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cricket, India, IPL, News, sports

Innovative BCCI may ‘reverse auction’ interim IPL franchises: Not yet sold


Chennai Super Kings

Chennai Super Kings (Photo credit: Wikipedia)

The BCCI can be creative.

They’re also very intent on playing it safe.

For some reason, they do not intend to let Chennai Super Kings (CSK) and Rajasthan Royals (RR) suffer when they return from their suspension in 2018.

The country’s premier cricketing body have decided to float two fresh teams in the Indian Premier League (IPL) but only for two years.

The new franchises will not find it easy to be profitable within those two years. It is definitely not a sustainable proposition for them.

Hence the BCCI, in all its wisdom, have decided that ‘Reverse Bidding’  is a distinct possibility that could be offered to its new suitors.

Panoramic View of the Stadium during IPL 2008

Panoramic View of the Stadium during IPL 2008 (Photo credit: Wikipedia)

A senior BCCI office-bearer said:

“If there is lack of interest in conventional bidding because of this two-year span, there is a possibility of reverse bidding that can happen where in an investor, who bids the lowest amount will be owner of a team. For example, if BCCI plans to pump in Rs. 70 crore, it might be the potential investor can buy bidding at Rs. 50 crore, Rs. 40 crore or Rs. 30 crore depending on the lowest.”

Players from the suspended franchises would be made available in the auction pool.

Rajasthan Royals

Rajasthan Royals (Photo credit: Wikipedia)

The BCCI is keeping its cards close to its chest.

When queried whether there would be a 10-team league from 2018, the official replied:

“Look, our contracts with all the sponsors and the official broadcasters ends after the 2017 edition. Post that, we will start with a clean slate and all players would go back to auction.”

Investopedia defines a ‘Reverse Auction’  thus:

“A type of auction in which sellers bid for the prices at which they are willing to sell their goods and services. In a regular auction, a seller puts up an item and buyers place bids until the close of the auction, at which time the item goes to the highest bidder. In a reverse auction, the buyer puts up a request for a required good or service. Sellers then place bids for the amount they are willing to be paid for the good or service, and at the end of the auction the seller with the lowest amount wins.

Reverse auctions gained popularity with the emergence of Internet-based online auction tools. Today, reverse auctions are used by large corporations to purchase raw materials, supplies and services like accounting and customer service.
It is important to note that reverse auction does not work for every good or service. Goods and services that can be provided by only a few sellers cannot be acquired by reverse auction. In other words, reverse auction works only when there are many sellers who offer similar goods and services.”

The BCCI does not believe that its two year revenue model is sufficiently attractive to any prospective parties.

The reverse auction indicates that the BCCI is willing to subsidise some of the costs that will be incurred by the franchises; the auction is an attempt to minimise the BCCI’s losses.

This is not substantially different from one of the suggestions floated earlier that the BCCI manage the suspended franchises for the said period. The difference here is that two new teams will be floated but they will be allowed to choose any other cities not allocated to the other six sides including Chennai and Jaipur.

This is probably a response to the newly drafted conflict of interest rules to be tabled at the AGM.

The interim solution allows CSK and RR to pick up the core of their current set of players when they return to the IPL fold in 2018.

(N Srinivasan, the BCCI gods still shine bright for you.)

A base price will be set for potential buyers of the interim franchises.

K Shriniwas Rao explains:

“If the BCCI, for example, sets the base price of the franchise at Rs 100, bidders will be allowed to quote an amount lesser than Rs 100. The lowest bidder will be given the franchise. BCCI will pay the winning party the bid amount that will partly cover for the franchise’s operational costs heading into the tournament.

The bidder can also quote a figure running into negative. For instance, if the bidder quotes a figure of Rs -10 or Rs -5, he she will have to pay that (negative) amount to BCCI. The board expects potential bidders to like this idea if they have a specific two-year marketing or branding initiative in mind for which they won’t mind spending from their pockets.

The interim franchises will not receive a share of the central revenue pool unlike the other six existing teams but will be eligible for a substantial amount in terms of prize money (for players) and additional performance-based incentives from the central revenue pool if they make it to the top-four in the tournament.

In turn, these interim franchises can earn from local revenue pools – ­ gate money, sponsorships, merchandising and hospitality management ­ – to further cover their operational costs. The 50-odd players from CSK and RR, who’ll be up for sale at the auction, will first be part of a draft for the new franchises to retain. The number of players that could be allowed for retention through draft hasn’t been finalised yet. After the draft, once all franchises are on a level playing field, an auction will take place for the remaining players.”

As highlighted above, negative bidding is a possibility but unlikely. IPL teams have struggled to be in the black right from the start until now and it’s improbable that any franchise can turn a profit in just under two years.

Reverse auctions have been used in India before notably while awarding Coal India’s captive coal blocks to power producers.

These type of auctions are also preferred by corporate purchasing managers using them to procure paper clips to employee health care plans.

Procurement professionals love them; suppliers hate them.

Max Chafkin writes:

“Despite the fact that bids are generally ranked by price, reverse auctions are not binding for the buyer. Companies will sometimes go with the second- or third-lowest bid based on qualitative factors such as reliability, customer service, and the cost of switching away from an incumbent supplier.”

He adds:

“If, for instance, you know you’re bidding against a low-margin supplier with a history of quality problems, you may chose to aim for second place because the purchaser is apt to shy away from your opponent. If you’re bidding against a supplier that already has the account, assume that you’ll have to beat the supplier substantially on price to offset the cost to the customer of switching vendors.”

What this implies is that should the BCCI opt for this model, it is not bound to choose the least two costly bids. Other factors such as business plan,revenue model, finances, and reputation in the market would also have to be considered.

The die is set. May the blacker ink win.

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About LINUS FERNANDES

I have been an IT professional with over 12 years professional experience. I'm an B.Sc. in Statistics, M.Sc in Computer Science (University of Mumbai) and an MBA from the Cyprus International Institute of Management. I'm also a finance student and have completed levels I and II of the CFA course. Blogging is a part-time vocation until I land a full-time position. I am also the author of three books, Those Glory Days: Cricket World Cup 2011, Best of Googli Hoogli and Poems: An Anthology, all available on Amazon Worldwide.

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