Impact of Rupee depreciation on IPL — Indian players salaries getting a raw deal…

An interesting piece by Amol Karhadkar on Cricinfo.com. (This case on impact of rupee on libraries was also a nice read)

He points how Indian players who play at IPL are losing out due to Rupee Depreciation. The players are auctioned in USD but get Rupees as per  fixed exchange. This as part of their contract with the franchisee. However, the overseas players are paid based on floating exchange rates adding to the bills of franchisees severely. This is just like a Indian corporate which borrows abroad and is impacted as rupee depreciates. It earns in Rupees but has to pay in Dollars…

The rapid depreciation of the Indian rupee over the past couple of months has led to disruptions in the accounts of IPL franchises, and exposed the flaw in the tournament’s dual-payment structure. The rupee’s fall, from 54 against the US dollar on May 3 to 65 on August 23, will most severely affect Indian players, whose wages are linked to a three-year locked-in rate of 46 to the dollar; overseas players are paid according to the floating rate and will not be affected.

The net effect on the highest-paid Indians in the IPL – like Gautam Gambhir and MS Dhoni – could, given the 40% difference between the actual dollar rate and the “IPL rate”, run into tens of millions of rupees worth of losses.

As for the franchises, what they save on payments to Indian players they lose on the wages to their overseas staff.

The problem stems from the amendment to the regulations before the 2011 IPL auction, by which Indian players who were auctioned were required to sign a three-way agreement with the franchise and the BCCI-IPL. The exchange rate for all these contracts was fixed at Rs 46 per USD from IPL 2011 to IPL 2013, and is due to be revised before next year’s auction. However, it was decided that overseas cricketers would be paid according to the prevailing exchange rate of the day.

The foreign cricketers should bring their dollars and invest in India! Most might like to buy some property etc given how much time they spend in India plying cricket these days. How about that for FDI, Mr. FM? Open up this sector too..The news item would be — FDI limit for foreign cricketers investing in India liberalised to 51%..:-)

Though, as per schedule Indian players will lose about 65% of these gains:

The IPL’s payment schedule requires that players are paid their salary in four installments: 15% before the beginning of the season, 50% before May 1, 15% before the beginning of the Champions League Twenty20 and 20% before November 1. By that calculation, Indian players could receive up to 35% of their salary at the lower rupee rate. 

Some team owners have tweeted to manage this exchange rate risk. Auctions should be done in INR:

In the wake of rising costs, it didn’t come as a surprise that IPL chief operating officer Sundar Raman emphasised the need to conduct the next IPL auction with the rupee as the base, rather than the USD, in a tweet on Thursday, something that Kolkata Knight Riders managing director Venky Mysore had strongly recommended in ESPNcricinfo’s video show, The Huddle, during IPL 2013.

Explaining the rationale behind adopting a different policy for paying Indian and overseas cricketers, an IPL insider said it was done to suit practical purposes. “At the end of the day, even though all the players were being sold in USDs, the Indians were going to be paid in rupees, so it was easier to calculate their values with a fixed tag,” he said. “It is similar to the IPL team valuation, which was rounded off at Rs 40 per USD when the first eight teams were sold in 2008. Hopefully, next year onwards, all the transactions will be made with the rupee as the base so that neither franchisees nor Indian cricketers will suffer.”

Another case of no hedging of exchange rate risks. Fascinating case study on Rupee depreciation and its impacts..

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One Response to “Impact of Rupee depreciation on IPL — Indian players salaries getting a raw deal…”

  1. Impact of Rupee depreciation on IPL — Indian players salaries … « Sport Kandy : Cricket, Football, F1, Tennis, WWE Latest News and Information Says:

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