Prize Structure and Performance: Evidence from NASCAR

*Brad Humphreys
University of Alberta, Department of Economics

Bernd Frick
University of Paderborn, Department of Management

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     Last modified: November 30, 2010
     Presentation date: 03/12/2011 4:30 PM in NH 1140, Session C
     (View Schedule)

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 of the previous tests of tournament theory using NASCAR data have used either season level data or race level data from a few seasons. Our empirical work uses race level NASCAR data for all 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 of prizes paid or the interquartile range of prizes paid, the higher the average speed in the race. Our results account for the length of the race, the number of caution flags and the number of laps run under caution flag, the make of the vehicle, and unobservable year, track, and driver specific heterogeneity.