The Calcutta auction: not another bunch of March madness

If you’re a serious sports fan, fairly serious gamer, or work in some aspect of high finance, you may have heard your friends or co-workers kicking around the term “Calcutta auction,” especially if you’re around ” March madness”. time (I first came across the Calcutta auction during my years as an electronic banking analyst). What the hell are they talking about, you ask? Simply put, a Kolkata auction is any auction that happens in the Indian city of Kolkata. Kidding! (well, sort of, because technically that IS a correct definition). In the world of sports betting, Calcutta auctions generally refer to a group of bets where participants “buy” equipment (players, horses, etc.) in an auction format (I don’t condone real money betting. The capital in this article refers to imaginary funds, or “points”). The easiest way to describe and understand this is to look at the most common example today: the men’s college basketball tournament. Here is a very brief overview:

1. The time and place of the auction is selected.

2. Since there are 64 teams (I know, I know… 65 with the play-in game), there will be 64 teams up for auction

3. Teams are auctioned off in random order

4. Participants begin bidding on the equipment currently in the auction block. In order for a participant to “own” a given team, he must be the highest bidder at the end of the bidding round.

5. There is no limit to the number of teams a bidder can buy

6. The number of games a team wins in the tournament determines the percentage of the pot that the owner receives (wins in the early rounds are worth a much smaller percentage of the total pot than wins in the later rounds)

That’s basically it for auction semantics. Sounds simple, right? Well, in theory it is, but in reality, however, Calcutta auctions are very complex and involve a lot of valuation work (which is why they are so popular with investment bankers, hedge fund analysts, P /E, lawyers and anyone else involved in evaluation work). If a Calcutta-style auction sounds interesting to you, read on.

A Detailed Overview of Calcutta Auctions

Now that you know the basics of a Kolkata auction, let’s dig a little deeper. I’ll present this example using a Calcutta men’s college basketball one more time (note that this information is applicable to any other sport…pro soccer is a fairly common Calcutta format as well).

So, word has spread that a Kolkata men’s college basketball is forming in your office/school/friend group. If he’s interested in participating, the first thing he’ll need to figure out is how big the group size should be (or if he’s organizing, how big he wants it to be). Estimating your total group size is a critical component to being successful in Calcutta. You don’t want to spend most of your bankroll on one team, only to find out that that team accounts for 50% of the total pot. You will also want to determine the payout percentage of each win in a given round.

For example, if a team you own wins a first round game, it may be worth just 0.5% of the total pot. If they go on to win the championship, that final win can be worth, say, 10% of the pot. It is VERY IMPORTANT to understand that the total amount you spend on your equipment is not an accurate representation of your capital at risk. This is because the only way you could lose 100% of your capital is if NONE of your teams win a single game, which, if you do your homework, is an incredibly unlikely scenario. If you’re willing to lose a certain amount, you should be willing to spend a decent amount more than that on your equipment.

Your next, and most important, step is to do some research on the equipment you will be bidding on. The way people approach this step varies wildly. Some people rely on a “hunch.” Others go with team loyalty eg I went to X school therefore I HAVE to own or love the team mascot and want to cheer on their team. The last group of people, and usually the most successful, perform sophisticated statistical analysis using complex Excel models. The last group is able to approach the auction in the most objective way possible, since they aspire to attribute “fair” values ​​to the teams. This is the approach I take and it has proven to be quite successful. Now that you’ve determined what equipment you’d like to own, it’s time for the auction.

The auction is usually held in person at a set time and place. Auction rules should be clearly spelled out in advance (eg how to signal that you want to bid, how long after the last bid you consider the bid closed, etc.) to avoid any conflicts. Each team will be auctioned off until all are sold (in some auctions, the 13-16 seeds are packaged as one team). Let’s say you win the teams you wanted. Now what?

Once the auction is over and you have your equipment, most of the hard work is over, but the fun is just beginning. This is what it must feel like to be the owner of a professional sports team! You’ll be rooting for the teams you own harder than the school you graduated from (or currently attend, as the case may be). It’s great! You will also find yourself updating your accumulated earnings and trying to figure out how much more earnings you need to break even.

If you participate once, you will definitely be hooked!