Answer to Question #49583 in Economics of Enterprise for Chris-Obi

Question

A recent economic study found that the difference in prize money between the winners of downhill ski races and second-place finishers is much less than the difference in professional golf tournaments. Use an appropriate model to explain why this is the case.

Answer 1

Professional golf tours are the means by which otherwise unconnected professional golf tournaments are organised into a regular schedule. There are separate tours for men and women, with each tour being based in a specific geographical region, although some of their tournaments may be held in other parts of the world.
Golf is one of the more lucrative sports in the world for both men and women, but it has a very different structure from other sports, especially team sports. Almost all (at least 95%) professional golfers make their main income as club or teaching professionals, rather than from competition. "Touring professionals", also known as "Tournament golfers" or "Pro golfers", who make their income from prize money and endorsements, are a small elite within the profession. The very best golfers make up to 8-figure incomes in U.S. dollars from tournament play alone; when endorsement income is taken into account, Tiger Woods was the highest earning sportsman in the world for much of the first decade of the 21st century according to Forbes magazine.
For the less successful, trying to make a living from tournament golf can be precarious: tournaments have entry fees and the associated costs of travel and lodging, plus the hire of a caddy. Moreover, most tournaments have a "cut" after the second of four rounds, in which a minimum aggregate score is selected to eliminate roughly half the field, and advance the remaining to pairings for the final rounds. Only those players remaining after the cut earn any prize money at all. Thus, aftercosts are taken into account, lesser-known tournament golfers who are playing erratically (and do not have a steady income from endorsements) can be in dire financial straits in a bad year.