Billion Dollar March Madness BracketJanuary 22, 2014 · 3 minute read · Comments
Quicken Loans and Warren Buffet annouced a billion dollar prize for a perfect NCAA college bracket prediction. As Quicken Loans puts it:
You read that right: one billion. Not one million. Not one hundred million. Not five hundred million. One billion U.S. dollars.
Why Give Away a Billion Dollars?
My first reaction when I heard this is “where is the value?”. Companies award prizes all time and we know the reason this occurs is basic economics - which teaches us that the “cost” of the prize is less than the “value” the company derives from offering the prize. So what amount marketing, exposure or publicity is worth one billion dollars?
The details of the prize are actually $25 million dollars for 40 years. So we can reframe the question as “What amount of addional loan volume must Quicken Loans generate to produce more than $25 million of additional profit annually?” To get there we need to know the average revenue per loan and Quicken’s profit margin. For example if we assume $1,500 revenue per loan and a $10% profit margin this means Quicken Loans would earn a profit of $150 per loan. So $25,000,000 / $150 = 166,667 loans (rounding up).
This All May be Moot
It’s virtually impossible to predict a perfect bracket. The math is simple: there are sixty-three games so it’s 2 to the sixty-third power. The odds of you filling out a perfect bracket are a staggering 1 in 9.2 quintillion.
How big is that?
- That’s one billion, 9.2 billion times.
- It’s 500,000 times more than our $17 trillion national debt.
But I’m a Brackets Wizard!
If you are really smart and know that No. 1 seeds always advance in the first round, or tournament champions usually have a top-four seed, or about Duke’s dual advantage of having a legend like Coach K and never getting called for a blocking foul you may be able to cut the odds down to something more like 1 in 128 billion.
Get schooled by DePaul math professor Jay Bergen:
Using 1 in 128 billion odds, if everyone in the United States filled out a bracket, we’d see a perfect one every 400 years! ESPN which has run a tournament challenge for the past 16 years has never had a perfect bracket in over 30 million entries according to the network. I assume that many of the people filling those out are pretty smart.
So the true genius of this is the prize will almost certainly not be awarded thus the marketing, exposure and publicity is free! I initially puzzled over why Warren Buffet was involved but as a long time insurance executive he must have some sense of the actuarial odds on this. Brilliant!