What can you learn from IPL auctions?
From teams retaining some of its top players to two new teams bagging time tested cricketers, this year’s auction was full of action and suspense.
In this article, we will have a look at the major highlights of IPL auctions while also looking at some lessons from the auction that could be useful in the investing world.
How does an IPL auction work?
Every IPL season, teams look for a reshuffle in the players that play for them. The final selection and purchase of the player happen during the auctions.
The process goes like this –
- Players are put up for an auction.
- The IPL teams that are interested in a particular player will bid for it.
- If the player has a good track record and more teams want to include the player in their team, more teams bid for it.
- The team giving the highest bid gets the player
IPL Auction Rules
- Each team should have a minimum of 18 players and a maximum of 25 players in their squad.
- Every team has a total budget of Rs 90 crore and it is a requirement that each team spends at least Rs 67.5 crore in the auction.
- Each squad can have at most eight overseas players in the squad.
- The auction starts with the list of the top ten marquee players – the best of all – which are likely to receive the highest biddings. This year, the marquee players included R Ashwin, Shreyan Iyer, Mohammad Shami, and David Warner.
- The lowest base price for the players is INR 20 lakh (USD 27000 approx.) and the highest is INR 2 crore (base price refers to the amount at which the bidding starts).
Portfolio churn
IPL teams have the option of retaining their players and not letting them be a part of the auction bidding process.
In this year’s auction, for example, a total of 27 players have been retained by the eight existing franchises. The highest amount of money paid for retaining a player was spent by:
- Chennai Super Kings – Rs 16 lakh for Ravindra Jadeja,
- Mumbai Indians – Rs 16 lakh for Rohit Sharma, and
- Delhi Capitals – Rs 16 lakhs for Rishabh Pant
Similarly, when it comes to your own portfolio, spend enough time to understand why you want to retain some of your stocks or mutual funds. Studying their fundamentals, understanding the use case of these investments, doing thorough research are all important factors to consider.
Observe the seasonal trends
In IPL auction, we saw a significant amount of money being spent on fast bowlers and it has been observed by many that on pitches with grass cover, fast bowlers get an edge whereas, on slower-loose tracks, spinners get an edge.
In investments also you should be on the lookout for trends to keep yourself informed before you decide anything. For example, pharma stocks performed decently well during the first wave. That, along with the IT sector, were a few of the sectors which recovered the fastest after the waves receded. Studying the overall economic environment – where the GDP is heading, interest rate risks, inflation rate, and similar factors – becomes an important part to choose which company will be suitable for the time period you are investing in.
It’s a TEAM!
A typical IPL franchise table will have the owner of the team, the data analysts, cricket experts, and coaches. The owner of the team is the money muscle – giving the money with which the team can run its operations.
The coaches and cricket experts are people with a lot of experience in the IPL markets, they give suggestions to the team on which player to bid for and which to avoid.
At each franchise table, a viewer watching the auction will also be able to see a group of people sitting behind their laptops – these are usually the analysts.
These analysts have the data of all the players that are up for auction – how they have performed in the past, average run rate, average wickets per match. They suggest whether to bid for a player and also tell the price at which the bid could be made.
Similarly, do not hesitate to take help if you require knowledge and information for your investments. Instead of making investments on facts that you are partially sure of, you can confirm the information through official sources.
Taking qualified professional help rather than advice and tips can prove to be a significant difference in how investments play out.
For the latest information on companies and markets, you can refer to reports by official sites such as SEBI, mutualfundssahihai.com, AMFI or any other recognised portal.
Quality and quantity
In this year’s auction, Ishan Kishan received the highest bid when Mumbai Indians spent Rs 15.25 crore for bagging him. On the other hand, KL Rahul was picked up (before the auction as the new teams had the option to pick some players beforehand) by the new Lucknow Franchise for a whopping Rs 17 crore.
Valuation is a tough task be it IPL auction, business or investments. Some teams, as seen in the cases above, spend a significant amount of their purse on one or two investments in the form of players.
This is done after a lot of careful deliberation. In investments as well, some investors prefer to devote a significant amount of their portfolio to some stocks about which they have in-depth knowledge thanks to hours of research and information gathering.
But as it happens, there is no guarantee that a player who bagged crores of rupees will play as expected during the testing times. So is the case with investments. Investors can be wrong about their judgement and may end up overpaying for certain investments which do not deliver returns in testing times.
Careful deliberation and research are the key.