Warren Buffett, Sports Gambler

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Irony is Warren Buffett gambling the capital of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) shareholders.

It's also reality.

Several months ago, a Berkshire Hathaway subsidiary backed an insurance contract that would leave the company on the hook for $30 million if France won the World Cup.

Fortunately, France was purged last week (sorry, French Fools), leaving Berkshire shareholders free of liability -- plus they get to keep an unknown premium, of course.

This probably surprises you. Berkshire and sports betting is analogous to snow in the Sahara -- it isn't supposed to happen, and when it does, you think the world is coming to an end. When Buffett invests in a company like Coca-Cola (NYSE: KO  ) , he'll back it up with logical quotes like "forget about share of market; I'm talking about share of mind." When he invested in Goldman Sachs (NYSE: GS  ) and General Electric (NYSE: GE  ) in 2008, he noted the caliber of the companies' management and their history of success. Sports betting? That's harder to justify. Rolling the dice doesn't exactly fit in Berkshire's quiver.

Or maybe it does. If you want a good rationalization for this sports wager, go back to a Fox Business interview earlier this year, when Buffett explains, "We're in the business of taking risks and we try to get paid appropriately."

Willie Sutton robbed banks because that's where the money was. Warren Buffett bets on soccer because, from time to time, that's where the money is.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Berkshire Hathaway and Coca-Cola are Motley Fool Inside Value picks. Berkshire Hathaway is a Motley Fool Stock Advisor choice. Coca-Cola is a Motley Fool Income Investor recommendation. The Fool owns shares of Berkshire Hathaway and Coca-Cola, and has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2010, at 11:28 AM, gman5556 wrote:

    Betting against France was a risk free profit!

  • Report this Comment On June 29, 2010, at 12:00 PM, fennecfoxen wrote:

    Eh. The house always wins.

  • Report this Comment On June 29, 2010, at 1:04 PM, actuary99 wrote:

    Berkshire's principle business is insurance, which can be looked at as a series of bets.

    Although this particular type of insurance is odd, As is usually the case with insurance, I'm guessing they charged a premium that was higher than the expected value of losing the bet [(probability of French winning) X ($30,000,000)] to account for administrative costs and profit margin.

    I'm wondering why anyone would buy insurance on a sports bet. It doesn't make sense to buy insurance if you can cover the cost of a possible loss yourself, because the cost of insurance is greater than the expected value of the cost of the loss. But presumably the notional amount of the bet was at the discretion of the individual/entity who purchased the insurance. So why didn't this individual just bet an amount he could afford to lose?

  • Report this Comment On June 29, 2010, at 4:00 PM, CPACAPitalist wrote:

    This reminds me of when golf tournament organizers buy insurance against someone hitting the hole in one prize. Techinically you could call it sports gambling, but I bet they are making money or else why would they be in that business.

  • Report this Comment On June 29, 2010, at 8:25 PM, greenwave3 wrote:

    Agree with Actuary99. Insurance is nothing but betting. The geeks that set odds in Vegas are not unlike the geeks poring over numbers to determine insurance risk.

  • Report this Comment On June 30, 2010, at 7:12 AM, BMFPitt wrote:

    Maybe a French casino had a lot of homers betting.

    This is no different than any other non-standard insurance.

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