South-Western Economics  
Tiger King of Appearance Fees and Prize Money
Subject Demand for labor
Topic Labor markets
Key Words Appearance fees, prize money
News Story

Tiger Woods expects to make at least $10 million in appearance fees in 2001 and early 2002. He reportedly made $2.5 million to play in the SAP Open in Heidelberg, Germany, in May 2001, although he also had to participate in other activities such as a news conference, a "shoot-out" with his fellow pros, a pro-am, and a "Beat the Pros" competition.

Tiger's fees easily surpass those of other golfers. Mickelson, the world's number two golfer, makes only $200,000 in appearance fees. Greg Norman, in his prime, used to make $200,000-$250,000 in the mid-1990s. However, Tiger's fees are lifting those of other golfers too.

Such fees are on top of prize money. Tiger earned a record $8.2 million in 2000. Other golfers benefit because Tiger's success raises the profile of the event, attracting sponsors and crowds. More than $180 million is now given in prize money on the PGA Tour and the World Golf Championships schedule.

The PGA Tour, which does not permit appearance fees, has been hurt by top golfers who desert certain events for more lucrative engagements overseas. Now, golfers have to request permission to skip an event, and give 45 days notice. Only a few top golfers are allowed to miss each event.

(Updated July 1, 2001)

Questions
1. The demand for labor reflects the marginal revenue productivity of labor.
a) Define the marginal revenue productivity of labor.
b) What determines it?
2. Draw a labor demand diagram for golfers in a non-PGA tournament, with appearance fees on the vertical axis and the quantity of golfers on the horizontal axis. Draw the demand curve such that Woods is the first golfer, followed by Michelson, and other golfers in rank order.
a) Why is the marginal revenue product of Woods higher than that of Michelson? Answer using your response to Question 1(b).
b) Why are the sponsors of the SAP Open willing to pay Woods $2.5 million to appear?
c) Why are different golfers paid differing appearance fees?
d) Explain why adding Tiger Woods to the tour increases the appearance fees of everyone.
3. Draw a diagram of the demand for golfers in a PGA event. The vertical axis should represent average prize money. Again, draw the demand curve assuming the golfers are in rank order.
a) What happens to the demand curve when several top players decide to play elsewhere. Why?
b) What effect do the new PGA rules discussed in the news story have on the demand curve? Why? c) Should the PGA Tour introduce appearance money? Argue for and against using economics.
Source Jill Lieber, "Tiger pushes appearance fees sky high," USA Today, May 18, 2001.

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