Your perfect NCAA bracket is worth $1 billion; Warren Buffett is betting it won't happen

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Posted: Tuesday, January 21, 2014 12:00 am | Updated: 1:52 am, Tue May 20, 2014.

So, how much did Quicken Loans pay Berkshire Hathaway Inc. to insure the billion-dollar prize for predicting every winner in this year's NCAA men's postseason basketball tournament?

“Too much,” said Quicken's Dan Gilbert.

“Not enough,” Berkshire's Warren Buffett told The World-Herald.

The two CEOs are clearly having some fun with Quicken's promotional contest, which promises a $1 billion payout for a perfect online “bracket” in the March Madness tournament that starts March 18.

Anyone who correctly picks all the winners will win a share of $25million a year for 40 years, or a lump sum of $500 million.

If there's no grand-prize winner, Quicken will pay out $2 million total for the 20 most accurate brackets, or $100,000 each, as well as donating $1 million to inner-city educational efforts in Detroit, Quicken's home city, and Cleveland.

Not surprisingly, the odds are in Buffett's favor.

Mathematically, there are 9,223,273,063,854,775,808 different ways to fill out a 63-game bracket, according to a calculation by USA Today last year. That's a big number — 9.2 quintillion — even for Buffett.

USA Today said that means that if everyone in the United States submitted a bracket every year, a perfect one would show up every 400 years.

But you can improve the odds by using a bit of logic, such as the No. 1-seed team advancing in the first round, a pretty sure thing. That yields odds of 1 out of 128 billion, according to DePaul math professor Jeff Bergen.

Paying out the prize over 40 years also would reduce Berkshire's financial exposure. In an earlier Berkshire-insured contest with a $1 billion top prize, Buffett quipped that he tried, but failed, to get sponsors to agree to pay out the prize at $1 a year for a billion years.

Berkshire's specialty insurance division routinely insures hole-in-one contests at golf outings, selling policies that would pay off with new cars for winners. Or cash awards for making half-court shots at basketball game halftimes.

The sponsor pays Berkshire a premium based on the odds. For a hole-in-one contest, the length of the hole and the number of contestants help determine the odds and the premium paid by the sponsor.

The longer the hole, the lower the premium. The more contestants, the higher the premium. The policies pay off so rarely that Berkshire makes money from the premiums.

Berkshire received a reported $10 million premium for insuring a billion-dollar sweepstakes for Pepsi in 2003, a contest that produced some small winners but no big winner, except for the advertising attention Pepsi received.

If the dollar amount of the Quicken contest is unusual, it's also unusual for Buffett to admit his company is providing the insurance policy.

Ever the salesman, he even supplied a quote for a press release that referred to a commercial by Geico, Berkshire's auto insurance business:

“Millions of people play brackets every March, so why not take a shot at becoming $1 billion richer for doing so? While there is no simple path to success, it sure doesn't get much easier than filling out a bracket online.

“To quote a commercial from one of my companies, I'd dare say it's so easy to enter that even a caveman can do it.”

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

Correction: Jeff Bergen was misidentified in a previous version of this story.

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