Berkshire Insures $1B for Predicting NCAA Winners

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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 will 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 also 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 a contest 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.”

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.

‘No Chance’

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 in a video posted on YouTube.

“If you’re just guessing, you basically have no chance,” Bergen said in the video.

If every person in the U.S. knew something about basketball and filled out a bracket, the probability of someone picking each game perfectly is less than 0.25 percent, he said.

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.

Office Pools

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.

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.

‘Significant Profit’

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 chairman and chief executive officer 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.

Dan Gilbert, the founder of Quicken Loans, owns the National Basketball Association’s Cleveland Cavaliers. The team plays in an arena named after Gilbert’s company.

–With assistance from Eben Novy-Williams in New York. Editors: Dan [censored], Jay Beberman


http://www.insurancejournal.com/news/national/2014/01/21/317729.htm

Pretty cool, eh? I am surprised that more specialty insurers have not tapped into this segment.
 
I believe this is how the prize money for the original X prize was paid; Someone asked an insurance company to do the math; they did and then the premium was paid. Perhaps those actuaries are working somewhere else now....
 
Why do I feel this is close to the truth?
laugh.gif
 
But, isn't it NOT completely random? What I mean that the chances of win each game is not 50/50 but one side is favored to win over the other.
 
True, the 9 Quintillion (???) number is the number of combinations, not the odds that any given bracket is right. Didn't they say the odds of someone who has some basketball knowledge winning is 1 in 128 billion?

Originally Posted By: Vikas
But, isn't it NOT completely random? What I mean that the chances of win each game is not 50/50 but one side is favored to win over the other.
 
Besides, what precautions are taken by Berkshire so somebody does not send every single combination to their server? I mean there is no entry fee, correct? I am assuming that hackers can bypass the usual "prove to me you are not a a computer" challenges!
 
Originally Posted By: Vikas
Besides, what precautions are taken by Berkshire so somebody does not send every single combination to their server? I mean there is no entry fee, correct? I am assuming that hackers can bypass the usual "prove to me you are not a a computer" challenges!


Quote:



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.



Once they have 10 million entries, no more.
 
Originally Posted By: Vikas
I am assuming that hackers can bypass the usual "prove to me you are not a a computer" challenges!


That is a never-ending game of measure and counter-measure. If there is ever a machine or software made that can reliably fill those CAPTCHA images in correctly I WILL BUY ONE. ;^)
 
It is just the pattern recognition; people have been writing those type of software since early eighties. By this time, the software should be ready :)
 
Little known fact...your local insurance companies do the same thing.

Any time there is a vehicle parked on a golf course during a tournament given to someone who makes a hole in one...insured. 10 years ago a 60k dollar car was 325$ to insure for a day.

Once at a local golf course there was a car on every par 3. All but the elcheapo economy car were won. Three holes in one with five witnesses at each hole.

The local insurance adjuster was sweating bullets when he made the third call to the head office.
 
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