I think when the players enter they have to pay a fee. So they use the money from the fees to derermine the prize money. They probally also have people that donate money and sponsers that give money.
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The winner usually receives about 10% of the total purse. The runner up usually gets about 5% of the total purse. The rest is distributed on down the leader board. If there are ties at any spot the prize money for those positions is pooled and split. For example, if 7 players are tied at 3rd place, the prize money from 3rd to 9th place is pooled and split evenly between all 7 players.