponsorships, etc., and (c)
determine the optimal number of teams and expand the size of
Economics of cricket
the league in a phased manner keeping in mind the growth of
Academic literature has a few instances where cricket data
demand.
has been analysed. One study looked at the effect of Don BradAs mentioned earlier, the theory of tournaments is a well-reman on attendance and gate receipts. As one can imagine, Don
Bradman had a significant positive effect on gate receipts.
searched area in economics. In fact, the BCCI used the services
However, given the way the game was orof a well-known sports economist as an adviser in devising the
ganized and administered, he could not
structure of the IPL. In the US, the structure of the sports league
share in the surplus he had created for the has been observed to be important: The more unified structure
Australian cricket board.
of the National Football League has been more successful in
With the creation of the Twenty20 professional leagues this
marketing the sport than the less unified one of Major League
has changed dramatically. Cricket teams are now the equivaBaseball.
lent of firms (corporations) which are run for profit, and the
market for players is a competitive one where players are paid
The franchisees
according the team management’s perception of value they add
The long-term viability of the league depends on whether the
to the bottom line.
franchisees, who are the producers of the entertainment, are
Given this development, there are two main questions on ev- able to maximize franchise value and profits. From the standeryone’s mind. One, whether this new experiment—Twenty20
point of the professional Twenty20 league teams, the economic
format and the franchise system—will succeed, and two, what it question is how to maximize profit. Profit is maximized by
would mean for the game of cricket?
maximizing revenue and minimizing costs. Team managements
The success of the Twenty20 format and the franchise system
have to devise the strategies that would help them achieve
both depend to a large extent on the fans. If there is demand for these goals.
the brand of cricket that is being marketed, then the chances of
The author is director at Nathan Economic Consulting India
success are very high, provided the organizers of the sport and
Pvt. Ltd.
the event, and the management of teams take the right business
This is the first of a three-part series on anlaysing the business
decisions. After all, cricket is now a business, the business of
of cricket.
entertainment, and it is important that the entertainment is
Respond to this column at [email protected].
CRICKET
COLUMN
KINGS XI PUNJAB
DECCAN CHARGERS
RAJASTHAN ROYALS
CHENNAI SUPER KINGS
Mahela Jayawardene
Sri Lanka
Saurabh Tiwary
India
$1.6 mn
$1.5 mn
Muttiah Muralitharan
AB de Villiers
$1.1 mn
$1.1 mn
Ravindra Jadeja
South Africa
R Ashwin
Sri Lanka
India
south africa
India
Zaheer Khan
$950,000
$1.2 mn
$900,000
S Sreesanth
Cameron White
Cheteswar Pujara
$900,000
$1.1 mn
$700,000
RP Singh
Daniel Christian
$500,000
$900,000
Vinay kumar
David Hussey
Kumar Sangakkara
$1.4 mn
$700,000
Dinesh Karthik
England
India
India
Dirk Nannes
australia
$650,000
Sri Lanka
$650,000
Daniel Vettori
$475,000
Brad Hodge
Tillakaratne Dilshan
New Zealand
$550,000
Abhimanyu Mithun
India
$260,000
Charl Langeveldt
south africa
$140,000
mohammad kaif
india
$130,000
Johan van der Wath
south africa
$50,000
Luke Pomersbach
australia
$50,000
nuwan pradeep
sri lanka
$20,000
rilee rossouw
south africa
$20,000
jonathan vandiar
south africa
$20,000
Retained players
Virat Kohli
New Zealand
Australia
$425,000
VVS Laxman
India
$400,000
Parthiv Patel
India
$290,000
Owais Shah
England
$200,000
Steven Smith
australia
$200,000
Ramesh Powar
India
$180,000
Thisara Perera
Sri Lanka
Australia
India
$900,000
Piyush Chawla
Australia
$700,000
Michael Hussey
Australia
$425,000
Sudeep Tyagi
Sri Lanka
India
$240,000
Kevin Pietersen
$650,000
Pragyan Ojha
Ross Taylor
New Zealand
$1 mn
Scott Styris
New Zealand
$200,000
Dwayne Bravo
West India
India
$950,000
$150,000
faf du plessis
$900,000
India
Rahul Dravid
Praveen Kumar
India
$500,000
$900,000
Adam Gilchrist
Australia
India
$800,000
Abhishek Nayar
India
$75,000
Steven O’Keefe
$400,000
Stuart Broad
$20,000
John Hastings
$400,000
Ryan Harris
$20,000
$325,000
australia
Doug Bollinger
$200,000
Joginder Sharma
$800,000
shaun marsh
australia
$800,000
Johan Botha
India
$80,000
Michael Klinger
australia
India
australia
India
$475,000
Brendon McCullum
S Badrinath
australia
India
India
$850,000
Dale Steyn
australia
England
australia
India
$500,000
Ishant Sharma
$450,000
Amit Mishra
$300,000
Shikhar Dhawan
$300,000
JP Duminy
south africa
$300,000
Manpreet Gony
India
$290,000
rusty theron
south africa
$85,000
michael lumb
england
$80,000
chirs lynn
australia
$20,000
South Africa
India
India
south africa
$120,000
Nuwan Kulasekara
Sri Lanka
Shaun Tait
$100,000
Ben Hilfenhaus
$300,000
$100,000
Wriddhiman Saha
Paul Collingwood
$100,000
Suraj Randiv
Australia
England
$250,000
Pankaj Singh
India
$95,000
Retained players
Shane Warne, Shane Watson
Australia
India
Sri Lanka
$80,000
George bailey
australia
$50,000
Retained players
MS Dhoni, Suresh Raina,
M Vijay, Albie Morkel
04 LEADING THE NEWS
mint
TUESDAY, JANUARY 11, 2011, DELHI ° WWW.LIVEMINT.COM
GAME THEORY
At IPL auction, teams strove for balance
Prevailing strategy
seemed to be about
building winning teams
instead of acquiring
marquee names
THE PAY-OUT
B Y N IRANJAN R AJADHYAKSHA
& R AVI K RISHNAN
·························
Kolkata Knight Riders
Salaries of top five players as a % of team budget.
2008
2009/10
2011
Chennai Super Kings
Deccan Chargers
Delhi Daredevils
MUMBAI
B
elieve it or not: Star
power has become less
important in the Indian
Premier League (IPL) auctions.
The record-breaking salaries
offered to the likes of Gautam
Gambhir, Robin Uthappa, Rohit Sharma and Irfan Pathan
grabbed headlines over the
weekend, as 10 teams fought
each other to grab the wealth
of cricketing talent on offer in
the fourth auction conducted
for IPL. Some, such as the
Kolkata Knight Riders, were
trying to completely rebuild
their teams. Others, such as the
Mumbai Indians, were trying
to bring in fresh talent to support players such as Sachin
Tendulkar, Harbhajan Singh,
Kieron Pollard and Lasith Malinga, the four players the team
owners retained.
However, look at the data in
the table. Almost every team
has spread its money around
more evenly since 2008, with
the proportion of the budget
used to buy the five most expensive players falling sharply.
IPL auctions now seem to be
more about building winning
teams rather than thirsting for
marquee names to draw in
crowds at a time when IPL was
an audacious but untested experiment. The only exception
to this trend is the Rajasthan
Royals, which won the inaugural IPL despite spending very
little money on stars. A team of
relative unknowns had famously eased ahead of starstudded opponents. The proportion they have spent on
their five most expensive players has climbed.
It is always hard to secondguess what goes in the mind of
Note: In the first
year, the teams
had $5 million,
the second and
third years
around $7 million.
In 2011, the
budget was
$9 million
Kings XI Punjab
Mumbai Indians
Royal Challengers
Bangalore
Rajasthan Royals
IPL Kochi
Pune Warriors
0
20%
40%
60%
80%
100%
Source: Mint research
THREE BIG SHIFTS IN IPL BIDDING STRATEGIES
1
Team owners continue to pay big money for
stars, but there is a growing preference for
spreading the money around more evenly
to build balanced portfolios.
2
Performance in other forms of the game
has become a less important parameter
during bidding since T20 track records are
gradually being established.
3
Talent spotting has become more important
as the unknowns of yesterday become the
IPL stars of today. Picking talented
youngsters is now key to strategic success.
PHOTO BY HINDUSTAN TIMES; GRAPHIC BY AHMED RAZA KHAN/MINT
team owners when they go into
an open auction, but some of
the principles of auction design and strategy outlined by
economists and game theorists
may help us make some sense
of what happened at the recent
IPL auction. The rules of an
auction are important because
participants take decisions
within these rules. Economist
Paul Klemperer of Oxford University, in a 2001 paper called
“What Really Matters in Auction Design”, said that the two
core principles of a good auction are broadly the same as
the basic principles of a competitive economy: encourage
entry of new players and prevent collusion.
The IPL auction design
seems to meet these requirements, especially since the addition of two new teams this
year—Pune Warriors and IPL
Kochi—was one reason why
the sale prices for various players shot up. The highest salary
paid to a cricketer has gone up
from $1.5 million (`6.82 crore)
in 2008 to $2.4 million in 2011,
partly because there were more
bidders in the fray and some
teams such as Kolkata Knight
Riders were almost starting
from scratch. However, the
controversial episode when no
Pakistani player was bid for in
2010 stinks of collusion.
There is another noteworthy
part of the IPL auction design.
As in many other sporting
leagues, teams have budget
limits to ensure that one fabulously well funded outfit does
not bag all the best players and
the other teams are left with
second-grade cricketers. Team
owners need to think strategically about how to maximize
their goals within a tight budget constraint, rather than just
use financial firepower to blow
the other bidders out of the
water. Also, such monopoly
could make IPL matches one
sided and kill spectator interest. The underlying motivation
for the budget limit is enlightened self-interest rather than
some fuzzy commitment to
fairness.
Game theorists have also
provided some insights into
what questions team owners
have to deal with when they
bid for sportsmen. The first issue is how to strike a balance
between having a solid plan
when you enter the bidding
room and being flexible during
the actual bidding. You should
know which players you want
and which players you do not
want, but also be flexible
enough to latch on to unexpected bargains. This is more
of a challenge given the IPL
auction rule that players are
bid in a secret order that the
team owners are not aware of.
So while patiently waiting for
your chosen players has its advantages, a team owner may
end up missing many opportunities in the earlier bids because he or she wants to reserve money power when the
favourite is offered for bidding.
The second big issue is how
to build a portfolio of players.
The tendency in the earlier IPL
auctions was clearly to build
teams around a few stars. Such
portfolio concentration was a
high-risk, high-return strategy.
Many of the stars had been taken on because of their abilities
in other forms of cricket; their
T20 experience was limited because it was a new form of
cricket in 2008. So there was a
high risk that these stars would
either adjust to the new form of
the game (as Sachin Tendulkar
eventually did) or struggle (as
Saurav Ganguly did).
There was a clear preference
for a more balanced portfolio
this year. A strong second rung
is always needed in case of injuries or bad form from the
stars. So while the bidding for
the stars always attracts the
most media attention, the strategic actions taken to build the
entire team is not always adequately appreciated. IPL team
owners have clearly shifted
their preference from highly
skewed to more balanced player portfolios. These strategic
dilemmas are a bit similar to
what a mutual fund manager
grapples with when designing
his equity portfolio.
If IPL team owners have to
think like mutual fund managers when building their teams,
they also have to behave like
venture capitalists. IPL has created its own universe of stars,
cricketers such as Yusuf Pathan or R. Ashwin who have
not yet made a huge mark in
other forms of international
cricket.
Even as a lot has been made
of the fact that top-class players such as Ganguly and Brian
Lara did not attract a single
bid, less attention is paid to the
rise of relative unknowns who
have seen valuations soar in
successive IPL auctions. Twenty players have seen salaries go
up by more than 10 times between their entry into the IPL
circus and the latest auction.
Another eight players saw valuations go up between 500% and
1,000% and 21 players between
100% and 500%. This is from
data about the prices of 101
cricketers that Mint analysed.
The upshot: As track records
in T20 get established, IPL has
created its own universe of
emerging stars.
All the 20 players who got a
wage hike of at least 1,000%
were relative unknowns three
years ago, when IPL started.
They were all bought outside
the auction and often for
throwaway prices ranging from
$15,000 to $50,000. About
three-fourths of these players
are Indians, including the likes
of Virat Kohli, who was retained by Royal Challengers
Bangalore for $1.8 million.
Saurabh Tiwary was discovered by Mumbai last year but
was purchased by Bangalore
for $1.6 million this year.
Among the other emerging
stars, there are five overseas
players.
Australian
David
Warner returned to his team
Delhi Daredevils for $750,000,
some 37 times the wage he received in the previous edition
of IPL. Pune bought Sri Lankan
Angelo Mathews for $950,000
after he was discovered by
Kolkata in the first year.
In another words, team owners have to also think like venture capitalists that can spot
talent very early on in the game.
Do not be surprised when there
is more attention lavished on
the bargain buys by the time
IPL 2011 draws to a close.
[email protected]
Cultivating a fan base is key to revenue generation
B Y R AM T AMARA
····················································
n the long run, the value of a team or franchise is determined
by how strong and durable its fan base is. A fan base is not exogenous to the operation of a franchise, but endogenous. In other
words, while there may be some amount of fan interest generated
independent of the operations of a team (possibly related in some
measure to the level of competition in the league), a large portion
of the fan base comes from a careful cultivation of fans.
The questions for the teams therefore, are: (a) how to cultivate a
fan base and (b) how to convert the strength of the fan base into
revenue? In order to answer these questions, teams have to first
identify the different types of fans and what they are looking for in
terms of entertainment. Some are hardcore fans whose loyalty is to
their city; others may follow a team because of its performance or
because their favourite players are on the team; some others may
enjoy watching sports with no loyalty attached to any particular team.
Cultivating a fan base is both a marketing and an economic issue.
Applied microeconomic analysis is useful in assessing the intensity
of demand of each group of fans and ascertaining their willingness
to pay for the entertainment and for team merchandise. It provides
the basis for developing a coherent marketing campaign.
In the context of a fan base, one interesting empirical question
that merits attention relates to factors that drive the size of the fan
base. A look at some American professional sports shows that there
are teams with losing records spanning long periods of time with
immense brand value and fan following.
For instance, Chicago Cubs, a Major League Baseball (MLB) team
with a long history, but known more famously for its losing record,
is one of the highly valued teams with a large fan base. Similarly,
the Boston Red Sox continued to be a popular team even when it
had a long drought spanning decades.
This shows that the fan base of a team does not depend entirely
on winning, but also on history, the city in which it is located, the
entertainment it offers fans and also the stars that play on the team.
This indicates that fan base building strategies would differ from
team to team. Interestingly, the valuation of Indian Premier League
(IPL) franchises by two independent branding agencies shows that
Kolkata Knight Riders has the highest valuation in spite of a mediocre performance in IPL 2008, and finishing at the bottom of the table in IPL 2009. Rajasthan Royals, winner of IPL 2008, was valued at
I
restaurants and a hotel.
second to last by one agency and second from the top by
The other area which requires the attention of profit maxithe other.
mizing franchises is cost. Costs have to be incurred to generThis indicates that teams from large markets (synonyate revenue, but it is important for teams to focus on effimous with large cities with a cricketing history) are more
cient ways of generating the same level of revenues. The exlikely to have a fan base that is large and not so dependent
perience of some MLB teams can be illustrative here.
on performance, whereas teams from smaller markets have
to perform to tap into a national audience and fan base. A
ECONOMICS OF
Cost minimization
large fan base is followed by greater television revenue,
As highlighted, above the strategies for a team will depend
sponsorships and merchandise sales.
PART-II
on what their fans want. The key, however, is to identify
While it is clear that revenues generated by a franchise
strategies and implement them in a cost-effective manner.
are a function of the size of its fan base, it is also important
to identify how revenue can be maximized. Fans are not a homoge- Some of the developments in American professional sports in the
relatively recent past shed light on how teams have used statistics
nous group. Their loyalty and their willingness to pay to watch and
creatively to make sporting and managerial decisions. The interestsupport their team vary. This presents a classic microeconomics
problem, the problem of market segmentation and differential pric- ing angle to this is whether similar analysis can be conducted to
Twenty20 cricket and how it would change the game.
ing to extract as much of the consumer surplus as possible.
One major cost driver for Twenty20 league teams is the salaries
For instance, economic research has shown that ticket pricing by
paid to players. Therefore, the focus of teams should be on deterMLB teams is in fact suboptimal. In other
mining the optimal players roster, while keeping in mind the cost.
words, teams leave a significant sum of money
The determination of the optimal players roster is itself an intereston the table by not truly understanding the
fans’ willingness to pay. This was shown using data from secondary ing exercise which lends itself to empirical analysis.
Our hypothesis, based on the American professional sporting aremarket for tickets, where the true willingness to pay for a game is
na, is that teams from small markets will focus more on maintaining
revealed by the fans.
Recently, the San Francisco Giants, an MLB team, has resorted to a winning record relative to having marquee players on their rosters
than teams from larger markets. Given that cricket is a team game,
dynamic pricing, a technique used by airlines to determine fares
having star players does not necessarily translate into victories.
based on demand using sophisticated algorithms. Ticket prices
Further, small market teams also have fewer sources of revenue
change on a daily basis based on the match-up, time of the game,
weather conditions, and the team line-up. IPL teams could resort to and, therefore, are more cost-conscious. Therefore, the problem
facing a small market team is how to build a winning team at the
such strategies as this is the best way to maximize revenues from
lowest cost possible.
ticket sales. However, currently teams face constraints in terms of
The author is director at Nathan Economic Consulting India Pvt.
ticket pricing as they follow Board of Control for Cricket in India
Ltd.
guidelines on pricing.
This is the second of a three-part series on the business of cricket
Another trend in professional sports in the US and Europe is the
following the advent of the Twenty20 format and the Indian Premier
team ownership of stadiums. Recently, several major sports teams
League.
have built new stadiums that have multiple uses. For instance, the
Respond to this column at [email protected]
New England Patriots, a leading National Football League team,
owns the Gillette Stadium, which generates more revenue from
uses not related to football. Given the short playing season—there
are eight regular season games played in a year—owning a stadium
To read the previous story in the series, go to
is a financially viable option only if it can be put to other uses. The
www.livemint.com/t20biz.htm
Gillette Stadium has a shopping mall, movie theatres, music hall,
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Corporate News
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WEDNESDAY, JANUARY 12, 2011, DELHI
mint
TAPPING DEMAND
MUMBAI REDEVELOPMENT
Future Group to enter
mortgage lending
New CRZ notification
vagueandimpractical,
say officials, builders
ASHESH SHAH/MINT
The firm’s financial
services arm, Future
Capital, is registering
the business with the
National Housing Bank
B Y M ADHURIMA N ANDY
[email protected]
·························
BANGALORE
T
B Y R ASUL B AILAY
[email protected]
·························
NEW DELHI
T
he financial services arm
of Kishore Biyani’s Future
Group plans to enter the
mortgage lending business,
seeking to tap burgeoning demand for home loans in a country where up to 800,000 apartments and houses are expected
to be ready for possession in the
next three years.
Future Capital Holdings Ltd,
as the financial services firm is
known, has already registered a
home finance company named
Future Capital Home Finance
Pvt. Ltd with the Registrar of
Companies (RoC), according to
the RoC’s website.
Now, Future Capital is in the
process of registering the business with the housing finance
regulator, the National Housing
Bank, according to a person with
direct knowledge of the matter
who asked not to be named. A
spokesperson for Future Capital
declined to respond to an
emailed questionnaire sent by
Mint on Tuesday.
The Bombay Stock Exchangelisted Future Capital, with a net
worth of `750 crore and a loan
Growing market: Future Group founder and CEO Kishore Biyani.
book of `2,000 crore as of September, provides consumer
loans and has a 30,000-strong
customer base.
Home loans are the fastest
growing segment for commercial
banks, which have a 60% share of
the market, with mortgage lenders such as Housing Development Finance Corp. Ltd accounting for the rest.
Outstanding home loans are
estimated at `5 trillion in a country where between 750,000 and
800,000 new dwelling units will
be ready for delivery in three
years, according to real estate
consultancy Jones Lang LaSalle.
Analysts expect housing loans
to grow at an annual pace in excess of 20% in the coming year
and expect competition in the
mortgage lending space to increase.
“It’s a very competitive area as
yields are pretty low compared
to any other financing,” says Hatim Broachwala, banking analyst
for Mumbai-based Khandwala
Securities Ltd.
Biyani has built Future Group
into a retail business with
around `10,000 crore of annual
revenue.
Future Group flagship unit
and the country’s largest listed
retailer Pantaloon Retail (India) Ltd runs store chains such
as Big Bazaar, Pantaloons and
Food Bazaar.
In August, Future Group appointed V. Vaidyanathan, former
head of ICICI Prudential Life
Insurance Co. Ltd, as the managing director of Future Capital
with the aim of turning the unit
into a full-fledged financial
services company.
he euphoria has dimmed
over land opening up for
real estate development in
Mumbai, following last week’s
coastal regulation zone (CRZ)
notification, with government
officials and property developers calling the new guidelines
vague and impractical.
Around 45%, or 206 sq. km,
of land in Mumbai is under
CRZ. The environment ministry’s notification unlocked an
estimated 146 slum pockets
and 600 dilapidated buildings,
mostly in south and central
Mumbai, for redevelopment.
The state government has to
pick up a 50% stake in the slum
projects and partner developers in redevelopment of the dilapidated
buildings.
This
would ensure a steady supply
of low-cost houses in the next
few years in addition to commercial development by real
estate firms.
But Maharashtra officials
say it won’t be easy for the
state to take up the stipulated
stake.
“Currently, there is no such
scheme in which the state government puts in so much investment, and it would be economically unviable to do so,”
said T.C. Benjamin, principal
secretary for urban development in Maharashtra.
The projects would require a
three-way agreement between
a government agency such as
Maharashtra Housing and
Area Development Authority
(Mhada), private developers
and people already inhabiting
the land, such as slum dwellers
or tenants in old buildings.
“How would this shareholding actually work out and who
would have to invest and execute? Questions, such as,
if the government can put
in its own
land as capital,
also
arise,”
said
Gautam Chatterjee,
Maharashtra’s housing
secretary.
The guidelines
have
raised
the
floor space area (FSI) of the
unlocked land to 2.5 from 2 or
below.
FSI is the ratio of developed
floor space to the land area.
Higher FSI allows builders to
develop more floors.
Developers also said the
government needs to spell out
the new policy in clearer
terms.
“There are several schemes
under which a developer can
avail extra FSI. So, if I buy out
all the tenants in a project or
relocate them, there can’t be
any government intervention,”
said an official from a real estate firm who didn’t want to be
named.
Orbit Corp. Ltd has a few redevelopment projects in the
tony Nepean Sea Road area
that may avail of the extra FSI.
“While the extra FSI will lead
to about 10-15% of additional
real estate stock in Mumbai,
some of it has to be passed on
to Mhada,” said Ram Yadav,
head of finance and strategy,
Orbit Corp.
Separately, the new CRZ
guidelines have given fishermen colonies, or koliwadas, an
FSI of 1 with additional construction rights.
“We had asked for a uniform
FSI of 2, but now development
rights have to be bought in the
form of TDR (transfer of development
rights),
which may
have financial implications,” said
another senior government official
who didn’t
want to be
named.
TDR is a
tradable paper
issued
by state governments in exchange for free
development of slums by
builders, who use the paper to
develop other sites.
Effectively, TDR is the FSI
that can be used in another location.
Benjamin said the norms
meet many of Maharashtra’s
demands, but the government
is not clear on how they would
be implemented. “We would
make a reference to the environment ministry and get clarifications on these.”
It won’t be easy to
pick up a 50% stake
in all slum projects,
partner developers in
redevelopment of
dilapidated buildings,
say officials
Use analysis to identify and evaluate key players
B Y R AM T AMARA
····················································
n order to build a winning team, one first has to understand the
factors/events that generate victories. This is where a thorough
analysis of data is required.
The story we relate below clearly shows that out-of-the-box
thinking is required to determine these win-producing events. Traditionally used statistics may not really reveal the true picture and,
in fact, may cause wrong decisions to be made.
In his book Moneyball, journalist Michael Lewis details the way
the Oakland Athletics, a Major League Baseball (MLB) team based
in Oakland, a suburb of San Francisco, rethought the game of baseball by turning traditionally held myths on their head and recruiting
players who were not sought after by other teams (and hence not
very expensive), but possessed skills that allowed the team to generate more wins.
Lewis’ book is about the general manager Billy Beane, and how
in the late 1990s Beane made rather unconventional (and daring)
hiring decisions by relying on the analysis of a breed of baseball
statisticians/analysts who called themselves “Sabermetricians.”
Sabermetricians believed in the analysis of baseball through objective evidence. They did this by rigorously analysing baseball data
without allowing conventional wisdom to bias their analysis.
The analysis by sabermetricians showed that traditionally used
statistics such as batting average (same as that in cricket), stolen
bases (equivalent to byes in cricket), and runs batted in (equivalent
to partnership in cricket), are not good predictors of the run scoring
ability of a batsman, and by extension the team. However, analysis
of data showed that runs scored were explained more accurately by
on-base percentage (roughly equivalent to rotation of strike in
cricket), and slugging percentage (equivalent to the strike rate).
All other teams in the late 1990s were using the traditional measures to evaluate the run production efficiency of players, and using
them to make recruiting decisions. The highest valued players were
the ones who had high batting averages and runs batted in. There
was no competition for players who fared well when evaluated
based on sabermetric measures such as on-base and slugging percentage.
Billy Beane was, therefore, able to assemble a winning combination at a very low cost. In 2006, the Oakland Athletics were 24th out
of 30 MLB teams in terms of salaries and fifth in terms of their winning record.
The Twenty20 cricket game is probably the closest to a baseball
game in terms of the length of the game—both in terms of time and
the number of pitches. Also, run production is a very important
consideration in this short version of the game. Therefore, analysis
similar to that pioneered by the sabermetricians in baseball will
shed some light on factors that are good predictors of run production and will help teams identify players who are capable of highrun production, based on these metrics. Such analysis will also al-
I
grasp the situation and come up with appropriate
strategy. Given this, it is very easy for players
to adopt strategies that may not be in the team’s
best interest.
For instance, players may resort to shots that are risky,
but yield a boundary if they work. The question is whether
the player is maximizing his self interest or the interest of
Team before self
ECONOMICS OF
the team in these circumstances.
While what we have talked about so far relates to revePlayers respond to incentives, and if the incentives are
nue, costs, and value maximization, there are a few other
PART-III
not correctly set, the response is suboptimal as well. If, for
interesting angles for a researcher, coach and the team
instance, a player’s performance is measured by the runs
management. This has to do with the behaviour of players,
scored and his strike rate, it could result in the player pacing his ini.e., what skills they choose to exhibit, and whether they play to
nings in a way that achieves these dual goals. But this might not be
maximize their value or whether they play to generate a win for the
in the interest of the team.
team.
For instance, a player could take 70 balls to score the 50 runs,
Again, we refer back to American sports and to Michael Lewis. In
and then accelerate to score the next 50 runs in 30 balls, thus acha recent article (“The No-Stats All Star,” 15 February 2009, The New
ieving the twin goals—ensuring at least a 50 while making his strike
York Times) Lewis highlighted the use of analysis in professional
rate 100.
basketball. He points out that the front office of the Houston RockIn Twenty20 cricket, use of analysis can pin-point exactly what
ets, a successful team in the National Basketball Association (NBA),
are the critical plays and strategies that contribute most to a win.
using analysis similar to that used by sabermetricians, has found
that “box scores” that are widely reported and used are not relevant This can then be used as the metrics by which players would be
evaluated.
metrics to evaluate players.
For instance, Shane Warne the captain of Rajasthan Royals is said
Lewis gives the example of a Houston Rockets player, Shane Battier. Battier was traded by many teams before to have designated a role for each player and drilled it into them.
The players are not required to react to the situation based on their
he ended up at Houston. Even at Houston,
his statistics, as highlighted by the box scores, reading of the situation, but rather perform their role when called
upon by the captain. In this sense, the captain reads the situation
are dismal—he hardly ever scores, and does
and decides what roles would fit the situation.
not have many rebounds, steals, blocked shots or assists. However,
Players are evaluated on how they perform in their designated
the Houston general manager Daryl Morey found that teams won
when Shane Battier played.
roles.
Coming from the Boston Redsox, an MLB team that is now well
The introduction of the Twenty20 format, coupled with the franknown for the analytically minded front office, Morey was tasked
chise model, has added a new dimension to cricket. The new forwith rethinking basketball by the owner of the Houston Rockets.
mat has attracted attention the world over and it could jostle for
Battier, Morey says, is an unselfish player. This is very rare in the
space with other professional sports in the American and the Euroworld of basketball where most players want to show their wares
pean markets.
and look as attractive as possible. Battier’s contribution to the team
Given the similarity of cricket to baseball, we could predict that
is not revealed in the box-scores. Even though limited in talent, Bat- sabermetrics-type analysis will become popular in cricket and
tier knows where exactly to be on the court at any time and he
sound economic analysis, backed by statistical analysis, will drive
makes it difficult for the opponents to score. Unfortunately, the tac- the decision making at for-profit franchises.
tics he employs and his strategies to make it difficult for his oppoThe author is director at Nathan Economic Consulting India Pvt.
nents to score are not captured by the conventional metrics.
Ltd.
The Houston front office, in the process of rethinking the game,
The series is concluded.
has now collected data on all the small things players do that help
Respond to this column at [email protected]
teams win. This has resulted in new strategies, and new ways of
evaluating players performance and impact on the game.
low the coaches to rethink the game and devise strategies
that are appropriate to a 20-over game.
As in cricket, there are two other facets of the
game—pitching and fielding—in baseball where analysis is
now being used to identify key plays to evaluate players.
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Cricket and the role of incentives
This is extremely interesting from the point of view of cricket, especially the Twenty20 brand of cricket. Given the short length of the
game, strategy matters. Also players do not have much time to
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