Road Warrior Booty: Prize Structures In Motorcycle Racing

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Road Warrior Booty Prize Structures In
Motorcycle Racing

• M.T. Maloney Kristina TerkunContributions to
  Economic Analysis Policy 2002, vol. 1 No. 1,
  Article 3.

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Tournament Literature

• Q Do workers/players respond to prizes and
  prize structure?
• A Seem to
• Q Do firms/organizers rationally structure
  tournaments?
• A ?????

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Motorcycle Racing

• Offers Empirical Possibilities
• Multiple Independent Sponsors
• Vary level and structure of prizes
• Direct, simultaneous competition for racers
• When a racer chooses one sponsor, the prizes paid
  by sponsors of similar products are foregone

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Theory Lazear Rosen

• Two Identical Risk-neutral Competitors
• Two Prizes Paid by Firm/organizer
• Competing takes effort
• Expected prize depends on purse
• Effort determined by prize spread

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• From players' perspective
• Given prize spread, determine optimal level of
  effort
• Given optimal effort, is expected payoff enough?
• Two-fold process
• From organizer's perspective
• Bigger prize spreads generate more effort
• More effort requires higher purse in compensation

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Prior Empirical Work

• Bull, Schotter, and Weigelt (1987)
• experimental evidence
• Ehrenberg and Bognanno (1990)
• golf
• Knoeber and Thurman (1994)
• chickens

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Application of Model

• Competition among heterogeneous tournament
  organizers
• Different levels of brand name
• Tournament sponsorship is advertising
• Objective Enhance b/n value
• Winning is best

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Differences in Brand Name Value

• Higher value of brand name means more value in
  winning
• Firm sets higher prize spread to optimally induce
  more effort
• Firm must pay more to compensate for the extra
  pain
• See Figure 1

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Figure 1

• Comes from the three behavior equations in LR
  model
• Player/workers choose effort based on spread
• Tournament organizer chooses spread based on
  value of output
• Organizer must pay competitive purse

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Tournament organizers wish to elicitmaximum
effort

• Load prize money on the highest finishing places
• However, this imposes costs on players
• Thus, must increase the purse along with the
  spread of prizes to be competitive

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Purse and Spread

• Unrelated outside of competition
• Purse does not directly affect behavior of
  worker/players
• evidence from chicken farming
• Across non-competing motorcycle sponsors, any
  relation is possible

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Field Tournaments

• Two Problems
• Prizes paid to overall winners
• Definition of prize spread

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Overall Winners

• Sponsors pay 1st prize to 1st place overall
• Nonetheless, some riders will race for lower
  prizes/purse
• If prize spread is lower, less work required
• Creates same effect as heterogeneous talent

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Payoff to Overall Winner

• Does not change the basic prediction of Figure 1
• More b/n valuegthigher purse
• Higher purse gthigher spread

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Measurement of Prize Spread

• Ladder of Prizes
• Some contentiousness in literature
• We measure this characteristic in several
  different ways
• Gini Coefficient
• Difference between top prizes

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The American Motorcyclist Association

• Founded in 1924
• AMA Pro Racing is the largest motorcycle racing
  sanctioning body in the world
• The MBNA Superbike Tour main pro series
• Classes Superbike, 600 Supersport, 750
  Supersport, 250 Grand Prix (GP), Formula Xtreme,
  and Pro Thunder.

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Riders are eligible for a track purse and
industry bonus awards.

• Rider must use the sponsors products, display
  sponsor decals
• Many of the industry bonus award sponsors are in
  direct competition.
• Sponsor purses can vary dramatically across
  sponsors within the same product category.

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Table IIndustry Bonus Awards
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Table II

• Sponsor Purse is the sum of the prizes paid to
  each place
• Class Purse is the sum of the sponsor purses
  across the entire racing class.
• Product Purse is the sum of the sponsor purses
  within a product group.

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Table IIStatistics on Purses
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Prize structures

• Vary greatly across sponsors
• A rider can receive anywhere from 150 to 600 on
  helmets
• Sponsors also vary the number of places that they
  pay out

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Table III Places Paid
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Table IV Tire Sponsors
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Incentive Intensity

• Measures of incentives created by the prizes
• Spread of Top Prizes
• Gini Coefficient

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Incentive Intensity forTire Sponsors

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Test of the Theory

• Ratio of Sponsor's Prize Spread to Rivals
• Should be positively related to ratio of
  sponsors purse to rivals
• From Figure 1

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Specification
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Table VISummary Statistics
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Table VII Regressions
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Estimated Effects

• Doubling Sponsors to Product Purse
• Allows firm to double the prize intensity

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Conclusions

• Firms that pay lower expected prizes must pay
  less incentive oriented prizes

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Importance of Finding

• Tournament theory is based on the premise that
  workers respond to prize incentives by working
  harder, and working harder is not free.
• This is confirmed by observing that firms
  recognize this response and anticipate this
  behavior when making their wage offers.