
Take Buffett's Billion - songzme
http://www.takebuffettsbillion.com/
======
startupfounder
Buffett is making big money on this deal, increasing his personal brand and
here is how (my guess):

Quicken is paying Buffett for the advertising exposure right before tax
season.

Quicken is also taking out prize indemnity insurance[0] from National
Indemnity Company[1] which Buffett owns.

Even if someone happens to beat the odds (which they won't) it's still a win-
win for Buffett because he has stacked the odds in his favor.

Its 40 annual payments of $25M or a single payout of $500M. Also, they are
only allowing 10M people to register.[2]

We should all take a note from his playbook on this one.

[0]
[http://en.wikipedia.org/wiki/Prize_indemnity_insurance](http://en.wikipedia.org/wiki/Prize_indemnity_insurance)

[1]
[http://en.wikipedia.org/wiki/National_Indemnity_Company](http://en.wikipedia.org/wiki/National_Indemnity_Company)

[2] [http://www.latimes.com/business/money/la-fi-mo-warren-
buffet...](http://www.latimes.com/business/money/la-fi-mo-warren-buffett-
billion-dollar-bet-ncaa-basketball-20140121,0,1345560.story#axzz2reJ7kr1a)

~~~
vacri
I've always found it odd how the lotteries do that. Win X Dollars. You can
take it now as X/2 dollars, or you can take the 'whole thing' annually for the
rest of your life in small amounts... where they mean less over time due to
inflation... and you have to hope that the entity paying out is still around
decades later. There doesn't seem to be a way to take your winnings in a way
that preserves the purchasing power of those winnings at the time they were
won.

~~~
jonknee
It's because the annuity's figure _is_ the purchasing power of those winnings
at that time--the value you see as a jackpot is based on an annuity over a
period of years. You're buying a lottery ticket to win a $XM dollar Y year
annuity, with an allowed early exit (with penalty).

~~~
startupfounder
The choice to take the annuity or lump sum looks like its based on projected
tax rates and projected return on the investment.[0]

[0] [http://www.businessinsider.com/should-you-take-the-
annuity-o...](http://www.businessinsider.com/should-you-take-the-annuity-or-
the-lump-sum-if-you-win-the-lottery-2013-9)

------
everettForth
The expected value of an entry is something like ten cents assuming you know a
lot about basketball.

This is like saying, "let's all work together to hack ten cents into eleven
cents" (except we're doing something secret to do the hacking, which we won't
tell you, but trust us. ps we love Nate Silver)

Edit: Actually, Now that I think about it more, the people who made this are
probably concerned with too many teams using the same statistical techniques,
and choosing the same bracket. Assuming several teams find this "highly
likely" bracket, and it wins, those teams would all share the prize. This way,
the organizers can choose their favorite bracket, and help ensure that other
brackets aren't going to share the prize with them.

~~~
judk
The "highly likely" bracket is still only going to have astronomically small
odds.

~~~
jonknee
Yea, I don't think there are too many "highly likely" brackets anyway--the
first couple rounds are brutal. There are definitely "highly likely" Final
Four's, but just one very minor upset on day 1 will ruin a perfect brack.

~~~
bradleyjg
If you figure that the selection committee knows something about basketball
and at least to a first approximation tries to slot teams correctly, it's
relevant that the five seed has only beat the 12 seed 2/3s of the time and it
gets worse from there. So you are already down to less than 20% odds of
guessing the five seeds in the first round.

------
kristopolous
I like to imagine Buffet personally knocking a key player's knees in if it
appears that someone is getting too close to winning -- like some Adam West
Batman villain.

"Let me show you why the first three letters of my name spell 'War'."

~~~
solarmist
Cute, but pretty much the opposite of how he seems to be in person.

~~~
awhitty
You have a weird definition of cute.

~~~
solarmist
In my mind he was kind of a 60's Penguin like character. Cute; very campy.

~~~
kristopolous
Here he is in the 60s
([http://www.youtube.com/watch?v=REhg_bv7srM](http://www.youtube.com/watch?v=REhg_bv7srM)),
clearly his Bruce-Wayne-like cover identity. /s

~~~
solarmist
I was more thinking of 2010's Buffett as a 60's Batman Penguin character.

------
euphemize
Buffett won't have to pay a billion dollars. As he mentions in one of the
articles linked, at the end:

 _" If you get to the Final Four with a perfect bracket, I may buy you out of
your position," Buffett said. "I'll make you an offer you can't refuse."_

[http://www.latimes.com/business/la-fi-buffett-basketball-
bet...](http://www.latimes.com/business/la-fi-buffett-basketball-
bet-20140122,0,7653962.story#ixzz2rekrReI2*)

~~~
soup10
Haha, that would be so awesome. Presumably buffet is betting that you're going
to take a lesser cash prize to avoid the risk of losing in the final 4. But at
that point, if the buyout offer is huge but you are still +ev to stay in, you
can probably turn the tables on him and get a big insurance company or
investment bank(or a conglomerate of them) that has the bankroll to buy you
out and see the matches play out.

~~~
euphemize
Indeed. I have trouble imagining many people turning down whatever his offer
would be at the final four though.

------
Steko
The 60 odd coaches should get together and rig the whole thing for 15+ million
a piece.

~~~
nols
Surprisingly not worth it for many, most of these coaches have seven figure
salaries and are employed for years or even move on to the higher pay in the
NBA, they wouldn't want to jeopardize that.

Plus some of the higher paid coaches wouldn't go along with it because it's
too risky. Use Duke's coach as an outlier, he earns $7 million a year and has
been with the team for thirty years, good luck getting him to risk that career
for twice his annual salary.

~~~
stefan_kendall
Calipari makes 5.2 last I checked, and he's tied into advertising all across
kentucky.

------
adam-f
Image of Warren Buffet courtesy of (i.e., served from) blackmbawomen.com.

[http://www.blackmbawomen.com/wp-
content/uploads/2013/05/warr...](http://www.blackmbawomen.com/wp-
content/uploads/2013/05/warren-buffett.jpg)

Very classy tBB.

~~~
bentcorner
I noticed that too, the pic is one of the first served up when you search for
"warren buffet" in google image search.

------
cl8ton
Here is your mathematical odds of doing a perfect NCAA bracket.

[http://www.youtube.com/watch?v=O6Smkv11Mj4&feature=share](http://www.youtube.com/watch?v=O6Smkv11Mj4&feature=share)

------
ghshephard
The very first thing that comes to mind when I read this - why on earth would
anybody honor their agreement with $500mm on the line? I'm a pretty honorable
person, but I'll admit - I'd be highly tempted to just take the money and
ignore the pool.

~~~
callmeed
Is there something that $1B buys you that $500M doesn't?

~~~
sachinag
Yes. A sports team in one of the major American sports leagues.

~~~
callmeed
Actually, a minor league baseball team is considered a much better investment
(plus they're cheaper).

[http://www.forbes.com/sites/chrissmith/2012/06/08/billionair...](http://www.forbes.com/sites/chrissmith/2012/06/08/billionaires-
like-warren-buffett-profit-from-minor-league-baseball-ownership/)

------
kqr2
Actually, Buffett already did something similar with the Pepsi Billion Dollar
Sweepstakes:

[http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstake...](http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstakes#Insurance)

------
pyrrhotech
Buffett will definitely pay. It's less than 1.2% of Berkshire's cash on hand.
And only about 0.24% of Berkshire's book value. Roughly the amount his
personal wealth fluctuates each day.

source:
[http://finance.yahoo.com/q/ks?s=BRK-A+Key+Statistics](http://finance.yahoo.com/q/ks?s=BRK-A+Key+Statistics)

~~~
kristopolous
I've thought about the fluctuation thing. Say I was to misplace $1 ... I
probably wouldn't notice. $100 would probably catch my eye, but is that only
because my total wealth is a few orders of magnitude above that?

The question is if I commanded say, $10 billion, could I _just as carelessly_
misplace say, $10,000 as I currently can with $1.

~~~
grecy
Of course. Think of it as a percentage of your income, or wealth that you're
OK with being unable to account for. Let's say that figure is 1% of your
income.. so you make $50,000 per year, and somewhere $500 goes missing. No
biggie.

That 1% figure is the same if you're McDonald's or Buffet, it's just that 1%
of their income is a very big number. It's still only 1% though, so it's
equally as unimportant to them as your 1% is to you.

~~~
eru
Though 1% of McDonald's income pays for quite a few people to take it very
seriously. (Even if McDonald's, the corporation, does not.)

------
cschmidt
Has anyone read what happens if there are multiple winners? Do they split the
prize? Is one winner chosen at random? Do they all get a billion? It really
affects how you should play.

For example, a common bracket might be to pick all the top seeds. In some
sense that's the most likely outcome. But that may be a bad entry as there
would certainly be lots of people who enter that.

In a similar way, the worst possible lottery entry is 1 2 3 4 5 6 is the most
common lottery entry, and hence the worst since if it did come up, you'd have
to split the prize many ways. [1]

[1] [http://www.economist.com/news/britain/21573993-britons-
love-...](http://www.economist.com/news/britain/21573993-britons-love-
gamblingand-are-rubbish-it-herd-mentality)

~~~
maxerickson
I don't think an upset free bracket has ever happened. Some of that is because
of the first round match ups; 7 plays 10 and 8 plays 9, and if the seeds are
good, those games are toss ups.

~~~
cschmidt
That's true. But only a vanishingly small fraction of the possible brackets
has come up in history. Similarly, the lottery ticket 1 2 3 4 5 6 has probably
never won. Since all lottery tickets are equally likely, it still makes sense
to avoid it, since _if it did_ you have to do more sharing. (Similarly people
tend to play their birthdays, so number that can be dates should be avoided.)

It is more fun here, because all brackets are not equally likely. So you want
to pick your most likely brackets, but only if you don't think others will be
playing the same bracket.

~~~
maxerickson
The lottery is at least theoretically based on perfect information. I'm not
sure it is a given that the 8-9 match ups are more likely to go to 8.

(but I did sort of overlook how few brackets have been played out)

------
spikels
Let me see if I got this straight: There are 2^63 possible outcomes, that's
9,223,372,036,854,775,808, Buffet is allowing only 10,000,000 guesses and if
more than one entry has the same prediction they split the prize.

So I guess the idea here is to collaborate and both pick the more probable
outcomes while avoiding duplication. If the outcomes were truly random even
without duplication the probability of anyone winning is only 1 in
922,337,203,685. And without cooperation I bet the will be tons of entries
very close the always pick the top seed strategy.

Assuming duplicate entries could be avoided the trick would be to pick the
10,000,000 most likely outcomes. Hmm...

------
judk
I would love to see the paperwork they use to attempt to prevent defection by
the winner if any.

~~~
pbhjpbhj
Defection? I'm probably missing something about the context - people will
defect from USA if they win and authorities will want to prevent it?

~~~
Zircom
> _This term is also applied, often pejoratively, to anyone who switches
> loyalty to another religion, sports team, political party, or other rival
> faction_ (themself) _. In that sense, the defector is often considered a
> traitor by their original side._

------
gojomo
Interesting idea, but rather than assigning picks, might be nearly as good to
simply have members of the cooperating group register their picks, so that
they can avoid wasteful duplication.

Then, when someone proposes a duplicate, suggest to them either the minimal-
change-for-uniqueness, or the-best-yet-unclaimed from the pool analysis.

In fact they could offer both to appeal to a wider range of participants, and
perhaps offer a software tool (like a bookmarklet) to make the dup-
check/autosuggest as easy as possible.

------
hacknat
Forget the game theory the odds are still insane.

 _edit_

Also consider that statistically significant deviations away from the huge
list of ideal brackets they come up with are _likely_ to happen. That's the
nature of March madness, usually at least one bottom seed flips a top seed or
two. Guessing which one will do so is a fools errand. So even if lots of
people participated in this the idea that they would all be increasing their
odds of winning could be an illusion.

~~~
mightybyte
> usually at least one bottom seed flips a top seed or two

No, a #16 seed has never beaten a #1 seed since this format was started in
1985.

------
nsiemsen
Matt Levine who writes for Bloomberg is a great daily read. He posted about
this about a week ago and it provides a good overview of how this type of
thing is priced/insured.

[http://www.bloomberg.com/news/2014-01-21/buffett-makes-
milli...](http://www.bloomberg.com/news/2014-01-21/buffett-makes-millions-
selling-500-to-1-monkey-linked-derivatives.html)

~~~
kolbe
And his analysis is almost embarrassingly bad. I cannot fathom how someone who
worked in investment banking at Goldman could be so far off in how to price
this.

------
thatthatis
This is fantastic if only because it prevents me from spending half a day
doing the statistics myself to get to: it is reasonably possible to get the
odds down around 1 in 1,000,000,000.

Is it worth an EV of $1 to participate in this? Nope.

On to the next thing.

------
hayksaakian
correct me if I'm wrong, but couldn't you just generate every possible
combination of brackets and "assign" to each participant the top most
statistically likely combinations?

or is this precisely what they're doing?

~~~
Encosia
Sounds like that's what they're doing.

------
codyb
I thought of this too but no one at work wanted to spend a bunch of weekends
hacking away :/.

I figured it would just be a fun way to learn and apply a bunch of machine
learning and pattern recognition concepts.

I'll probably still try to do that.

Signed up though.

------
ck2
He's insured if someone wins, it won't even be his money if I understand it
correctly.

All a rich person's game. Soak the insurance rates for the next people.

~~~
rhc2104
Berkshire Hathaway (his company) is the insurer, not the insured.

So he will lose money if someone wins (but earn a pretty good amount of money
if no one does).

------
pbhjpbhj
How many seconds will the Quicken Loans website last on March 3?

How long is there to submit entries. How long will it take, will it be bot-
able in a reasonable time?

~~~
narsil
There's probably a captcha or something similar to prevent bots. The number of
entries is capped at 10M, and I don't think the time the contest is open will
be the prevailing constraint, given all the publicity.

------
kyle_t
Did anyone else's email address get auto submitted without having to hit
submit?

------
gmays
So...would you take the $500M or $25M/yr for 40 years?

~~~
mightybyte
$500M up front, without a doubt.

~~~
gmays
Same here. The $25M/year is a great insurance policy to keep you from doing
something stupid and blowing it all, but I'd definitely take the ~$300M or so
up front after taxes.

~~~
kondro
You would have to do something monumentally stupid to blow $500m. Or even
$300m.

~~~
thaumasiotes
You can say this, but the phenomenon is quite common. There is no shortage of
people doing monumentally stupid things.

------
pbhjpbhj
What's the tax on a 1 billion prize?

~~~
harryh
The current top tax bracket in the US is 39.6% so if you took the 500M all at
once (instead of paid out over 40 years) you'd end up with just over 300M
after taxes.

~~~
spacehome
It must be nice living in not-California.

~~~
harryh
Ah yes, I forgot about state taxes. If you're unfortunate enough (in that
regard) to live in CA that's another 12.3% knocking your haul down to 240.5M.
Could be a little bit less than that in some cities as well I suppose.

------
maerF0x0
only for US citizens, boo.

------
jessaustin
The likelihood of Buffett actually paying this prize is even lower than that
of someone actually winning it.

~~~
qq66
If someone wins, Buffett will pay, as he's insured away his risk (admittedly
with a company he owns).

~~~
nevi-me
How does insuring away his risk work?

~~~
jffry
"I'll pay you $1 million now. If anybody wins the prize, you're on the hook to
give them the other $999 million. If nobody wins the prize, you get to keep
the $1 million."

edit: And where I say $1 million, do some hand waving with the odds and figure
out a number on which both parties agree

