After the first week of the NCAA tournament, the field has been winnowed from 68 teams down to 16. There have been winners aplenty. 11 seed Dayton and 10 seed Stanford face off Thursday in a game guaranteed to send a double-digit seed to the Sweet Sixteen. Tennessee has won three games in the tournament, fighting from the play-in game all the way to Sweet Sixteen matchup against Michigan. My Iowa State Cyclones lost star Georges Niang to a broken foot on Friday night but bounced back to boot hoops royalty North Carolina from the tournament. 95% of the country rejoiced when Mercer bounced Duke in the first round. (Nothing personal against coach Krijawooski; it’s just fun to root against a perennial power.)
The biggest winner, though, is Warren Buffett. None of the entries in Quicken Loans’s Billion Dollar Bracket Challenge made it through the weekend unscathed. This means that Buffett will not have to pay up on the insurance policy Quicken bought from Berkshire Hathaway.
There was never much of a chance Buffett would have to pay up, of course. Quicken actually did make it a bit easier than expected by not making people pick winners of the play-in games. Tennessee/Iowa, for example, was one “team” for the purposes of picking winners. If you flipped a coin to determine your picks, the odds of a perfect bracket would be more than 1 in 9 quintillion (a quintillion is a million billions). However, a knowledgeable picker (someone who doesn’t pick a 16 seed over a 1, for example) can likely cut those odds to around 1 in 128 billion, according to DePaul University math profession Paul Bergen.
Even if you beat those incredible odds, you wouldn’t actually get a billion dollars. You would get $25 million per year for the next 40 years, or a $500 million lump sum. Half the value is already gone, and the tax man hasn’t visited yet.
Buffett also told ESPN’s Rick Reilly that if someone had a perfect bracket within only one game remaining, he’d attempt to buy out that person for $100 million. In theory, that person would have a 50% chance of winning a $500 million lump sum, so their expected result would be $250 million. However, it’s an all or none situation. If you’re living paycheck to paycheck, would you rather have $100 million guaranteed, or a 50% chance at $500 million (plus a 50% chance of $0)? I’d take the $100 million. In fact, I’d take any amount that would allow me to quit my job and maintain my current quality of life until I die. I don’t need to be fabulously wealthy – I’d happily settle for a life of leisure. Sleeping in a bit in the morning, writing fiction until the kids come home from school every day, traveling a bit more – that would be just fine with me. So the likely worst case scenario for Buffett would be coughing up $100 million. Realistically, he could probably cut this down to $10-20 million and still get a lot of people to take the offer. For many people, the difference between broken and $10 million is less than the difference from $10 million to $500 million.
There’s a point in this. Sometimes it makes sense to lock in a positive result rather than risking it all for a better result. Financial decisions should be made with your head and not your heart (or your greed organ).
I don’t think he could cut his offer down to 10-20 million. I think 100 million even is too low. Yes, most people would take the guaranteed money so they can live comfortably the rest of their life, but there are other options that exist to ensure a guaranteed amount of money. One could arbitrage the gambling market and find some large casino, or casinos, who would love to take on an expected value position of 250 million for only 100 million and would offer to pay more than buffet. Even without the money to put up oneself, I think the ensuing news media and headlines would guarantee the certainty that the casino would be paid off.
I had heard that if you got to the final four, meaning there were three games remaining, that he would offer you $10,000,000. Which if I were in that situation I would take in a heartbeat.
@ Kevin – I haven’t looked at the fine print, but I’m not sure that entries are transerable to another party. You definitely bring up a good point, and something that Buffett should address, if it’s not already addressed.
A different angle would be to secure $250 million credit (with the potential winnings as collateral) and bet on the other team. Win or lose, you’d get 200-250 million. I suspect that this isn’t as easy as it sounds, though.
In all of these scenarios, though, you’d be locking in a guaranteed lesser amount instead of rolling the dice on the 500 million.
It’s amazing that all these RICH people act like they are willing to give out a Billion but in the end they would only payout like 10M and to them 10M is like 10,000.
Don’t get me wrong, I would take the 10MIL but even that is so hard to win.