Warren Buffett’s Berkshire Hathaway Inc. is backing a $1 billion prize offered by Quicken Loans Inc. if a contestant predicts the winner of each game in the National Collegiate Athletic Association’s men’s basketball tournament.
The prize would be paid in 40 annual installments of $25 million and split among multiple winners if there is more than one perfect entrant, the Detroit-based lender said today in a statement. The winner has the option of a single payment of $500 million.
Berkshire has specialized in unusual insurance risks for decades, protecting clients against big losses in return for premium payments. The Omaha, Nebraska-based company won a bet in 2010 on the World Cup after France was eliminated from the tournament in South Africa. Berkshire has previously guaranteed against the potential payout of $1 billion in an event sponsored by PepsiCo Inc.
“We’ve seen a lot of contests offering a million dollars for putting together a good bracket, which got us thinking, what is the perfect bracket worth?” Quicken Loans Chief Marketing Officer Jay Farner said in the statement. “We decided a billion dollars seems right for such an impressive feat.”
Buffett suggested the $1 billion contest to Quicken Loans founder Dan Gilbert when the Berkshire chairman was in Detroit late last year for an economic-development event with Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein, Farner said in an interview.
Reinsurance Executive
Gilbert has previously worked with Buffett on philanthropy, not on a business venture, Farner said. Ajit Jain, Buffett’s reinsurance lieutenant, was involved in the deal, according to Farner.
The 68-team, single-elimination tournament begins in March. Submissions will be limited to one per household and capped at 10 million entrants, according to the statement.
Aaron Emerson, a spokesman for Quicken Loans, declined to say how much the company paid for the policy. He said the tournament excludes the play-in games, which narrow the field to 64 teams.
The odds of picking every winner correctly in a 64-team bracket are less than 1 in 9 quintillion, according to Jeff Bergen, a math professor at DePaul University in Chicago. Even with some basketball knowledge, that only improves to about 1 in 128 billion, he said.
The odds of Buffett having to pay out reach about 1 in 10,000 in the Quicken Loans contest if all 10 million entrants have basketball knowledge, Bergen said.
Buffett’s Wager
“He’s risking a large amount of money, but in terms of his expected loss, he’s not risking a whole lot,” Bergen said by phone. “Warren Buffett isn’t where Warren Buffett is by coming up with stupid ideas, stupid wagers.”
The NCAA men’s basketball tournament, known as “March Madness,” is among the most-watched sporting events in the U.S. The championship game last year attracted 23.4 million viewers, CBS Corp. said in April after the University of Louisville defeated the University of Michigan. CBS and Time Warner Inc.’s Turner Broadcasting agreed in 2010 to a $10.8 billion, 14-year contract for broadcast, Internet and wireless rights to the tournament.
Trying to predict the winners of each game has become a fixation in the U.S., where colleagues often bet in office pools and compete against celebrities who post their picks online. President Barack Obama has made a public show of releasing his bracket, including in 2009 when he correctly selected the University of North Carolina to win.
Berkshire Assets
Buffett, the world’s fourth-richest person, built Berkshire into a business with operations spanning the insurance, transportation, energy, retail and manufacturing industries. The company had more than $170 billion of stocks, bonds and cash at the end of September, allowing Buffett and his deputies to write policies that protect against the costliest natural disasters and other major risks.
If the insurance industry were to face a mega-catastrophe with $250 billion in losses — about triple the costliest event ever — Berkshire would still probably post a “significant profit” for the year because of its many sources of earnings, Buffett wrote in a letter to shareholders last year.
“Millions of people play brackets every March, so why not take a shot at becoming $1 billion richer for doing so,” the billionaire Berkshire CEO said in the statement. “While there is no simple path to success, it sure doesn’t get much easier than filling out a bracket online.”
Of the 8.15 million brackets submitted to ESPN last year, none were perfect after the field was narrowed to 32 teams. The best record, shared by 5 brackets, was 30 and 2.
Gilbert owns the National Basketball Association’s Cleveland Cavaliers. The team plays in an arena named after Gilbert’s company.
