This post was originally made on April 14, 2006 on a former blog of mine. It was originally written for an economics class I took in graduate school.

The following article is a paper I wrote for an Economics class earlier this year. We were simply asked to apply some economic theory to everyday events we witness. My paper happens to pertain to the world of golf and the marginal benefit/cost scenarios that apply to it.

Most of our major professional sports (MLB, NBA, NFL, NHL) compensate their athletes with long term contracts. These contracts by and large contain guaranteed payments. There are some performance incentives but those amounts are relatively small compared to the total contract.

Golf and Tennis are two sports that reward players for their performance on a weekly basis. Nothing is guaranteed and therefore performance is imperative if you wish to make a living. It is, however, possible to win a match in tennis while winning fewer points and games than your opponent. A player could lose the first set 6-0, and then win two sets 6-4, 6-4 and have won less games (12 to 14) than their opponent while still winning the match. Because the performance result does not depend strictly on the number of points won, tennis is slightly less efficient at creating an environment where “every point matters.”

Contrast that with golf. Each week roughly 150 golfers start that week’s tournament. After the second round (usually Friday) the field is “cut” down to the top 70 scorers. In each and every tournament one single stroke (shot) separates those who make the cut from those who don’t. The rub is that those who don’t make the cut do not get paid - not a penny. Some players receive appearance fees but this is only for the players in high demand, like Tiger Woods, and does not apply to the majority of golfers.

The players who do make the cut go on to play the final two rounds. They are compensated based strictly on what position they finish. These payments are not linear and so each single stroke can mean an exponential gain in payment. The difference in first and second place is most often one stroke - but usually $500,000 or more in prize money. The difference in finishing 65th or 70th may only be a couple of thousand dollars (but is still important as will be shown below). Every shot counts and most every single golfer focuses on his performance until his last shot has been played.

Many times in professional team sports when a game has been “decided” near the end of the game (i.e. the losing team has a very small chance of scoring enough in the remaining time to win/tie) there is a sort of lull in the competition where players just seem to go through the motions. There is no marginal benefit for expending extra energy to keep performing at the highest level. In fact, the marginal costs (possible injuries, etc.) frequently outweigh the benefits. This can make blowout games very uninteresting for fans and means that not all time spent in competition is spent with full competitive drive.

As was discussed above, the marginal benefit of one single golf shot can be enormous. Every golfer has incentive to focus his efforts on optimizing every single shot until he has finished his round/tournament. He has to finish the tournament to get paid anyways so there is relatively little marginal cost associated with continuing to play.

The most important marginal benefits of a single shot can often not be determined until much later in the season. There is a limit to the number of professional golfers who get their “Tour Card” every year and have fully exempt status on the PGA Tour for the next season. This is limited to the top 125 money winners from the previous season. In 2005 the difference in “making it” at #125 and not making it at #126 was only $2,545. That difference could have easily been made up by taking one extra shot over the course of 25 tournaments. What does a PGA Tour card mean? In 2005, the 200th best professional golfer made over $181,000.

One anecdotal story can convey the marginal benefit of a golf shot and its effects on the players. In 2005, Briny Baird was the unlucky #126 on the money list, missing his Tour card by one single stroke. There is another way to get on the PGA Tour and that is by competing in a grueling 6 round tournament in December called the PGA Tour Qualifying School. The top 30 scorers from that tournament also get a Tour card. Unfortunately, Briny Baird finished outside the top 30, again missing his Tour card by a single stroke.

Golf is the most competitive professional sport because every stroke has a marginal benefit.

“Winning isn’t everything, it’s the only thing.”-Vince Lombardi

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