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If you’ve landed on this webpage, I’m confident in assuming that you’re at least somewhat familiar with the essential functions of a March Madness bracket, and the nearly infinitesimal probability (think 1 in 9,223,372,036,854,775,808, or roughly one in 9.2 quintillions) of creating the perfect bracket. If you beat the odds, you stand to gain 1 million dollars a year for life, courtesy of Warren Buffet.

What you might not know is that there’s an increasingly popular alternative to the familiar, stultifying routine of filling out an NCAA bracket every March: the Calcutta auction.

To walk away from a Calcutta auction in the black requires not only an ability to predict and find value in NCAA teams, but also a capability to play the market successfully, and to understand and react to human psychology in real time. As you’ll learn, the structure of a Calcutta auction forces participants to blend the skills from many different domains; they aren’t nearly as simple as filling out a bracket or even laying down a wager at a sportsbook.

Think of a Calcutta action as a traditional March Madness bracket with a brainy spin, where participants’ considerations aren’t only picking winners, but also balancing the myriad complexities of the free market.

Where Does a Calcutta Auction Come From, and What Are the Basics?

A Calcutta auction is an open auction held jointly with any single-elimination tournament or competition with multiple entrants.

While commonly applied to March Madness, Calcutta auctions can theoretically be adapted to a tournament of any type, including horse races, golf tournaments, or tennis tournaments, essentially any iteration of a single-elimination contest imaginable.

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Despite being predominantly centered around sports, Calcutta auctions are structurally similar to the auctions companies like Sotheby’s and Christie’s conduct.

Yes, that means someone could conduct a Calcutta auction on a spelling bee or a game of backgammon if they were motivated enough.

As you may have imagined, the origins of a Calcutta auction are in Calcutta (now Kolkata), India. The format was initially applied to cricket matches by British colonialists.

Before we get into the nitty-gritty of how a Calcutta auction works, here’s a breakdown of the fundamentals:

  • Participants in a Calcutta auction either bid individually or form consortiums.
  • Participants bid among each other to “purchase” each of the available contestants competing in the tournament (henceforth, contestants will be referred to as “teams.”)
  • The participant with the highest bid on a team will “own” that team for the duration of the tournament.
  • Teams must be owned wholly by one entity (either an individual or a consortium); this means that ownership rights to teams cannot be divided up among participants.
  • In some cases, participants “sell” the rights to the team they own to other individuals or groups in the action.
  • All of the money that’s raised by the participants’ bids in the auction goes towards the pot. Payouts are predicated on the size of the pot.
  • After the tournament concludes, participants receive predetermined payouts based on where the teams they “owned” finished in the tournament.
  • The payout structure for each Calcutta auction is variable.

The specifics of each auction can vary wildly, depending on the size of the pot, the number of participants, and any other rules imposed on the auction, but the fundamental auction structure always holds true.

There are specific adjustments that can be made to Calcutta auctions that can have outsized effects on how they work, but we’ll have more on these rules and their implications later on.

How Does This Work in Practice?

Conceptually, a Calcutta can be challenging to wrap your head around, primarily if you’re used to dealing with the fixed odds that sportsbooks offer. After all, a Calcutta auction probably has more in common with a Sotheby’s auction than it does with a conventional, top-down offshore sportsbook.

Below, you’ll find a sample March Madness auction with our own hypothetical rules and regulations:

  • Only the final 64 teams are available for purchase
  • The bottom 4 teams in each region are grouped together (13, 14, 15, 16 seeds), meaning that the purchase of the bottom option means a participant will own all four bottom seeds in that conference. This means that there will be 48 options available to purchase in total.
  • The opening bid for each team (and the group option) is $10.
  • All bids must be incremental, with a minimum increment of $10
  • Consortiums (groups) are allowed to form and create entities. Ownership of teams can be split among entity members, as long as they are all part of a single entity

The percentages below reflect the portion of the total pot prospective team owners receive:

March Madness Champion Runner Up Final Four Elite 8 Sweet 16 Round of 32 Biggest Blowout
30% 15% 8% 1.5% 1.5% 0.5% 3%

You’ll notice, of course, that the numbers above don’t add up to 100. That’s because the two losers of the final four, for example, will each capture 8% of the prize pool, while the two teams that emerge from the final four will either come away with 15% (as the runner up) or 30% (as the winner).

The four teams who lose in the Elite 8 will each receive 4% of the prize pool. And so on, and so on.

A key feature of Calcutta auctions is the option to allocate a portion of the pot to quirky, unconventional outcomes, such as awarding 3% of the pot to the biggest blowout, the worse seed to reach the elite 8, or the biggest upset against the spread. Creative payouts like this are what makes Calcutta auctions so fascinating. Marquette’s run in 2003, for example, when it made the final four as a no. 3 seed, then proceeded to suffer the biggest loss of the tournament (they lost by 33 to Kansas), would have made their owner very content.

Worth noting is that in the above example, there is nothing taken off the top for the organizers. In my example, I didn’t include the juice, as the preponderance of Calcutta auctions are organized between friends, or are conducted in an office.

However, if you were participating in a more significant Calcutta auction (think, a Calcutta auction hosted at a Country Club), expect whoever is organizing it take somewhere between a 5-30% cut of the total prize pool.

How to Assess A Team’s Value in A Calcutta Auction

Working and operating within the pressures of a Calcutta auction isn’t an easy task. You’ll need to do your research beforehand in order to avoid embarrassment.

The first thing you should do is assign probabilities to each team in March Madness. For this, you can head to your sportsbook’s NCAA Basketball section and convert odds into an implied probability. Don’t forget to remove the juice. Otherwise, you can head to a website like fivethirtyeight.com and use their March Madness probabilities.

Once you’ve done this, you can then assign probabilities to each team in the auction, and use the payout percentages stipulated in your auction’s pool to calculate the EV+(X) for each team, with X being a stand-in for the total value of the pot.

Of course, in the majority of Calcutta auctions, X (again, the total size of the pot) remains unknown until the auction finishes. To this end, you can model the EV+ effectively, while it’s going to be very difficult to model for EV+(X) properly.

As such, accounting for the size of the pot is the tricky part of a Calcutta auction. The best way to go about it is to assign relative value to each team, in relation to all other teams. As such, as each team is bid on and bought in the auction, you’ll have a working idea of what the expected price of every remaining team would be (simply add together the auctioned teams with the remaining teams).

In uncapped Calcutta auctions, there are considerations that could perplex even the sharpest sports bettor. Think about it. Say, for example, a participant in a Calcutta auction knew, without a shadow of a doubt, that Duke was going to win March Madness. In their particular auction, the payout pegged to the winner of the tournament was 30% of the pool.

Even with this resolute, 100% certainty in the outcome, this Calcutta participant still doesn’t know how to value the winning team, exactly.

Playing the Free Market

Of course, part and parcel of being successful in a Calcutta auction is reading the market correctly, and being able to predict auction behavior successfully.

Participants find value in an auction market when they correctly identify inefficiencies and then capitalize on them. There’s tremendous value to be located in, for example, correctly identifying the role of public perception in reducing or inflating the value a particular team and subsequently factoring this into your bids. At every Calcutta auction, someone’s bound to buy a team with their heart and not their brain.

It’s not that hard to imagine how this might work. If you’re on the west coast, there’s a good chance your auction is going to overvalue PAC-12 teams.

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Of course, part and parcel of reading the market correctly is anticipating the other participant’s psychological biases. We might be in the age of information where data and analytics reign supreme, but biases die hard. Everyone (including you, likely) has blinders that prevent them from seeing a fully accurate picture of the world.

A True, Laissez Faire Calcutta Auction

The purest way to conduct a Calcutta auction is to make spending limitless and to auction off teams in random order. This way, participants have to deal with the full thrust of the free market, with no cap or restrictions.

There are some variations of Calcutta Auctions that have emerged in recent years that auction teams in reverse order of their seeds as opposed to a random order. This stratified bid order is a way to mitigate risk for the big money bettors planning on owning heavy favorites, as the heavily favored teams are bid on towards the end of the auction. This has the effect of reducing the risk that comes with larger bets.

In my eyes, this takes out a lot of the fun (and skill) involves in a Calcutta auction, or at the very minimum dilutes the integrity of the auction.

With no cap and a randomized order, participants can drive up the price of a highly-valued team up without a ceiling, meaning they assume a huge amount of risk in the event of an underdog upset. Additionally, if a participant pays too much for a heavy favorite and they end up winning, it’ll mean that they’re only really getting their money back when payouts are returned, greatly minimizing their return and the overall profitability of their investment.

The excitement and seat-of-your-pants strategy in Calcutta auctions derives from participants being unsure what the total value of the pot will be, forcing them to estimate what everyone else is going to do before they can calculate what each team is worth. It’s a true Keynesian beauty contest.

Organize Your Own Calcutta Auction Today!

The open-ended nature of Calcutta auctions is fascinating, especially when done between friends, coworkers, or even just when big egos face off against each other.

The variability and limitless outcomes inherent to a market-style auction are impossible to account for in advance, which always leaves the door open to wild fluctuations in value, big-time winners, and major losers.

If you’re searching for a fresh, exciting take on a March Madness betting competition, give a Calcutta auction a look!

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Aaron served as SBD's Lead Betting Analyst and lead researcher from 2017-2019. He has been featured in publications such as Intelligence Magazine, The Investing News Network, Haven, Tech Bullion, and many local and national publications. Western B.A. '14, NYU M.A. '17.