Prize Structure and Performance: Evidence from NASCAR

Brad Humphreys,Bernd Frick

doi:10.3390/economies7040102

Abstract

The predictions that emerge from tournament theory have been tested in a number of sports-related settings. Since sporting events involving individuals (golf, tennis, running, auto racing) feature rank order tournaments with relatively large payoffs and easily observable outcomes, sports is a natural setting for such tests. In this paper, we test the predictions of tournament theory using a unique race-level data set from NASCAR. Most previous tests of tournament theory using NASCAR data used either season level data or race level data from a few seasons. Our empirical work uses race and driver level NASCAR data for 1114 races over the period 1975–2009. Our results support the predictions of tournament theory: the larger the spread in prizes paid in the race, measured by the standard deviation or interquartile range of prizes paid, the higher the average speed in the race. Our results account for the length of the track, number of entrants, number of caution flags, and unobservable year- and week-level heterogeneity.

Highlights

A substantial body of literature testing the predictions of tournament theory in the context of sport exists
We return to the fundamental questions raised when applying standard tournament theory to NASCAR racing: does NASCAR have a non-linear prize structure, and does the existing NASCAR prize structure generate sufficient incentives for drivers to supply additional effort? Using a comprehensive data set from 1114 NASCAR races over the period 1975–2009, we find that the monetary prize structure of individual NASCAR races is non-linear, and that drivers appear to supply additional effort as the prize structure becomes more dispersed, consistent with the predictions of tournament theory
While the estimated parameters on the interquartile range variable are statistically significant, their relative size compared to the size of the estimated parameters on some other variables might lead readers to question the economic significance of these parameters

Summary

Introduction

A substantial body of literature testing the predictions of tournament theory in the context of sport exists. Tests from golf, bowling, foot races, motorcycle races, tennis, and team sports generally confirm the predictions of the model: effort depends on the prize structure put in place by the tournament organizer. One setting with relatively few tests of tournament theory is stock car racing, a popular form of automobile racing that grew from relatively humble roots in the southern United States into an extremely popular form of car racing. It refers to races involving any production-based vehicles, in contrast to cars, for example Formula 1 or drag racing, custom built for racing purposes. Many stock car racing circuits exist in the US, Mexico, Canada, the UK, New Zealand, and Brazil. The most popular, and most visible, stock car racing circuit is the National Association for

Methods

Results

Conclusion