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Buffett's $1-billion basketball bet called savvy marketing ploy

Warren BuffettBasketballSportsCollege BasketballNCAAClark DukeBerkshire Hathaway Inc.

The Wizard of Omaha didn't get to be one of the world's wealthiest men by taking foolish risks.

This week, Warren Buffett announced that Berkshire Hathaway Inc. will insure a Quicken Loans Inc. contest that will award $1 billion to anyone who correctly guesses the winners of every game in the upcoming NCAA men's basketball tournament.

The story immediately generated widespread buzz on the Internet, television and radio and at sports bars and office water coolers.

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Neither company will say what Quicken is paying Buffett to cover the risk that someone wins, but it's likely many millions of dollars. Whatever it is, it's probably worth it, considering the boost it has already given to Quicken's name recognition.

"The more I think about it, the more I'd say it's pretty clever for both companies," said Dominique Hanssens, a marketing professor at UCLA. "One billion dollars has shock value, and shock value is what the media is after. This is shock value about something that's very positive: 'Oh my gosh, someone could win $1 billion.' It has high engagement quality."

For Buffett, the risks are actually quite limited. On a Facebook page promoting the contest, Quicken says an entrant's chances of winning are 1 in 9,223,372,036,854,775,808, assuming the entrant picks game winners randomly. The actual odds "may vary depending upon the knowledge and skill of entrant," Quicken said.

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A Duke University mathematics professor told The Times that even a skilled handicapper would have about a 1 in 1 billion chance of correctly guessing the winner of all 67 games. 

The contest is free to enter but is limited to 10 million entries, further limiting the chances that anyone will get the answer right. Only one entry per household is allowed.

On top of that, Buffett said he would probably seek to buy out anyone who comes into the Final Four with a perfect bracket, offering them a large payout rather than risking losing one of the final three games. Most people would have a very hard time turning down $10 million when there was a chance they could get nothing. This significantly increases Buffett's expected profit.

"Buffett's a very smart guy - this proves it," Hanssens said. "For all practical purposes the odds are zero. He could do this every year for 1,000 years and still come out just fine.

"Basically, Buffett takes no risk at all. The worst thing that could happen is he makes zero money. The $1 billion is a little gimmicky in that it will never happen because if a person were to get to the Final Four, that person would be so much better off taking $10 million."

Those interested in the contest can begin signing up online March 3 through the Quicken Loans website.

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Warren BuffettBasketballSportsCollege BasketballNCAAClark DukeBerkshire Hathaway Inc.
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