Winner’s Curse and the IPL Auction

So, as January nearly comes to an end, I have found my new year resolution – I resolve to blog at least once a week more frequently this year. As you will notice, my previous blogging attempts have come in spurts interspersed by long periods of hibernation. I’ve decided to set the record straight, partly due to peer pressure (some of my friends, Kevin,Andrew, Ali, Dan and Rohit are extremely prolific bloggers) but mostly because of selfish reasons – blogging crystallizes my own random observations into more random theorizing about how the world works. Or doesn’t.

To kick things off, I’m going to write about this week’s player auction in the IPL. For the uninitiated and Americans, that’s the Indian Premier League, the biggest, bestest sporting extravaganza on the planet. Okay, I exaggerate. It is a professional cricket league started in India in 2008 which revolutionized the sport from being a somewhat indulgent, five day (Test Matches) or eight-hour affair (One-Day Cricket) to a glitzy three hour entertainment package, with city based franchises owned by corporate honchos and Bollywood stars.

Much ink and cyberspace has been devoted to dissecting the IPL’s commercializing, corrupting effect on cricket. That is NOT the subject of this post. What struck me this year was the auction for players, specifically Kieron Pollard. Now, the way this year’s auction was set up, all teams were allowed to spend a maximum of $750,000 to buy players. If they spent it all on a single player and more than one team bid their maximum for that player, there would be a tie breaker. The tie breaker would be a single-price, sealed bid auction, where teams would write their secret bids on a sheet of paper. The highest bid would win the player and the amount would remain undisclosed. The above scenario played out for Pollard, who was then snapped up by Mumbai.

Now, the question which immediately comes to mind is, why keep the final bid amount ($750,000 + X) secret? My guess is a phenomenon known as winner’s curse. Winner’s curse is the idea that in auctions like the single-price, sealed bid auction and the English auction, the winner ends up paying more than the actual value of the asset. Essentially, the asset has the same value for all teams, but their estimates are different, because of uncertainty about the value of the asset. This uncertainty leads to different bids, but the highest bid is always higher than the common value of the asset.

I believe Kieron Pollard is a winner’s curse for Mumbai. And the uncertainty around his value wasn’t because any team had privileged information about him, but because they had so little information about him. This is a man who has played 20 international innings (ODIs and T20s combined) and faced 235 balls in total. To give you some perspective, that’s 1% of the number of balls Sachin Tendulkar has faced, and Sachin's “icon value” to Mumbai was $1.035 million. All that Pollard had going for him was one explosive 18 ball 54 in the T20 Champions League in October 2009. Incidentally, that match was played in India, which raises an interesting point about the disproportionate value of good performances in India for foreign players.

If this post leads you to think winner’s curse is a just an academic curiosity which has no real insight for the real world, think again. After the grand financial collapse in the US in 2008, the Treasury’s “Bank Plan” was to auction toxic assets to private investors, and get them off banks’ books. Of course, the problem was private investors did not know what the toxic assets were worth and were likely to suffer the winners’ curse if they made the winning bid. And that is why the Administration had to offer to subsidize the purchases.

Mumbai had no such subsidies. And that’s why I think they will regret winning the bid for Pollard.

Chak De India

"A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a cricket team, long suppressed, finds utterance."

I can almost feel Nehru turning in his grave after my shameless use of his historic 1947 speech to describe a cricket win, but there are times when lofty prose is needed to aptly describe monumental achievements, and this is one of them. India won the Pataudi trophy, defeating England in England, 1-0. For the cricket dabblers, statistically minded and perennial cynics, it is a result which merits little attention - India had just about pipped an opposition that wasn't the evil hegemon Australia or the old enemy Pakistan (even though no one had given India a ghost of a hope before the series). Yet for the acculuturated cricket lover, a test cricket romantic, and an Indian team follower, the magnitude of this victory cannot be dimmed. To understand these layered feelings, one has to have lived the hopes, some successes and many failures of the Indian teams of the 1990s and 2000s.

My love affair with cricket began with the '92 World Cup, all of which I watched snuggled up in blankets during a chilly winter vacation spent in Patna (like all of my vacations, really). It was a forgettable world cup for India, who lost to everyone except Zimbabwe and eventual winners, Pakistan. Yet it was also the arrival of a short, scrawny and curly haired Sachin on the One Day stage - the sight of a little 19 year old boy taking on and dominating tall, strapping, fast bowlers, beamed into millions of TV viewing homes, pan dukans, restaurants and villages brought him instant fame and celebrity. It was the simultaneous birth of the television fuelled One Day cricket as we know it (colored clothing, white balls et al) and the cult of Sachin Ramesh Tendulkar. As the great man once modestly said, "I'm the child of the one day game".

In all this razzmatazz, what was lost was India's love for Test cricket. The wham-bam-thank you-ma'am kind of instant entertainment that one day cricket provided had captured the imagination of a generation (my generation) but had also made the coquettish joys of the Test cricket format appear quaint and an anachronism. Where Pa would rave about the crease occupation prowess of Gavaskar and Vishwanath, I would sing praises of the stylish Azhar and the maverick Jadeja's hitting. Even though the rise of One-dayers are identified as cause and decline of Tests as effect, there is another mechanism at work encapsulated by an inversion of the Latin saying, "'Quod me nutrit me destruit" (What nourishes me also destroys me). One-Day cricket hasnt just destroyed Test cricket as it was known, it has also nourished Test cricket. Apart from subsidizing Tests with the millions that it rakes in (check out the difference in stadium crowds in the two forms) , it has also created a more result oriented Test match culture where 400 runs in a day has moved from the realm of the impossible to eminently probable (incidentally, one of the reasons why Dravid chose to play safe at Oval).

Adapting the framework that I have laid out to the specific case of India, certain observations about this victory come to mind. The young architects of India's win, Karthik, Dhoni, RP Singh, Sreesanth are all between 21-25 years old, about my age or older. They must have watched the '92 World Cup sunggled in their own blankets, whether in Bangalore, Ranchi, Lucknow or Kothamanglam. Their imagination must have been fired by the same SRT, whose images must have been beamed from the same Doordarshan. This, in itself, was the biggest contribution of the TV fuelled One Day game - the democratisation and spread of a sport dominated by the Bombay Boys and Delhi Dons to cricketing backwaters of Jharkhand, Kerala and Uttar Pradesh. If you include current discards Sehwag, Pathan, Raina and Kaif to this lot, what you get is a demographically more dispersed Indian team. And the long term success of Indian cricket will be built on this wide platform.

Now, coming to the second significance of this win: As a part of a long farewell year or two for the Galacticos of Sachin, Dravid, Ganguly and Kumble, this win on English soil after 21 years is a culmination of a golden generation who have been part of many almost there moments together. There have been the memorable ODI successes like the 93 Hero Cup, 97 Titan Cup, 98 Sharjah Coca Cola Cup, Mini World Cup win in Dhaka, reaching the finals of 2003 WC but the disappointments are too many: 12 ODI tournament finals without a win, 96 WC semi-final, 03 WC final whitewash and the biggest of them all, the 07 WC disaster. If the ODI record is chequered, the Test record has recently become better, without the success that should have accompanied it. On nearly every occasion when India were poised on the brink of an overseas Test win in the 1990s, they were thwarted - by the weather (Wanderers '97 against South Africa), or by their own tendency to crumble (Barbados '97, chasing 120), winning a solitary Test against Sri Lanka in the 39 Tests they played. In the 2000s, this trend was reversed, with India's wins abroad being only second to Australia yet they caught an even worse affliction: of losing the next Test after a win (against England, Australia, Pakistan, Sri Lanka, South Africa and even West Indies) resulting in the only outside the subcontinent win last year in West Indies.

Even though India's golden generation has achieved a lot - a WC final, stopping the Aussie juggernaut in Tests and nearly beating them at home, defeating Pakistan in Pakistan, what it has finally done is convincingly beat a good non-Asian team in foreign conditions. The nation had achieved Independence from the foreign domination 60 years back. The cricket team has taken its time.

P.S. Check out Sachin's pic to know what I mean.