To me, prize money at a race is equivalent to those nonproduct specific brand advertisements that big companies run. It’s not going to directly drive sales, but it reminds the general public that the company is nationwide and thus bigger (better) than its local competition.
For example, if your local half marathon all of a sudden started paying out five figure prize money, it will definitely draw some small number of elites or subelites looking to cash in, but the average joe doesn’t care about seeing these lower tier elite runners nor does the prize money incentivize anyone beside the elites to sign up. If you lower the prize money down to a few hundred or even a thousand, it’s the same effect but instead of the regional elites showing up, it’s just all the local/state fast guys and gals who were probably going to show up anyway. The prize money, alone, doesn’t drive people to show up.
However, if you are already putting on a large major metro marathon with more than ten thousand participants, you almost have to give out some prize money. The prize money may not actually drive anyone to sign up, but when you are putting on a large race people expect it. If joe moneybags owns a big business in town and he puts some sponsorship dollars into the race because the race organizer tells him this is the biggest race in the state and his junior associate wins the whole thing, he’s going to wonder just how big the race really is because, aren’t Kenyans supposed to win all the big races?
Over time the lack of prize money may push the whole race into a more amateur/local direction and eventually erode the spectacle that drives the mass of hobbyjoggers to sign up. Or maybe not. Maybe if State Farm never ran another commercial, they would still dominate over smaller insurance companies?
On a purely anecdotal level, our local half marathon paid $500 down to $100 for overall finishers for several years until 2017. There has been maybe 5% fewer people signing up but the race is in early March so the biggest driver of participation is weather. I run around a 77% to 80% age grade for most distances and our local Turkey trot is the only race I do for the prize and that’s so I can bring a pumpkin pie to Thanksgiving.