SCOTTSDALE, AZ -- NASA announced Wednesday the first two cash prizes offered as part of the agency's Centennial Challenges program. Its mission is to encourage the commercialization of space transportation.

The competitions should make for good fun.

In the $50,000 2005 Tether Challenge, teams will compete to make the strongest tether of a specified diameter. Tethers will be stretched until they break, and winners will advance in a March Madness-like bracket system. The winner must then beat NASA's "house tether," made of existing material, to snare the cash.

The 2005 Beam Power Challenge will give $50,000 to the team that can use wireless technology to lift a weight off the ground. This technology might ultimately be used to build a space elevator that would beam payloads off the planet.

Both prizes will be repeated in 2006 with a $150,000 purse for each.

The prizes, which mark a subtle but important turning point in how NASA does business, are designed in part to help meet the ultimate goal of returning Americans to the Moon by 2020 and then sending them on to Mars under a vision laid out last year by President Bush.

"We need to reach out and find innovation wherever it can be found," said Brant Sponberg, the Centennial Challenges program manager.

Sponberg announced the prizes here at Flight School 05, a two-day brainstorming session among industry leaders in commercial spaceflight and space tourism.

$80 million total

NASA already funds private participation in its missions. Subcontractors build parts, provide software, and more. But it has not been in the incentive business until now.

NASA will direct $80 million toward prizes over the next five years, Sponberg told SPACE.com. The agency's overall annual budget is around $16 billion.

Sponberg said one to three other prizes would be announced in coming weeks or months. Awards will range from small to large, including "Flagship Challenges" that would encourage major private space missions.

The prizes, which NASA said last year were in the works, are inspired partly by the $10 million Ansari X Prize for private, manned suborbital flight, which was won last year by Scaled Composite's SpaceShipOne. NASA also took a page from Defense Advanced Research Projects Agency (DARPA), which has a long history of using similar incentives to advance technology.

NASA has partnered with the Spaceward Foundation to manage the prizes.

The competition is open to non-federal teams led by U.S. citizens.

Even if the ultimate missions that the prizes are geared toward never come to fruition, the technologies developed in the process will be useful to NASA and others, Sponberg said in an interview prior to the announcement. Beaming energy for a space elevator can also be applied to beaming power from Earth to support a Moon base, he said. High-stress composite materials would be useful in the air travel industry.

Selling Levis to miners

Space industry leaders, including many who are putting their money into programs they know won't pay off for years to come, don't have a solid handle on how commercialization beyond Earth-orbit will pay off. But much of the smart money is on space tourism rather than scientific exploration, satellite deployment or the White House's Mars plans.

"There are many more passengers than there are satellites," said Jeffrey Greason, president and CEO of XCOR Aerospace, which is developing a craft it plans to use for transporting paying customers just beyond the fringe of Earth's atmosphere.

Other companies are eager to win the NASA prizes to add precious revenue to their start-up companies. Charles Miller, president and CEO of Constellation Services International, plans to compete. His company plans to ultimately deliver cargo into space that will be needed by other missions.

"We're not sexy," Miller said. "But the people who made money in the Gold Rush were the guys who sold Levis to the miners. We're the guys who deliver the Levis."

Welcome change

The new use of NASA funds is a welcome shift to many space experts.

Looking back NASA's early successes in human spaceflight and looking forward to more of it, legendary physicist and space colonization visionary Freeman Dyson suggested the space agency has crucial roles to play in the future.

"Keep the space science going," the 81-year-old Dyson advised the agency. And "build the infrastructure" and set policies that encourage private enterprise to enter space.

Dyson worked on the Orion project in the late 1950s. Orion was a parallel program to Apollo. It planned to detonate nuclear devices to launch a spacecraft. "The thing could have flown," he said. The project was dropped because of the now-obvious nuclear fallout problem, he said.

Dyson sees humans eventually colonizing space; "because it is there, Howeve, he says there must first be "huge advances in propulsion." He thinks space travel should be for pleasure and sport. Competition with the Chinese, who now have their sights on the Moon, will be good for NASA, Dyson said.

"If the Chinese push us, we'll go faster," he said.