THE IMPACT OF PRIZE MONEY ON MARATHON PERFORMANCE AND ACCLAIM A THESIS Presented to The Faculty of the Department of Economics and Business The Colorado College In Partial Fulfillment of the Requirements for the Degree Bachelor of Arts By Colbert Heathcott March 2015 THE IMPACT OF PRIZE MONEY ON MARATHON PERFORMANCE AND ACCLAIM Colbert Heathcott March 2015 Economics Abstract In the past century, marathon running has become a major phenomenon in society. As a result, race participation and frequency have increased in the United States over the past decade. With the increased growth of the sport, the amount of money and the overall economic impact of races have risen, causing event organizers and sponsors to face decisions involving race awards and funding. Using an OLS regression model, this study examines the impact of prize money on marathon performance and acclaim. Results reveal marathon running to be exempt from incentive theory, as athletes do not perform better as a result of increases in winning prize money. Prize money also has no significant impact on the popularity of marathon events. Other factors, such as marathon location and history, significantly affect the acclaim of a marathon event. A thorough understanding on the impact of prize money is necessary for the future of the growing sport of marathon running. KEYWORDS: (Marathon, Incentive, Sports Marketing) ON MY HONOR, I HAVE NEITHER GIVEN NOR RECEIVED UNAUTHORIZED AID ON THIS THESIS Colbert Heathcott Signature Acknowledgments I would like to thank Dr. Judy Laux for advising me throughout the process of this research. I would also like to thank Will Richmond for Monday dinners, morning laps in the pool, and forcing me to go to the library. Without my wonderful roommates, BD and Robyn, this process would not have been nearly as fun. Also, without the wonderful teaching of every professor in the Colorado College Economics and Business Department, this thesis could not have happened – Thank you all. TABLE OF CONTENTS ABSTRACT iii ACKNOWLEDGMENTS iv 1 INTRODUCTION 1 2 THEORY 4 2.1 Incentives and the Theory of Tournaments 5 2.2 Marketing the Running Industry 6 3 LITERATURE REVIEW 10 3.1 Prize Money in the Sports Economic Context 10 3.2 State of the Running Industry 12 3.3 Determinants of Marathon Participation 15 3.4 Determinants of Marathon Performance 16 4 DATA AND METHODOLOGY 19 4.1 The Performance Model 19 4.2 The Acclaim Model 22 4.3 Descriptive Statistics and Correlation Tests 23 5. RESULTS AND ANALYSIS 25 5.1 OLS Regression and Other Tests 26 5.2 Analysis – Performance Model 26 5.3 Analysis – Acclaim Model 27 6. CONCLUSION 29 7. REFERENCES 33 8. APPENDIX A 37 9. APPENDIX B 39 LIST OF TABLES 1. The Economic Impact of Five Major U.S. Marathon Events 14 2. Descriptive Statistics - Performance Model 24 3. Descriptive Statistics - Participation Model 24 LIST OF FIGURES 1. Number of participants in ten major U.S. marathons in 2014 2 2. Prize distribution in five major U.S. marathon events 7 3 Correlation Matrix – Performance Model 25 4. Correlation Matrix – Participation Model 25 Introduction Tracing back to 490 B.C., the marathon has evolved into a major facet of modern culture. As legend states that Pheidippides completed his legendary run from Marathon to Athens, and reportedly died at its conclusion, the feat of completing a run of such magnitude was born. Since that day, millions of people all around the world have attempted to run as far as Pheidippides. As a result, the marathon has become a common event in society and is growing more each passing year. In fact, in the past 37 years, individual marathon completions in the United States have increased by 2164% (Running USA, 2014). Through the years, as a result of increases in participation, the marathon has become commercialized with sponsorship, publicity, and rewards while retaining its aura as a monumental accomplishment upon completion. Although participation in the marathon has increased dramatically, the overall performance by individuals in the marathon has significantly declined in the United States. In fact, the median finishing time of a marathon in the past 33 years has increased by 27:43 for males and 37:59 for females (Running USA, 2014). The slower median times of the marathon suggest a competitive decline in the event as a whole. With increased participation and commercialization, the race itself, for most participants, becomes more about finishing than winning. As runners flock to the marathon, the differences between various marathon events must be noted. Marathons differ in many ways, yet every certified marathon covers the same distance of 26.2 miles. As these courses change, certain races cater to a niche market of competitors while others cater to the masses. For example, a marathon gaining 7000 feet of elevation is likely to produce dramatically different results and attract a 1 different crowd of participants than a marathon in a major city, such as Boston. The following study investigates the determinants of winning race times and marathon participation, observing the different United States marathons over time. Two different models are employed in the study to examine the impact of prize money on performance and participation. The first model observes the determinants of winning times in ten major U.S. marathons over the course of their existence, specifically focusing on the impact that prize money has on individual performance. (See Figure 1.) The second model observes the determinants of race participation in 100 various U.S. marathon events, specifically focusing on the impact that prize money has on event acclaim. 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 FIGURE 1. Bar graph showing the number of participants in ten major U.S. marathons in 2014. From “10 Biggest Marathons in the U.S.,” by Active Network, 2014. In the field of all sport competition, the presence of prize money can significantly affect the outcome of an event. In sports economics research, the theory of tournaments states that the attainment of money through performance is a motivating factor for all 2 athletes. In terms of the marathon, this does not seem to be the case. Although prize money has increased overall in the past few decades, current research reveals that median finishing times have become slower. Since median times significantly differ from winning times, trends in the performance of marathon winners, as opposed to trends of middle-of-the-pack finishers, are necessary in researching the effectiveness of prize money. This study specifically determines whether prize money affects winning marathon times by observing changes in prize money between different marathons and hypothesizes that, in marathon competition, prize money at stake does not affect winning times. Despite the rapid growth of the sport and increases in prize money, winning marathon times have remained fairly constant in the past 30 years. Other variables such as altitude, weather, and race size are true determinants of marathon pacing. As a result, the sport of the marathon disproves the theory of tournaments. Because of its stance in society as a mass cultural phenomenon, marathons are exempt from the standard sports economic theories involving compensation as motivation. The beauty of running as a sport is its inclusivity, as anyone can participate. Although some races have required qualifying times, most do not, allowing anyone to register. The inclusivity of marathons is visibly apparent when professional runners are lined up at the same starting line as non-professionals and each is running the same distance on the same course. Not many other single participant sport competitions offering prize money, such as golf or tennis tournaments, share the same inclusivity in their competitors. Along with the impact of prize money on performance, this study also examines the impact of prize money on race participation, hypothesizing that increases in prize money lead to increases in the demand to participate. As the running industry 3 grows, the races get bigger, and the marathon phenomenon continues to build, an understanding of the impact of prize money should be useful in race planning and marketing strategy. This thesis includes four sections following this introduction. The first describes the theory of tournaments and the effectiveness of incentives in detail. Next, an explanation of the marketing sector of the running specialty industry is provided. The following section then consists of a literature review that provides a foundation for the research methods employed in the study. Using existing literature and sports economic theory, this section describes the effect of prize money in the sports industry, portrays the impact of the growing running industry and its present economic trends, and defines the determinants of marathon acclaim and individual marathon performance. The section concludes by stating the differences between the marathon and other sporting events, suggesting why this research is necessary. Next, the data collected and the regression models used for analysis are described, and the final section reveals the results of the study, discusses limitations, and offers avenues for further research. Theory The theory discussed in this section is necessary to determine the potential impact of prize money on marathon performance and acclaim. To determine the effectiveness of prize money, performance and enrollment trends in the marathon must be analyzed. All in all, theory suggests a significant positive correlation between prize incentives and athletic performance. Concepts in event marketing also suggest a positive correlation between available funding and event participation. The section is divided into two focuses: 4 1) The first will discuss the economic theory of incentives and the theory of tournaments in a sports economics context. 2) The second will discuss the growth of the running industry and the marketing theory behind event acclaim.