Distribution of Winnings on the PGA Tour: A Lorenz Dominance Approach
Roger D. Blair and Deborah Fletcher, University of Florida
In 1985, Curtis Strange was the leading money winner on the PGA Tour with $500,000. By the 2000 season, Tiger Woods’ Tour leading total had soared to some $9.2 million. But was not just the leader’s total that had increased dramatically. The growth in the total purses has been substantial to say the least. Total purses had grown from $20.4 million in 1985 to $154.3 million in 2000. In real terms, the total had grown at an annual compound growth rate of nearly 11 percent. Given this phenomenal real growth, a natural question is whether and to what extent this growth has had an impact on the distribution of winnings. We examine this issue in the present paper.
In analyzing the distribution of winnings over time, we consider a number of issues:
1. Selection of participants.
As one might expect, there are far more golfers who want to enter Tour events than a tournament can accommodate. Thus, the PGA Tour has a specific algorithm for filling out the field. The goal, of course, is to assemble the most attractive field in order to provide the best entertainment for the fans. Ordinarily, there are some 140-150 golfers in the starting field. After two rounds, the field is cut to the low 70 and ties. No one who is cut earns any money; only those who play the final two rounds earn any prize
2. Purse distribution
At the conclusion of the tournament, the prize money is divided according to a precise purse distribution formula. The purse distribution formula has been unchanged during the 1985-2000 period. The winner receives 18 percent of the total purse, the runner up receives 10.8 percent, and so on. The full formula will be examined. If there are ties, the money for those positions is added together and divided equally. For example, if three golfers tie for 10th place, the prize money for 10th, 11th, and 12th place is divided equally among the three golfers.
As the tournament nears it conclusion, the distribution formula and the policy on ties encourages players to continue playing their best golf. Giving up when one realizes that he cannot catch the leader can cost a golfer substantial sums. For example, in a tournament with a $4 million purse, second place would be worth $432,000 while a slip to third place would reduce the winnings to $272,000 – a reduction of $160,000.
3. Gini Coefficients
For the 1985 – 2000 period, the Gini coefficients are remarkably stable except for the final year. Treating 2000 as an outlier, the trend in Gini coefficients over 1985 – 1999 was statistically significant and positive, but very small: the trend was 0.0005 with a t-statistic of 7.38. Further analysis of the Gini coefficients will be included.
4. Herfindahl Index
The Herfindahl Index provides a measure of concentration that has proved to be popular in the industrial organization field. It is calculated as the sum of the squared winnings shares. As one would expect, the Herfindahl Index is quite small which indicates that the winnings are diffused. The trend in the Herfindahl Index is positive, but very small: 0.000034. While this trend is statistically significant (t-statistic equal to 14.963), it is not economically significant.