The Truth Behind Warren Buffett's $1 Billion 'March Madness' Offer

Warren Buffett and Quicken Loans are offering a billion-dollar prize for a perfect March Madness bracket this year. Here's what you should know.

Jan 22, 2014 at 1:41PM

It's not often you see Warren Buffett's name involved in a major sports story, but yesterday, it happened. Mortgage lender Quicken Loans announced it is partnering with Buffett's Berkshire Hathaway (NYSE: BRK-A) to offer a $1 billion prize to anyone with a perfect bracket in this year's NCAA Men's D-I basketball tournament. Before you pore over hours of game film, there are a few things you should know.

The insurance
The contest is made possible by what's known as prize indemnity insurance. Quicken Loans is paying Berkshire Hathaway a premium to insure a potential $1 billion payday. Contrary to popular belief, the prize will not be paid directly from Buffett's pocket. Additionally, the 20 best "imperfect" brackets will each be given a $100,000 credit to buy, refinance, or remodel their home. 

As the Omaha World-Herald points out, neither side has revealed exactly how much the premium cost Quicken, but Berkshire has been here before.

The holding company was paid $10 million to insure Pepsi's (NYSE: PEP) "Play for a Billion" sweepstakes back in 2003. No one won the billion-dollar prize in that contest, which had a one-in-1,000 chance of being hit. 

So what are the odds of getting a perfect "March Madness" bracket?

Images

Image via Jason Dean, Flickr. 

They're much, much lower.

The odds
A couple years ago, the Associated Press talked to Augsburg College professor Michael Weimerskirch, who explained the odds of filling out a perfect bracket.

If a coin flip is used to pick the winner of each game, the odds of a perfect bracket are one-in-100 quintillion -- that's a one with 20 zeros. Weimerskirch said, "You're just as likely to win Powerball three consecutive times."

However, most don't flip a coin to pick their NCAA tournament winners and losers. Assuming a semblance of basketball logic is used, DePaul's Jay Bergen puts the odds of a perfect bracket around one-in-128 billion. This number shrinks slightly to one-in-100 billion because Quicken and Berkshire are limiting the contest to the first 10 million people that sign up.

Assuming Buffett's company is underwriting Quicken's $2 million in secondary prizes, the premium is at least this amount, but probably not more than the $10 million it received to insure Pepsi's billion-dollar contest.

The strategy
Of course, the purpose of any sweepstakes is to boost exposure of the companies involved. In the case of Quicken Loans, Warren Buffett's name, and the sheer size of the prize offered have gained a significant amount of media attention.

Quicken is the fourth largest mortgage originator in the U.S., yet it trails its closest peers -- JPMorgan Chase (NYSE: JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) -- in social media exposure by a significant margin.

Mortgage OriginatorFacebook LikesTwitter Followers
JPMorgan Chase* 3,751,000 49,000
Bank of America** 1,543,000 208,000
Wells Fargo 610,000 73,000
Quicken Loans 153,000 30,000

Sources: Facebook and Twitter. Numbers rounded to nearest thousand. *Twitter figures include sum of @Chase and @JPMorgan followers. **Includes primary @BofA_News handle.

In the first day of its "Billion Dollar Bracket Challenge," Quicken's Twitter (NYSE: TWTR) account had more than 30 times its normal influence, according to Twitalyzer. Since Monday, the @quickenloans handle has boosted its follower count by about 5%. Before this date, it had taken roughly a month to match this growth.

On Facebook (NASDAQ: FB), the official Quicken Loans page has added almost 10,000 likes in the past 24 hours.

Using the commonly cited values of $8 for a Facebook Like and $2 for a Twitter follower, Quicken generated roughly $85,000 in social media value over the first day of its contest. With the end date set for March 19, the company can generate over 500,000 additional Facebook Likes and 60,000 more Twitter followers if the hype keeps its pace.

That's close to $4.5 million in added social media value in a little under two months -- more growth than what Wells Fargo or JPMorgan Chase average in a year.

The future
Of course, if even half of this forecast can hold, the social media value gained by Quicken Loans will likely exceed the cost of its insurance policy with Berkshire Hathaway. Judging by the company's lack of a following on Facebook and Twitter compared to its peers, the strategy makes sense.

The decision to include Warren Buffett's name in the contest's promotional material is also a smart move. The world's fourth richest man is arguably the most famous billionaire in America, and the prospect of winning $1 billion from his company is simply impossible to ignore.

I expect a record number of brackets to be filled out this year, and while the odds of winning are worse than the odds you'll actually become a pro athlete, it doesn't hurt to try.

The next step
Want to figure out how to profit on business analysis like this? The key is to learn how to turn business insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you what you need to get started, and even gives you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.

Fool contributor Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Bank of America, Berkshire Hathaway, Facebook, PepsiCo, Twitter, and Wells Fargo. The Motley Fool owns shares of Bank of America, Berkshire Hathaway, Facebook, JPMorgan Chase, PepsiCo, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers