The Incentive Effects of ‘Minor League’ Tournaments: An Empirical Analysis of the PGA Tour Qualifying Tournament and the Nationwide Tour

This paper uses two original data sets from the world of professional golf to test tournament theory’s basic prediction that increasing prize levels lead to increased effort among tournament participants. The realm of professional golf was chosen because the incentive structure (prizes) and player output levels (scores) are readily available. Specifically, this paper uses time series data to determine if the rising prize money on the PGA Tour influences competitors’ scores at the PGA Tour Qualifying Tournament, and it uses cross-sectional data to determine if prize levels influence Nationwide Tour competitors’ scores as they attempt to move to the PGA Tour. The results from the PGA Tour Qualifying Tournament were consistent with the theory, while the Nationwide Tour analysis revealed contradictory results. This difference of results is not attributed to a failure of tournament theory but rather a difference in the time period that prizes are awarded. Nationwide Tour prizes are awarded immediately following a tournament, while the PGA Tour Qualifying Tournament prize is the opportunity to obtain very high rewards on the PGA Tour in the coming year and is therefore more like the awards proposed in tournament theory. This fundamental difference in the awarding of prizes may help clarify the incentive effects of current prizes versus the expectation of future prizes in future studies of tournament theory in the sports arena as well as the proper structure of compensation tournaments in the business world. This article is available in Undergraduate Economic Review: http://digitalcommons.iwu.edu/uer/vol4/iss1/4 Undergraduate Economic Review A publication of Illinois Wesleyan University Vol. IV – 2007 2008 Title “The Incentive Effects of ‘Minor League’ Tournaments: An Empirical Analysis of the PGA Tour Qualifying Tournament and the Nationwide Tour” Author Adam Hanna Affiliation The College of Saint Benedict and Saint John's University Abstract This paper uses two original data sets from the world of professional golf to test tournament theory’s basic prediction that increasing prize levels lead to increased effort among tournament participants. The realm of professional golf was chosen because the incentive structure (prizes) and player output levels (scores) are readily available. Specifically, this paper uses time series data to determine if the rising prize money on the PGA Tour influences competitors’ scores at the PGA Tour Qualifying Tournament, and it uses cross-sectional data to determine if prize levels influence Nationwide Tour competitors’ scores as they attempt to move to the PGA Tour. The results from the PGA Tour Qualifying Tournament were consistent with the theory, while the Nationwide Tour analysis revealed contradictory results. This difference of results is not attributed to a failure of tournament theory but rather a difference in the time period that prizes are awarded. Nationwide Tour prizes are awarded immediately following a tournament, while the PGA Tour Qualifying Tournament prize is the opportunity to obtain very high rewards on the PGA Tour in the coming year and is therefore more like the awards proposed in tournament theory. This fundamental difference in the awarding of prizes may help clarify the incentive effects of current prizes versus the expectation of future prizes in future studies of tournament theory in the sports arena as well as the proper structure of compensation tournaments in the business world. 1 Hanna: The Incentive Effects of ‘Minor League’ Tournaments: An Empirica Published by Digital Commons @ IWU, 2008