Mistaking Style for Substance: Investor Exuberance in the 2008 Indian Premier League Auction

Vani Borooah, John Mangan

    Research output: Contribution to journalArticle

    2 Citations (Scopus)

    Abstract

    The formation of the Indian Premier League (IPL) in 2008 sought to unlock the commercial potential that the popularity of T20 cricket offered by modelling itself on football's English Premier league. The IPL acted as a holding company, securing the participation of players through a guaranteed base price and then selling these players to the various IPL franchises though an auction system which determined their final payment. There were thus two components to a player's "value": the base price determined by the IPL and the final price paid at the IPL auction by the winning bid for that player. The basic assumption made in this paper is that the base price for a player is founded for the most part on the publicly available information about him. However, auction under IPL 2008 was characterised with large and unexpected base-final price differences. This raises the possibility that the bidding process was driven by the “irrational exuberance” created within the newly formed franchises. This paper measures the scale of such exuberance and evaluates, on the basis of their IPL record, whether players were good or bad buys.
    LanguageEnglish
    JournalJournal of Sports Economics
    Volume152700
    DOIs
    Publication statusPublished - May 2011

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    Auctions
    Investors
    Franchise
    Football
    Modeling
    Participation
    Bidding
    Cricket
    Payment
    Bid

    Cite this

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    title = "Mistaking Style for Substance: Investor Exuberance in the 2008 Indian Premier League Auction",
    abstract = "The formation of the Indian Premier League (IPL) in 2008 sought to unlock the commercial potential that the popularity of T20 cricket offered by modelling itself on football's English Premier league. The IPL acted as a holding company, securing the participation of players through a guaranteed base price and then selling these players to the various IPL franchises though an auction system which determined their final payment. There were thus two components to a player's {"}value{"}: the base price determined by the IPL and the final price paid at the IPL auction by the winning bid for that player. The basic assumption made in this paper is that the base price for a player is founded for the most part on the publicly available information about him. However, auction under IPL 2008 was characterised with large and unexpected base-final price differences. This raises the possibility that the bidding process was driven by the “irrational exuberance” created within the newly formed franchises. This paper measures the scale of such exuberance and evaluates, on the basis of their IPL record, whether players were good or bad buys.",
    author = "Vani Borooah and John Mangan",
    note = "Reference text: Akerlof, G.A. and Shiller, R.J. (2009), Animal Spirits: How Human Psychology Drives the Economy and why it Matters for Global Capitalism, Princeton University Press, Princeton, NJ. Alpert, M., and Howard Raiffa, H. (1982). {"}A progress report on the training of probability assessors{"}. In Daniel Kahneman, Paul Slovic, Amos Tversky (eds). Judgment under uncertainty: Heuristics and biases. Cambridge University Press. pp. 294–305. Bairam, E. I., Howells, J. M. and Turner, G. M. (1990a), ‘Production functions in cricket: the Australian and New Zealand experience’, Applied Economics, 22, 871-879. Bhattacharya, M. and Smyth, R. (2003), {"}The Game is not the Same: The Demand for Test Match Cricket in Australia{"}. Australian Economic Papers, 42, 77-90. Capen, E., Clapp, C. and Campbell, W. (1971), “Competitive bidding in high-risk Situations”, Journal of Petroleum Technology, 23, 641-653. Cowell, F.A. (1977), Measuring Inequality, LSE Handbooks in Economics Series, London: Prentice Hall. Cowell, F.A. and Jenkins, S.P. (1995), ‘How Much Inequality Can We Explain? A Methodology and an Application to the United States’, Economic Journal, 105, 421-30. Deltas, G. (2003), {"}The Small Sample Bias of the Gini Coefficient: Results and Implications for Empirical Research{"}, The Review of Economics and Statistics, 85(1), 226-234. Dessauer, J. (1981), Book Publishing. New York: Bowker Fama, Eugene (1970). {"}Efficient Capital Markets: A Review of Theory and Empirical Work{"}. Journal of Finance 25 (2): 383–417 Harrison, J.R. and Bazerman, M. H. (1995). “Regression to the mean, expectation inflation, and the Winner’s curse in organizational contexts”, In R. Kramer & D. M. Messick (eds.), The Social Context of Negotiation, Thousand Oaks, CA. Sage Publications Hill, J.R. and Spellman, W. (1983), {"}Professional Baseball: the reserve clause and salary structure{"}, Industrial Relations, 22(1), 1-19. Kahneman, D., & Tversky, A. (1973), “On the psychology of prediction”, Psychological Review, 80, 237-251. Kahneman, D., & Tversky, A. (2000). Choices, values, and frames. Cambridge / New York Cambridge / Russell Sage Foundation. Krugman, P. (2009), {"}Mistaking Beauty for Truth: How Did Economists Get it So Wrong?{"}, The New York Times, 6 September, 2009. Lenten, L, Geerling, W., and Konya, Laszlo (2010), A Hedonic Model of Player Wage Determination from the Indian Premier League, Working Paper no 4 of 2010, School of Economics and Finance: La Trobe University, Australia. Massey, C. and Thaler, R.H. (2010), The Loser's Curse: Overconfidence vs. Market Efficiency in the National Football League Draft (August 14, 2010). Available at SSRN: http://ssrn.com/abstract=697121. Paton D. and Cooke, A.(2005), “Attendance at country cricket: an economic analysis” Journal of Sports Economics, Vol. 6, No. 1, 24-45 (2005). Schofield, J.A., (1983) “The demand for cricket: the case of the John Player League”, Applied Economics, 15(3), 283-296. Schofield, J. A. (1988) Production functions in the sport industry: an empirical analysis of professional cricket, Applied Economics, 20, 177-93. Scully, Gerald W., 1974, {"}The Economics of Discrimination in Professional Sports: The Case of Baseball,{"} in R.G. Noll, ed., Government and the Sports Business Washington, D.C.: Brookings Institution. Shiller, R.J. (2005), Irrational Exuberance, Princeton University Press: Princeton, NJ. Shorrocks, A.F. (1980), ‘A Class of Additively Decomposable Measures’, Econometrica, vol. 50, pp. 613-25. Slovic, P. and Corrigan, B. (1973,) Behavioral problems of adhering to a decision policy, Institute for Quantitative Research in Finance, New York, NY. Thaler, R. H. (1988), “The winner's curse”, Journal of Economic Perspectives, 2(1), 191-202. Theil, H. (1967), Economics and Information Theory, Amsterdam: North-Holland.",
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    Mistaking Style for Substance: Investor Exuberance in the 2008 Indian Premier League Auction. / Borooah, Vani; Mangan, John.

    In: Journal of Sports Economics, Vol. 152700, 05.2011.

    Research output: Contribution to journalArticle

    TY - JOUR

    T1 - Mistaking Style for Substance: Investor Exuberance in the 2008 Indian Premier League Auction

    AU - Borooah, Vani

    AU - Mangan, John

    N1 - Reference text: Akerlof, G.A. and Shiller, R.J. (2009), Animal Spirits: How Human Psychology Drives the Economy and why it Matters for Global Capitalism, Princeton University Press, Princeton, NJ. Alpert, M., and Howard Raiffa, H. (1982). "A progress report on the training of probability assessors". In Daniel Kahneman, Paul Slovic, Amos Tversky (eds). Judgment under uncertainty: Heuristics and biases. Cambridge University Press. pp. 294–305. Bairam, E. I., Howells, J. M. and Turner, G. M. (1990a), ‘Production functions in cricket: the Australian and New Zealand experience’, Applied Economics, 22, 871-879. Bhattacharya, M. and Smyth, R. (2003), "The Game is not the Same: The Demand for Test Match Cricket in Australia". Australian Economic Papers, 42, 77-90. Capen, E., Clapp, C. and Campbell, W. (1971), “Competitive bidding in high-risk Situations”, Journal of Petroleum Technology, 23, 641-653. Cowell, F.A. (1977), Measuring Inequality, LSE Handbooks in Economics Series, London: Prentice Hall. Cowell, F.A. and Jenkins, S.P. (1995), ‘How Much Inequality Can We Explain? A Methodology and an Application to the United States’, Economic Journal, 105, 421-30. Deltas, G. (2003), "The Small Sample Bias of the Gini Coefficient: Results and Implications for Empirical Research", The Review of Economics and Statistics, 85(1), 226-234. Dessauer, J. (1981), Book Publishing. New York: Bowker Fama, Eugene (1970). "Efficient Capital Markets: A Review of Theory and Empirical Work". Journal of Finance 25 (2): 383–417 Harrison, J.R. and Bazerman, M. H. (1995). “Regression to the mean, expectation inflation, and the Winner’s curse in organizational contexts”, In R. Kramer & D. M. Messick (eds.), The Social Context of Negotiation, Thousand Oaks, CA. Sage Publications Hill, J.R. and Spellman, W. (1983), "Professional Baseball: the reserve clause and salary structure", Industrial Relations, 22(1), 1-19. Kahneman, D., & Tversky, A. (1973), “On the psychology of prediction”, Psychological Review, 80, 237-251. Kahneman, D., & Tversky, A. (2000). Choices, values, and frames. Cambridge / New York Cambridge / Russell Sage Foundation. Krugman, P. (2009), "Mistaking Beauty for Truth: How Did Economists Get it So Wrong?", The New York Times, 6 September, 2009. Lenten, L, Geerling, W., and Konya, Laszlo (2010), A Hedonic Model of Player Wage Determination from the Indian Premier League, Working Paper no 4 of 2010, School of Economics and Finance: La Trobe University, Australia. Massey, C. and Thaler, R.H. (2010), The Loser's Curse: Overconfidence vs. Market Efficiency in the National Football League Draft (August 14, 2010). Available at SSRN: http://ssrn.com/abstract=697121. Paton D. and Cooke, A.(2005), “Attendance at country cricket: an economic analysis” Journal of Sports Economics, Vol. 6, No. 1, 24-45 (2005). Schofield, J.A., (1983) “The demand for cricket: the case of the John Player League”, Applied Economics, 15(3), 283-296. Schofield, J. A. (1988) Production functions in the sport industry: an empirical analysis of professional cricket, Applied Economics, 20, 177-93. Scully, Gerald W., 1974, "The Economics of Discrimination in Professional Sports: The Case of Baseball," in R.G. Noll, ed., Government and the Sports Business Washington, D.C.: Brookings Institution. Shiller, R.J. (2005), Irrational Exuberance, Princeton University Press: Princeton, NJ. Shorrocks, A.F. (1980), ‘A Class of Additively Decomposable Measures’, Econometrica, vol. 50, pp. 613-25. Slovic, P. and Corrigan, B. (1973,) Behavioral problems of adhering to a decision policy, Institute for Quantitative Research in Finance, New York, NY. Thaler, R. H. (1988), “The winner's curse”, Journal of Economic Perspectives, 2(1), 191-202. Theil, H. (1967), Economics and Information Theory, Amsterdam: North-Holland.

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    AB - The formation of the Indian Premier League (IPL) in 2008 sought to unlock the commercial potential that the popularity of T20 cricket offered by modelling itself on football's English Premier league. The IPL acted as a holding company, securing the participation of players through a guaranteed base price and then selling these players to the various IPL franchises though an auction system which determined their final payment. There were thus two components to a player's "value": the base price determined by the IPL and the final price paid at the IPL auction by the winning bid for that player. The basic assumption made in this paper is that the base price for a player is founded for the most part on the publicly available information about him. However, auction under IPL 2008 was characterised with large and unexpected base-final price differences. This raises the possibility that the bidding process was driven by the “irrational exuberance” created within the newly formed franchises. This paper measures the scale of such exuberance and evaluates, on the basis of their IPL record, whether players were good or bad buys.

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