1. Decoding the bidding process for new IPL teams

Decoding the bidding process for new IPL teams

The Board of Control of Cricket in India (BCCI) will open on Tuesday the tenders for two new Indian Premier league (IPL) teams in Delhi. The new franchises will replace Chennai Super Kings (CSK) and Rajasthan Royals...

By: | Published: December 8, 2015 12:02 AM
BCCI has a central revenue pool made up of the hefty television rights income and other sponsorship earnings connected to the tournament. From this central kitty, BCCI passes roughly Rs 40 crores to each IPL franchise. This is known as the annual management fee.

BCCI has a central revenue pool made up of the hefty television rights income and other sponsorship earnings connected to the tournament. From this central kitty, BCCI passes roughly Rs 40 crores to each IPL franchise. This is known as the annual management fee.

The Board of Control of Cricket in India (BCCI) will open on Tuesday the tenders for two new Indian Premier league (IPL) teams in Delhi. The new franchises will replace Chennai Super Kings (CSK) and Rajasthan Royals (RR) who were suspended by the R M Lodha Committee, appointed by the Supreme Court to investigate the 2013 IPL corruption scandal. The two new franchise owners would be picked through the reverse-bidding process. The base price for the reverse bid from the central revenue pool is Rs 40 crore and the party which bids for lowest share from the central revenue pool will be the winner of the new team.

Why is BCCI conducting this unscheduled franchise auction?

In wake of the 2013 IPL corruption scandal, the Lodha committee has suspended Chennai Super Kings and Rajasthan Royals for two years. The committee has also barred Super Kings team official Gurunath Meiyappan and Royals co-owner Raj Kundra from getting involvement in cricket for life. The BCCI had to take a call; whether to go ahead with a six-team tournament for the next two seasons or invite two new franchises. A four-member working group comprising IPL chairman Rajeev Shukla, BCCI secretary Anurag Thakur, treasurer Anirudh Chaudhary and IPL governing council member Sourav Ganguly was formed. The committee met IPL stakeholders and decided to invite tenders for two new franchises for two seasons to stick to the eight-team format. The cricket board decided against having a 10-team IPL from 2018 — when the two banned teams will return — onwards because most of the existing franchises were not warm to the idea as they felt it would negatively affect their valuation. Also, the BCCI’s contract with all the sponsors and official broadcasters for the IPL ends in 2017 and the Board wants to start with a clean slate from 2018.

How is the bidding process different this time?

For that we need to understand the IPL’s revenue sharing model first. BCCI has a central revenue pool made up of the hefty television rights income and other sponsorship earnings connected to the tournament. From this central kitty, BCCI passes roughly Rs 40 crores to each IPL franchise. This is known as the annual management fee. The bidder that settles for the least management fee gets the team. Besides, there is also an option of ‘negative bid’, whereby a bidder not just forgoes the entire management fee but also pays an additional amount to BCCI. Example: Team A agrees to a reduced management, say Rs 10 crore. Team B takes nothing from the BCCI but pays them `10 crores. Team B wins the bid. So unlike the past when new franchise like Kochi Tuskers or Sunrisers had to pay a franchise fee to be part of IPL, this time it is different.

What are the obligations of bidders?

No bidder can have interest in other franchise, existing or suspended. Each bidder has to pay `1 crore to be part of the auction. The two winning bidders have to furnish a bank guarantee of Rs 66 crores. To avoid a conflict of interest situation, no BCCI official can have any connection with bidders. The new entrants can’t use names like ‘Rajasthan, Royals, Chennai, Super Kings’ as an identity of the team. Their names can’t even resemble the name of any existing or suspended teams.

What happens to the players of the two banned franchise, CSK and RR?

First these players, said to be around 50, will be divided into two groups: ‘capped’ and ‘uncapped’. The ‘capped’ are the ones who have been in the playing XI of a senior national team in the last five years. The rest are domestic players who are yet to make the international cut. The top-10 players will be up for sale through a draft system while the rest will go to the auction pool.

How will the draft system work?

Big names from CSK and RR such as M S Dhoni, R Ashwin, Ravinder Jadeja, Ajinkya Rahane, Brendon McCullum and Shane Watson are expected to figure in draft. Each team will have a salary cap of about Rs 66 crores. The team that submits the lowest bid at the auction will have the right to choose the first player in the draft. In case of tied equal lowest bids, the names of the two teams will be placed in sealed envelopes. The envelop picked first gets the first right to select a player. Irrespective of the league fee specified in respect of each player, the first ‘capped’ players picked will mean salary cap diminishing by Rs 12.5 crore.

How will the teams decide the city they represent and the stadiums they play?

The bidders can choose one from the following cities: Chennai, Cuttack, Dharamsala, Indore, Kanpur, Nagpur, Pune, Rajkot, Ranchi and Visakhapatnam. Each bidder must specify one or more stadiums in their bid document but they will eventually get venue to call their own. Chennai is expected to be a favourite among the bidders. That’s because it has an established fan base. Jaipur has not been included in this list because of BCCI’s problems with the Rajasthan Cricket Association (RCA). Kochi too isn’t in contention since that franchise too is involved in litigation.

Will a consortium allowed to own a team after the Kochi IPL debacle where Lalit Modi tweeted about the shareholding patterns of the individual owners that led to a big controversy?

Consortia, joint ventures, partnerships (including limited liability partnerships) or joint bidders may submit a “consortium bid”. However, they need to fully describe all relevant arrangements, including the intended final shareholding structure and the identity of all present to the consortium. Further, each member of the consortium must attend the bid opening. If the consortium is a partnership the the partners must sign two identical original franchise agreements and also issue a general power of attorney which grants to any one partner the power and authority to sign documents on behalf of the partnership. An individual or any company may only be a member of one consortium and cannot submit a separate bid on its own behalf.

Will the BCCI retain complete control over the process?

Unsurprisingly, yes. BCCI reserves the “unfettered right” and “absolute discretion” and without any liability whatsoever to any bidder the right to cancel the entire tendering process at any stage prior to the execution by BCCI. They can also amend, vary, waive and/or modify any or all of the terms of a binding franchise agreement with a potential franchisee without giving any reasons.

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