Road Warrior Booty: Prize Structures in Motorcycle Racing

Abstract

We look at the tournament organizer and its equilibrium adaptation of the tournament structure in the face of competition from other organizers. The data examined come from the motorcycle racing industry. Bikers in a single race compete for the awards of several sponsors and many sponsors are in direct competition. When a racer chooses to compete for the prizes offered by one sponsor, prizes paid by sponsors of similar products are foregone. We find that there is systematic variation in the structure of prize differentials in the face of direct competition among sponsors for endorsements by racers. When the purse paid by competitors goes up, a sponsor must raise its own purse or reduce its incentive intensity by lowering the spread of the prizes that it pays. This finding supports a prediction of the tournament model developed by Lazear and Rosen.

JEL Classification: L11, L14, L83, M37