berkshire hathaway

This time, two months from now, you could be a billionaire.

However, there’s a whole bunch of people betting that you won’t be… a whole industry in fact.

Warren Buffett’s Billion Dollar Bracket challenge has been grabbing a lot of headlines. It sounds remarkably simple: pick a perfect bracket for this year’s March Madness tournament and Buffett and Quicken loans will congratulate you with nothing less than a billion dollars (unless, of course, more than one person picks a winning bracket… then you have to split it).

It’s slightly trickier than that. The mega-promotion has also brought to light a whole industry of niche companies that insure other companies who sponsor these crazy contests. I guess it turns out that the sponsor companies don’t actually want to risk having to pay for the reward.

Basically, companies–such as Quicken loans–sponsor contests and offer a huge reward for the winner. They pay an insurer–in this case, Buffett’s Berkshire Hathaway–a decent amount to pay out the reward in the statistically-unlikely event that someone actually wins said contest or promotion.

This is where it can get sticky. What exactly do the contest-running companies owe the insurer? This depends on a lot of calculations to determine just how likely it is that some contestant could do, essentially, the impossible.

Just as Buffett’s bracket challenge is about to kick off, a law suit is currently underway in Texas regarding the fees a  sponsor company owes to a contest insurer. SCA Promotions, a group that insures promotional contests, claims that Yahoo Inc. owes them around $4 million for a contest that they backed out on.

Ironically, the contest is tied up with Buffett’s. SCA had signed up to insure Yahoo’s own March Madness billion dollar bracket challenge earlier this year. When Yahoo got wind that Buffett was insuring a similar (i.e. identical) contest, they backed out and failed to pay SCA the full fee that they had promised, citing a breach in confidentiality on SCA’s part as enough reason to nullify the contract. The CEO of SCA Promotions is best friends and bridge buddies with Warren Buffett, and Yahoo is claiming that SCA gave Buffett the idea to back his own contest.

Buffett’s contest has it’s own host of problems. For one, the NCAA is saying that $1 billion may be enough to mess with the integrity of a college tournament and convince players or others to throw games.

So, the contest isn’t quite as straightforward as it seems. But with the odds of a winner estimated at 9.2 quintillion to 1, maybe it doesn’t really matter.

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