The Tournament Auction
Over the past few decades, the office pool has become a March Madness staple, with all types of people, from
basketball wonks to sports laypeople, ponying up their entry fees and taking a guess at the 63 winners. Like
anything, the office pool can stand a little competition. The tournament auction is not just a different version
of an office pool--it is a fundamentally new way of rewarding basketball knowledge. On the following pages
you will find what the tournament auction is, what sets it apart from the traditional office pool, and how you
can set up your own. In 2005, I was traveling in India with my business school class. It was early March, and
several of us were looking for a way to have a basketball pool even without consistent access to the internet.
Without a way to print out brackets, conduct research, or follow the action, it was looking like we would be
unable to have a traditional pool. The day before the tournament began, a classmate told me of an auction
format that had been tried at her former employer. All she remembered was that they auctioned the teams
off, so I spent the rest of the day conceptualizing a scoring system and a pencil-and-paper format that would
allow us to conduct the auction the following morning, on a bus headed to the Taj Mahal.
That evening, I sat down and created some bidding sheets, with the following introduction:
Bid on as many teams as you want, and win money based on their progress through the tournament. Payouts will
be based on a percentage of the total pool and will be determined as follows:
2% of the pool for making the Sweet Sixteen (winning two games)
An additional 3% for making the final eight
An additional 5% for making the Final Four
An additional 7% for making the championship game
An additional 10% for winning the championship
So, picking a team that wins the championship will be worth 27% of the pool.
To bid, cross out the previous bid and write down your bid along with your name. Pay attention to the bid
increments for the different seeds.
On the pages that followed, I listed the teams in order, starting with the 1 seeds and ending up with the 16
seeds. The 1 and 2 seeds had bid increments of $1, seeds 3 through 6 had $0.50 bid increments, and
everything else had increments of a nickel.
The next morning, on the way to the Taj Mahal, the silent auction made several trips around the bus, and
eventually every team had chosen, even if there wasn’t too much demand for the lower seeds. The high seeds
attracted between 3 and 8 bids, ending up in the $3-$6 range, and the overall pool wound up being $86.
Nineteen people in all placed bids, which in retrospect may be more of a testament to the dreariness of the
Indian countryside than to the excitement of the fledgling tournament auction.
The next year, I conducted the auction at my office. I held the auction open for the three days before the start
of the tournament, and all of that time was needed, as approaching people individually in their cubes required
much more of a hard sell than passing the bid sheets around a bus full of classmates. This time, I altered the
payoffs slightly, giving (incrementally) 3% to the Sweet 16 and final eight and 4% to the final three rounds. So
the national champion was worth only 18%, but the lower seeds generated much more interest than they had
the year before.
For the 2006 auction, 15 people placed bids, 12 won at least one team, and, though the total pool was a
relatively paltry $62.80, it was remarkably well distributed among the bidders. Of the twelve “owners”, six
ended up in the red and six in the black, and eleven had a team make it to the Sweet 16. Amazingly, the final
eight teams had eight different owners. Thanks to losses by favorites such as UNC, Kansas, and Ohio St.,
playing the frontrunner strategy did not entirely pay off, which allowed many of the more frugal participants
to reap a decent reward. I made $6.28 off a $0.10 investment in George Mason, the unlikely 11 seed that made
it all the way to the Final Four.
The next year’s auction was the one that convinced of the potential of the auction format. I knew that I needed
to get away from paper bid sheets—the final day of year two had been a nightmare as I was taking calls every
five minutes from people asking where they stood on their favorite teams. On the good advice of a former
classmate, I created a Google spreadsheet that could easily be edited by anyone. Separate spreadsheets
recorded the bids on individual teams, and a summary spreadsheet kept track of each team, its owner, the
price, and the overall pot and payouts.
Whereas the first two auctions had been a nice diversion, the third one was an event. I decided to have the
bidding end at 11:00 central time on Thursday, just before the first game tipped off. Up until Thursday
morning, bidding was steady, but once the end was in sight, the bidders started a feeding frenzy that had
teams switching hands every few seconds. As I prepared to cut off the bidding, I was amazed at the changes
on the board, which fluctuated like a stock ticker. In the end, $88.65 was contributed to the pool by fourteen
participants. The frantic bidding was in stark contrast to the 2007 NCAA Tournament, which was the most
staid in recent memory. As a result, only the people who put in for the favorites made any money.
After three years of the tournament auction, I’m convinced that it has a place among the office hysteria that is
March Madness. In many ways, the auction is superior to traditional brackets, and the two actually work quite
well together. Flexible and fun, it is intriguing and unpredictable in a way that mirrors March Madness itself.
A couple innovations I outlined earlier, which use historical seed performance and Fibonacci numbers to
enhance pool scoring, were intended to make office pools a true reflection of bracket-picking talent. That’s an
important but ultimately incomplete insight. It’s incomplete because a) office pools have the dual purpose of
identifying good bracket pickers and encouraging participation from a diverse group of people and b) the
concept of the office pool itself is fundamentally flawed.
I always bristled at the notion that, in most office pools, picking the national champion correctly is rewarded
the same as picking the entire first round correctly. While this may not satisfy March Madness wonks, it
actually makes a lot of sense for your average office pool. Office pools are partially designed to reallocate
funds in favor of the most clairvoyant basketball fan, but their primary concern is to build community and
generate interest in sports from people who would not normally pay attention. So, having a scoring system
that keeps everyone close until the end is ideal if you want to get money from the same group of people next
year. Everybody knows a team that’s capable of winning the title, but not everybody knows how to pick the 710s. So if you want to make an office pool a fun experience for everyone, let the participants place all their
eggs in one basket.
But it doesn’t have to be that way. The office pool is flawed because it expects everyone to pony up the same
amount irrespective of their level of interest, it’s boring, and it does a remarkably poor job of doling out
rewards. The office pool, especially the one that backloads its point values, is frighteningly akin to a lottery.
It’s desperately in need of market principles.
Think of the tournament auction as college basketball’s version of a stock market: the most successful
participants will own portfolios of blue chips and long shots, participation is proportional to interest and
budget, and even the smallest gains are backed up by quality research. To extend the stock market analogy
further, part of what makes the Wall Street so accessible is that it allows the hardcore financial analysts to
make cold, rational, fundamentals-based decisions while novices can get rich simply by owning their favorite
brands. And you won’t find much better brands than in the NCAA Tournament, whose 65 participants have an
amazing assortment of mascots, histories, philosophies, geography, and, yes, uniform colors. So without a
contrived (not to mention poor) scoring system, it’s possible to get the whole office participating and having
fun by doing nothing more than acknowledging market principles.
Throw extreme scarcity (one owner per team) into the mix, and you’ve got a recipe for an event that
increases in excitement year after year. With bidding wars and live updating, the tournament auction is both
elegant and complex. It is elegant in that it simply and accurately reflects the market value (granted, within a
very limited market) of each team. It is complex in that a small bid on one team simultaneously changes the
value of every other team, making it difficult to evaluate teams and amass an attractive portfolio.
The idea of a portfolio should be a very attractive one for anyone who has squeaked out a two-point lead
through the first two rounds of a traditional pool only to have your champion get upset in the Final Eight,
propelling you to a last-place finish. With the tournament auction, you can win money while conceding that
you have no idea who will win the national championship. In many cases, buying up all the 10 or 11 seeds is
actually a worthwhile strategy. Wherever your interest lies, you can spend money there, rather than
contributing a flat fee to take a guess at who will win it all.
The tournament auction should not be seen as competition for a traditional pool, however; they work very
well side-by-side and can in fact be complementary. For instance, let’s say you know of 7 seed that has an
excellent shot at beating a 2 seed. Picking that team to make the Final Eight or Final Four in a traditional pool
would constitute bracket suicide, so you can have that knowledge reflected in the tournament auction. By
picking up the 7 seed in the auction, you get the benefit if that team goes on a run without assuming as an
enormous risk. Conversely, the gains to be had in the tournament auction are generally smaller than those
that come from winning tournament pools, so it’s good to play the pool if you are interested in a big windfall.
For a big-time sports fan, saying that there’s something wrong with the tournament office pool is kind of like
complaining about Santa Claus, but the fact is that the office pool can be improved upon immensely. It’s time
for a new approach, and that approach is called the tournament auction.
In addition to having several advantages for participants, the tournament auction is also easier to set up and
administrate than the traditional office pool. Here’s how it’s done:
Step 1: Decide on Payoffs
The first step is to determine how the money that is bid will be redistributed to the winners. You can award
money for advancing to any round of the tournament (though I have yet to find a satisfactory payoff system
that rewards teams for winning just one game), and you can split up the payoffs however you like. Here are a
few options for setting up a payoff system. The numbers in the table represent the percentage of the pool that
is awarded to a team that finishes in each round (i.e. 8 teams will reach the Sweet 16 and not advance any
further, 4 teams will reach only the Final 8, etc.).
Sweet 16
Final 8
Final 4
Final 2
Champion
“Front
Loaded”
5%
6%
7%
8%
14%
“Gradual
Increase”
3%
6%
10%
14%
18%
“Bookends”
“Weekends”
“Back Loaded”
5%
5%
5%
5%
25%
4%
4%
10%
10%
22%
2%
5%
10%
17%
27%
Remember that how you allocate payoffs can greatly affect the type of bidding you get.
Step 2: Create Bid Sheets
Next, set up some sort of mechanism for recording bids. Pen and paper will work, but a spreadsheet that can
be edited by all participants is ideal. I use Google Docs because it allows all participants to edit the
spreadsheet simultaneously from remote locations. Whatever the format, you should begin by breaking out
the teams onto bid sheets. I have always organized the bid sheets by seed: the first sheet is for #1 and #2
seeds, the second sheet is for #3 and #4 seeds, and so on. If you are working on a spreadsheet, this means that
each sheet clearly shows eight teams as well as all of the bids that have been placed for those teams.
[These are actual bids from my 2007 auction, though the names have been changed.]
Setting the bid increments is an area with some latitude, and a lot will depend on the group that you are
aiming at. Setting a bid increment that is too high will discourage participation on the part of some players,
while setting unnecessarily low bid increments will make the bidding process a little sluggish. It is a good idea
to create a gradation in the bid increments to reflect the interest that the various seeds will receive. The one
that I have settled on is $0.50 for seeds 1 and 2, $0.25 for seeds 3 through 6, $0.10 for seeds 7 through 12, and
$0.05 for seeds 13 through 16, which works for my less-than-high-stakes group.
For each team, there is one column for the bid amount and one column for the bidder’s name, each to be
inputted by the bidder.
Step 3: Create a Summary Sheet
The summary sheet provides an at-a-glance look at each team, its owner, and the top bid amount. It also
shows the reward for reaching each round of the tournament. The summary sheet is linked to each of the bid
sheets, so it should not be written in. To pull the owners and maximum bids I use the “MAX” and “VLOOKUP”
functions, burying them down in the bid sheets and linking to them for the summary sheet.
Step 4: Start the Bidding
After spreading the word about the auction, I generally select a few of the more involved players and
encourage them to place starting bids on some of the higher seeds, getting some money in the pool and
creating an incentive for the less motivated players. (When you have $10.00 in the pool, the payoffs just aren’t
enticing enough to encourage new people to join.) You can also have a minimum opening bid for each team.
Bidding concludes at some predetermined time, generally the Wednesday before or early on the first
Thursday of the tournament. I would suggest having the bidding conclude the Wednesday night preceding the
tournament—last year we ended on Thursday morning and had several players lose teams because they were
in a meeting. With an online auction, the final hour of bidding can get remarkably exciting, with teams
changing hands every few seconds. In this sense the tournament far outshines the tournament pool: in both
contests there is an opportunity for community building as the tournament is going on, but only the
tournament auction is interactive before the tournament even starts.
Potential Pitfalls: Sniping and Settling Up
It should be remembered that some players will attempt to game the system by placing bids as late as
possible, decreasing the chances that another player will have time to place a higher bid. Sniping can be a
problem with this format, but there are a few ways to lessen the effects of snipers.
The first way to combat snipers is to create a rule that players must place a certain number of bids in the
initial days of bidding in order to be eligible for the final day. This encourages all players to get their bids in
early, and it also spreads out the bidding budget so that the final few moments are not quite so frantic.
The second way is to create some uncertainty regarding the end of the bidding. For instance, rather than
ending the bidding at 10:00 p.m. on Wednesday night, you can create a possible window of end times (say,
9:00 to 10:00), and randomly generate an end time within that window, allowing someone uninvolved with
the auction to call an end to the bidding. This way, all bidders must get their best bids in early.
While the tournament pool collects and distributes money in tidy increments of $5, the tournament auction is
a little more messy. For instance, in the example above, players whose teams ended up in the Sweet 16
earned $2.66 (less the amount of their bid), and paying odd amounts to ten or more participants is no fun. To
take some of the sting out of the payment process, it usually helps to take no money up front and just pay (or
collect) net amounts at the end of the tournament.
Short Selling
Short selling is theoretically possible in the tournament auction format and would actually be a way to allow
multiple participants to own the same team. For instance, let’s say two players desperately want to own
North Carolina, and they have bid $5.00 and $5.50, respectively, on the Heels. They would both be allowed to
own it at $5.00 (the value of the second-highest bid) as long as they could find someone to short it for $5.00.
The short seller would receive a $5.00 credit on his account, and he would then owe money depending on
how far North Carolina progressed. If UNC loses in the first round, he’s ahead five bucks, and if they win the
title, then he owes the championship amount minus five bucks. The two “long” owners of UNC would be paid
from the prize pool just as any other team would be.
Spread the Word!
The tournament auction has numerous more possibilities to make it an even more fun and rewarding
experience. If you are interested in bringing an end to our current one-march-madness-gambling-format
system, then spread the word and try out the tournament auction on your own.
The tournament auction that I propose differs somewhat from the Calcutta tournament auctions that have
become increasingly popular in recent years. The most significant difference is that this auction allows
participants to place simultaneous bets on different teams, whereas the Calcutta version auctions off one
team at a time. Additionally, the Calcutta version is associated with wealthy individuals bidding tens of
thousands of dollars on the top seeds, while this version accepts all sorts of budgets and bidding ranges.
© 2008 Daniel Lauve