All you need to know about the IPL franchise auction

On Tuesday, the BCCI will unveil the two new franchises that will replace Chennai Super Kings and Rajasthan Royals for the next two years in the IPL. Super Kings and Royals were suspended by the RM Lodha Committee, appointed by the Supreme Court to investigate the 2013 IPL corruption scandal. The two new franchises will be picked through a unique 'reverse bidding' process at the auction, which will be held in New Delhi.

How many companies have expressed interest?
Twenty-one companies had bought the invitation to tender (ITT) document worth Rs 2 lakh. Some of the prominent companies that reportedly purchased the document include broadcaster Star India, telecom company Vodafone, Chennai-based cement major Chettinad, Indian consumer electronics company Videocon, the RPG Group owned by Harsh Goenka, the RP-Sanjiv Goenka Group, media companies NDTV and Set Max, infrastructure and financial company IL&FS, real estate and property developer Wadhwa Group, and Cycle Agarbatti.

What will happen at the auction?
It is a walk-in bid. The two successful bidders will be picked through the reverse bidding process. IPL chairman Rajiv Shukla had stated that the base price for the reverse bid from the central revenue pool is Rs 40 crore. The investor who bids for the lowest share of the amount of Rs 40 crore from the pool will emerge as the successful bidder.

What is reverse bidding?
The investor who bids the lowest price, lower than the Rs 40 crore base price, will eventually bag ownership rights. This means the BCCI will pay a maximum of Rs 40 crore from the central revenue pool to the new owner. However, if a potential owner lists a bid price of Rs 25 crore, the BCCI will save Rs 15 crore. The BCCI will not charge the two new owners any franchise fee, unlike the other six teams that have been paying a fee since 2008.

What if a franchise does not want to use the revenue from the central pool?
That is possible. That way the BCCI saves the entire sum of Rs 40 crore.

What are the benefits of reverse bidding? Why has the BCCI gone for this?
People in the know say it is pure mathematics. "If you want to be in the business and if you want to make business sense out of it, and from the standpoint of comparatives, you don't want to upset the valuation of existing franchises," a BCCI official said. "It is about giving a strong business reason for people to look at the auction.

"It's a pure business call. As far as the economics is concerned, BCCI's central revenue is a substantive amount and far higher than the franchise fee for the original eight franchises, of which six of them are standing. So, it didn't make sense for us to put a tender out, putting a reverse price and ownership for two years."

What is the advantage of owning a team for only two years?
Publicity, marketing, image and brand-building and attracting new sponsors are some of the perks of owning an IPL team, says a senior BCCI official well-versed with the IPL. According to him, the cricket business is different to normal business. "Things don't go by economics. People want to associate with cricket and IPL for reasons beyond money and economics," the official said. "It can be for social standing, networking, profiling. You earn the bragging rights by being an IPL owner."

According to the chief executive of a franchise, it is mainly an "ego boost" mainly for a lot of owners who pitch in to understand the IPL. He also said that it is a move that could help them in future endeavours related to the IPL. "It is about being part of this cozy circle," the chief executive said. "They can't gain much. They can massage their ego a little bit and understand the IPL. And then, if and when the IPL becomes a ten-team event, then they can think of buying a team. Or they can buy equity in some other team."

What happens to the players from the two suspended franchises?
The two new franchises can pick five players from each of the two suspended teams, the Super Kings and Royals. The ten players will be picked through a draft system from a pool of 50, with the remaining names going into the auction. The original retention rule of allowing the franchises to pick a maximum of four capped Indian players will be applicable to the two new teams, too. The players' draft will take place on December 15.

In which cities can the new teams create their home base?
Nine cities have been shortlisted for the two new franchises. Chennai, Ahmedabad, Ranchi, Dharamsala, Indore, Pune, Kanpur, Nagpur and Visakhapatnam are reportedly part of the list, although the BCCI has not formally revealed details.

What if there is a tie in the bids?
In case more than two bidders quote the same lowest price then their bids will be placed in a separate sealed envelopes. A designated BCCI official will then pick one of the envelopes, which becomes the first new franchise.

Which franchise gets the first choice to pick the first player from the draft pool of ten?
The first franchise, with the lowest bid price, will get the first choice to pick the first player. The second franchise can then pick its first player and then the two teams will take turns to pick the remaining eight players.

What is the purse available to the two new teams?
Each of the two new teams will have a purse of 66 crore available to assemble their squads.

Is there a price band for the shortlisted five players?
The BCCI applied the same money brackets that were put in place two years ago when the other six franchises were allowed to retain five players. The first player gets Rs 12.5 crore, the second Rs 9.5 crore, third Rs 7.5 crore. fourth Rs 5.5 crore and the fifth Rs 4 crore. An uncapped player stands to earn Rs 4 crore if picked.

Irrespective of the IPL fee agreed between the franchise and the retained player, a fixed amount would be deducted from the franchise's salary cap per player retained