March 13, 2008

Opportunity, choice and the IPL

Talk about silly money all you like, but the bottomline is, the IPL will bring competition and the rules of the market into cricket - and that can't be bad
40



The likes of Ishant Sharma and Andrew Symonds have been sold for the prices they have because the franchises think they can get a return on their investment © Getty Images

The silly season of cricket punditry is upon us, and I blame Lalit Modi. Had the man not unleashed the Indian Premier League, newspapers and websites would not be full of otherwise sensible commentators telling us that the world is coming to an end because there is so much money in the game and the centre of cricket is shifting to savage, uncultured Asia. They rail against the profit motive and splutter indignantly and eloquently against the huge amounts given to some of these players. Some, like Tim de Lisle in a column a few days ago on Cricinfo, complain that such "silly money" is "disgusting" in a country that "encompasses a great deal of poverty".

I disagree. Firstly, I think that the IPL is a huge step forward for cricket. Second, contrary to what de Lisle writes, it is good for India as well. Let's start with cricket.

The problem with cricket in most cricket-playing countries, certainly in India, is that the cricket market is what economists call a monopsony. A monopsony is a market in which there is only one buyer for a particular class of goods and services. Until now, a young Indian cricketer who wanted to play at the highest level could only sell his services to the BCCI. If it treated him badly and did not give him his due rewards, he had no other options open to him.

This was exacerbated by the lack of accountability in the BCCI. The men who run it get their posts by pandering to the state associations that vote for them, by handing those associations ODIs that bring them revenue, by distributing posts within the board, and so on. How the cricket team performs on the field has no bearing on the tenures of these men; those are determined by politics.

This has two implications. One, the incentives for picking the best team possible aren't too strong, as there is no penalty for poor performance. (In fact, regional politics within the selection committee has sometimes ensured that the best team hasn't been picked.) Two, a player who suffers because of this has no other options open to him.

While the BCCI will continue to run along the same lines, the IPL turns this on its head. There is competition between the franchises, who have spent tons of money to enter the IPL and need to make profits to justify their involvement. This acts as a powerful incentive for them to hire the best cricketers they can find, and to develop new talent. Teams that are selected based on politics or bias will play worse than the teams that don't, and their bottomline will suffer.

Equally, all the incentives are tailored towards finding and developing new talent. If the IPL is a success, don't be surprised if the franchises open their own academies and nurture youth teams - it is in their financial interest to do so. Precisely such feeder systems have developed in the Premier League in England, and all for the sake of the much-maligned profit motive.

Think of what this will mean for the players. A talented young cricketer frustrated by the BCCI will no longer have to suck up to officials and hope that they notice his talent in the handful of games he gets in local cricket. Instead, he will find eight potential buyers for his services. If he has either talent or potential, they will compete to employ him.

The BCCI has helped this process along with the mandate that each team employ at least four cricketers under 22. As a result, the players of the current Under-19 side have suddenly become much sought after. This will happen to every future Under-19 side. Young talent will be less likely, in future, to fall by the wayside and be ignored. Callow fast bowlers will be less likely to be injured for long periods of time, for their employers will hire the best trainers to look after their assets - cold as it sounds to call them that.

A common complaint about the IPL centres around the money paid to individual cricketers. Does Rohit Sharma really deserve more than Ricky Ponting? Are the men paying Ishant Sharma more than Dale Steyn and Glenn McGrath making a silly mistake?

Well, firstly, these investments are made not just on the basis of cricketing ability but also on factors like brand appeal and likely availability. Secondly, more importantly, if they are foolish decisions, then the most potent commentary on them will come not from cricket writers but from the balance sheet. Those who make foolish investments will suffer; those who are smart will prosper. Eventually, as this market matures, we will come closer to finding out the true value of players.

 
 
There is competition between the franchises, who have spent tons of money to enter the IPL and need to make profits to justify their involvement. This acts as a powerful incentive for them to hire the best cricketers they can find, and to develop new talent. Teams that are selected based on politics or bias will play worse than the teams that don't, and their bottomline will suffer
 

Some commentators take issue with so much money being spent on a sport in a poor country. "[M]ost of these millions will be leaving India," de Lisle wrote in his piece, "filling the coffers of Australian stars who are already very highly paid. Money shouldn't travel in a direction like that."

If that logic was correct, we might as well stop poor countries from importing anything. Every trade happens because it leaves both parties better off, and the IPL's foreign players are being paid so much because they bring that much value to the table. That value, the return on those investments, will happen within India. Andrew Symonds may be delighted that his services are being sold for $1.35m, but the franchise that bought him also thinks that it can get at least that much value out of him, through the various revenue streams open to them.

Every flourishing business creates employment opportunities and enriches the local economy. The IPL will offer more opportunity to cricketers coming up the ladder, and more choices to cricket viewers. The income disparities that pundits complain about are best tackled using exactly such a combination of opportunity and choice - and not by keeping everyone poor.

Also, we don't live in a zero-sum world - the profits from the IPL will not come at the expense of better causes. In fact, they will be invested back in the local economy, and in the long run, along with the profits of many other businesses started for the supposedly base purpose of making money, will end up creating jobs for people who might otherwise have to depend on charity. That is how economies grow and people progress.

Having said that, the IPL could fail, for not every good idea is rewarded with smart execution. Maybe the franchises got carried away and bid too high (game theorists call it "the winner's curse"). Maybe the games will not get high enough TRPs, as a cricket-loving public deluged with an overdose of cricket finds other ways to entertain itself. If it does flounder, it will be a pity, for its failure will be remembered and used to prevent other such experiments.

On the other hand, if the IPL succeeds, cricket historians may one day write about 2008 as the year that cricket discovered its future.

Amit Varma, a former managing editor of Cricinfo in India, writes on economics and politics. He won the 2007 Bastiat Prize for Journalism, and writes the popular blog India Uncut