Pro Kabaddi Auction, 2018 – Tackling the economics behind the commercial raid

 

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By- Rishika Mendiratta (Founder and Managing Editor at KhelAdhikar)

 

When you have got something to prove, there is nothing greater than a challenge– Terry Bradshaw

The Pro Kabaddi League (PKL) had its own share of challenges during its inception in 2014. It transformed them to its advantage making kabaddi one of the most delightful sporting spectacle ever. The sight of happy decorated faces, waving flags of their favorite teams, unending chants of their team player and the deafening roar of appreciation on a successful raid or tackle is a common spectacle during PKL. Cricket is no longer the only sport which captures the imagination of the masses. Kabaddi has become a sport which unites the classes and the masses.

The season 6 auction carried on the drift of the crazy IPL season. The transition from Chants of Whistlepodu of the Chennai Super Kings to the Pirates Hamla of the Patna Pirates reverberates the diversity of the emerging sporting culture of India.  No wonder, it has become the second most watched league in the country after IPL. The start of the 13-week from October 19, had already been checked on the calendar of the sports lovers across the nation.

The special bond which kabaddi strikes with the entire country is due to its universal appeal. It has transformed the game played by both girls and boys during the school recess and on the streets into a global sensation. From kabaddi players struggling to make ends meet, to becoming overnight stars, this tournament encapsulates the Indian sporting dream. More so, it was also instrumental in the resurrection of the Kabaddi World Cup in 2016 after a gap of 9 years.

12 teams, 422 players from 14 countries in season 6’s auction on 30 and 31 May, 2018 speaks volumes of the immense outreach of this tournament. Believe me, the frenzied bidding for Rahul Chahudri and his reaction when Telugu Titans retained him by the Final Bid Match (FBM-explained later in the article) card had me on the edge of the seat. The same excitement was also experienced by the twitteratti who were all pepped for the PKL shopping. The Future Kabaddi Heroes (FKH) initiative which provides an opportunity for 87 young players from the country to be a part of this league ensures development of talent and engages the old and the young alike in one of the most loved indigenous games of the country.

Every sport has values for which it is best known. Football is considered to be a beautiful game, cricket is a gentleman’s game. Kabaddi is best known for honesty and loyalty and playing for reputation against all odds. Le Panga – the tagline of the league is reflective of the aggressive and passionate Indian youth.

When the league started in 2014, it was realized that it had to be structured according to the consumption pattern of the audience. Thus there was minor tweaking of the rules, keeping in mind the spirit of the game and the demand of the viewers. The average time of a raid (player entering into the opposite team’s area to tag them) which is usually around 45 seconds was reduced to 30 seconds. If a raider tags more than three defenders, it is called a super raid resulting in extra points. If there are three empty raids, the raider is ousted and the point is awarded to the opposition (known as Super Raid). (Audience thrives on such do or die scenarios!!) If a raider is caught by three or less than three defenders it is called a Super Tackle. These changes have sure maintained the spirit and increased the passion for the sport.

Auctions Speak Louder!

This section will analyse the mechanism of an open player auction from the perspective of PKL. An open auction is a scenario where the discovery of the market price takes place through real time bidding.

Market Structure

The market structure is in the form of a monopoly (IKF and AIKF together controlling the supply of players), a monopsony as the sports league, in this case PKL controlling the labour market (in the absence of any other similar competing leagues presently pertaining to kabaddi). Thus the price, traded quantities and traded transactions are not close to equilibrium usually. The most common scenario in such monopolistic situations is to resort to auction like mechanism where the demanders bid against each other so as to fetch the maximum price for the optimistic bidder. The price is the expression of the monopoly rent that the sports entity could reach.

Aim of  Player Auction

The aim of any player auction is to ensure that the players get a fair price for their labour, and the teams can realize the economic value of the money spent on their purchase. Thus there is a reserve price for the players which signifies the base value below which the player’s labour and talent cannot be auctioned.  The teams have a maximum cap on the purse they can spend in the auction.  This ensures that anti-competitive and detrimental practices do not hamper the auction process. The players are divided into categories A, B, C, depending upon the levels they have played (national, state etc.) The bidding is sequential, wherein the Overseas, Category A, B and C and FKH players are placed for bidding in tandem, although the bidding for players within each category is through draw. This has strategic problems because the bids on a particular category item is completed before the bidding on other category starts. Thus the buy can prove to be worthless if the appropriate complementary items are not purchased from other categories. For example in PKL, if a team has excellent raiders but could not purchase the skilled defenders, the economic value of the raider is diminished. This calls for a constant evaluation of strategy after each player is sold.

Bidding Uncertainties

In any auction, there are two kinds of uncertainty while bidding for any player. This includes private value uncertainty and common value uncertainty. The private value uncertainty is usually based on individual idiosyncratic factors which a franchisee may consider with respect to a certain player. To minimize this, the concept of iconic payers in IPL and Elite Retained Players (maximum of 4 players which franchisees could retain from the previous season) in PKL was introduced so that the bidders do not go overboard in the case of highly value or star players. In common value uncertainty, all the players agree on the value of the player but the actual value of the player is unknown.  One of the measures to mitigate is to setting a base price of each player and the maximum purse value of the franchise. This is typically witnessed across all player auctions. Even in PKL each category has a reserve price and the maximum spending limit of each franchise was Rs. 4 crore.  Another methodology adopted to reduce this uncertainty in PKL was the concept of Bid-O-Meter for the bidding of Category A players in this year’s auction. It had a graphical representation with three categories- ‘Steal, Fair and Ambitious’ to determine the price range of the players during the bid. Thus, in case of frenzied bidding it helped in determining whether the payer was being bought at more than the expected marginal product. The range was developed using a strategic formula calculated in accordance with the players’ performance in season 4 and season 5.

Price Discovery

In an open auction such as that happens in PKL and IPL, one of the major concerns is the price discovery mechanism for a player. The most common mechanism for the same is the hedonic model. It takes into consideration the implicit and explicit values of the players. The performance of the players, age and physique, skills and abilities are given weightage. For example generally the bidding for the all-rounders fetches higher prices based upon the value determined in accordance with this model. At the same time the bid price for the players such as Anup Kumar and Deepak Narwal has taken a tip in accordance with their age and form. They being bought at minimum fair price justifies how these factors come to play.  This valuation turns futile during the occurrence of irrational exuberance or bidding frenzy as is common in player bids. (Preity Zinta going overboard in the 2018 IPL is still fresh in minds!!). The purchase of Monu Goyat for more 1.51 crore may be an apt example of irrational exuberance as by the time his name was announced, most of the star raiders had already been picked up. Haryana Steelers could not risk losing him and thus the price bids went on escalating.

The Bidding Jargon

This year PKL auction saw the introduction of the concept of Final Bid Match (FBM). This is synonymous to the Right to Match in the IPL auction. It allows an extra option for the team to get the players they could not retain because of number restrictions. The exercise of this option was restricted in accordance with the retention of the Elite players. If a franchisee retained 4 players they could utilize this option only once otherwise twice this rule could come to their aid.  At the end of a respective bidding round, the franchisee would be given a chance to match the bid of the team that has bid the highest for the player. If they are able to match their bid, the player goes to them. Thus, it can be said that the teams who owned them previously have the right of first refusal.

The rules of “Elite Retained Players” and “Final Bid Match” are strategically intertwined. This is because those players who will not be exposed to high bidding will not be retained by the franchisees.  This also ensures in strengthening long term association and even redistribution of the players, which increases the competitiveness of the league.

Understanding the Winner’s Curse

The winner’s curse comes into play in player auction as the market value of the sports player is not known with accuracy beforehand in a sports economy. The winner’s curse means that because of asymmetry of information, the final value of the bid by the optimistic bidder is more than the real value of the asset.  The winning franchisee is therefore worse off than it would have been had it lost the bid because of the sub-optimal price of the bid. This happens when the player that will go up for bidding has the same objective value for everybody but the real value is unknown.(common value uncertainty, as previously explained) The results include negative returns or below-normal returns. More the number of bidders, the worse the winner’s curse as the magnitude of loss of the aggressive bid is greater. The winner’s curse is basically a demand side triggered mechanism.

In PKL, in the category of Elite Retained players, there were 21 of those in this year’s  auction, winner’s curse is prevented as they do not go into auction. To add to the discovery of the price of the Elite Retained Players who do not go into auction, the method of Dynamic Pricing is followed. Accordingly the retained player is paid 10% more than the highest player in the same category. As PKL being in the initial stages, does not follow the draft system, all the other players are tradable and the winner’s curse is common among their bids. The team owners are the bidders and the players are the sellers of their right to use their talent. If the talent of the players is not substitutable the players command a monopoly position, which results in them commanding a higher price and the information asymmetry hastens the process of winner’s curse. Thus this scenario is basically common in the category of star players. Even in PKL this time the lead scorers of the previous edition who were not retained by the previous teams, were the ones that attracted the highest prices.

Winner’s curse or not –Let us find out?

As a maximum of only 4 players could be retained other star players such as Rahul Chaudhari, Deepak Hooda, Manu Goyat, Rishank Devadiga were a part of the open auction. In the case of Deepak Hooda, the FBM option was not exercised by the Puneri Paltans. Maybe this was because the price at which he was bought was above their valuation. The fair market value of the players because of the popularity of the league and the exceptional performances has certainly increased, it is the returns the team receive at the end of the season which will provide the correct evaluation of their choices and the presence of the winner’s curse, if any.  This is because the factors that determine this phenomenon include – more number of bidders, bid price being higher than the average estimated marginal value of the player, the player turning out to be a ‘lemon player’ i.e the on field performance is below expectation, the bid prices resulting in excessive monopoly rent which has a detrimental effect on the team’s budget – all of which results in disequilibrium and hampers effective returns.

Auction Gains!

The season 6 option has given the necessary monetary fillip to the league. With six players six players crossing the 1 crore mark- this year, it is evident that the players can command a price. This ensures -that player endorsements will have an impact as the open auction reveals the fair market of the players. Thus it will be great to see Rahul Chaudhari pair up with Hardik Pandya for a cosmetic commercial!!!

You instigate, I dominate, You falter, I conquer

Pro kabaddi has lived up to the courageous spirit of the game. From being India’s national game in 1918, to going into oblivion, to being referred to as a mere rural sport, to rising like a phoenix from ashes, kabaddi is striding ahead and rightfully occupying its place as one of the most skillful and engaging sport endeavours. It was included in the Asian Games in 1990. With the success of PKL and the rise in its global outreach, and the return of the Kabaddi World Cup it is hoped that it goes on to carve its spot as an Olympic Sport as well in the near future. In a squad of maximum 18-25 with an apt combination of overseas players (maximum 4) and young players (3 from FKH programme) it ensures that there is simultaneous global and grassroot development of sports. Moreover the increase in commercial value has also bettered the prospect of better infrastructure and training facilities.

Let the game and jingle “Khel Kabaddi, Khel Kabaddi” grow and prosper!!!

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