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Aug 08

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Cash Prizes Probably Don’t Incentivize Athletes to Go for Gold

While several National Olympic Committees provide cash incentives to their athletes who win Olympic medals, the amounts vary dramatically from country to country.   Singapore provides the highest prize of about $800,000 to its Gold medalists, while many other countries provide no financial incentive.  The UK, for example, offers no cash, but prints postage stamps honoring their Gold medalists.  Are financial incentives effective and do they improve medal counts for countries offering larger cash prizes? The chart below plots the countries offering the largest cash incentives against their success in the medal count:

There are several reasons why larger cash incentives are not associated with higher medal counts:

  1. Athletes at the Olympic level are often incentivized by non-monetary goals like glory, competitiveness, and love for the sport.
  2. Prior to devoting one’s life to Olympic training, the probability of becoming good enough to medal is so remote that the cash amounts aren’t sufficiently large to offset the enormous risk of not becoming the best in the world at a given event.  Moreover, once an Olympian has made it to the Olympics, they will certainly give it their all to win their events.
  3. Countries that already have a history of underperforming at the Olympics might introduce cash awards precisely to improve their medal counts.  Thus, we might expect those countries that are particularly unsuccessful to offer larger rewards.

To the extent that athletes are incentivized financially, the true cash benefit is derived from endorsements, which are usually well in excess of the relatively modest cash incentives offered by the Olympic Committees. However, endorsement opportunities are not available to every medal winner and in some cases focus more on personal likeability than comparative skill.

About the author

Benjamin Bohr

Benjamin is a manager at Fulcrum Financial Inquiry. He specializes in statistics and data analysis for use in high-stakes litigation, business valuations, and other financial matters.

Permanent link to this article: http://betweenthenumbers.net/2012/08/cash-prizes-probably-dont-incentivize-athletes-to-go-for-gold/

3 comments

  1. Caleb

    This just in: “Olympic Athletes Moving to Singapore in Droves” 😉

  2. Patrick Rogers

    Fun, yet interesting, analysis.

    My instinctual contrarian reaction is that countries may offer cash prizes because–for whatever reason–the other incentives are so lacking. In other words, the cash is an attempt to ameliorate some other cause of low performance.

    Relatedly, under-performing countries may be more able to offer financial bonuses because their poor performance makes the cost of such programs very low. Once the incentives start leading to better performance, they discontinue them because they become too expensive.

    I’d be interested to see a similar analysis comparing per capita gold medals with average endorsement earnings.

  3. Benjamin Bohr

    @ Patrick: I like your second point. In effect, you’re arguing that there may be a mortality bias because the more successful the treatment (i.e. cash prizes) the more likely that countries will leave the treatment group, leaving only those countries where the treatment was unsuccessful. There might be something to this, but we’d have to look at the historical record of cash prizes offered by countries for further insights.

    The endorsements by country would be interesting indeed!

    @ Caleb: also just in “Singapore’s Gold Medalists Still Can’t Afford Real Estate in Singapore Even with Olympic Prize Money.” 😉

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