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Buffett makes big bet on March Madness, but you can't...technically

Jeff Macke
Breakout

Warren Buffett's big bet on March Madness

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Warren Buffett's big bet on March Madness

Warren Buffett's big bet on March Madness
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The NCAA basketball tournament will officially get under way tonight when Mount St. Mary’s faces off against Albany for the right to claim one of four remaining spots in the 64 team field. By tomorrow night all the match-ups will be set and the national frenzy known as March Madness will be in full swing when the real games get underway early Thursday afternoon.

This is no small matter for American business. According to the outplaclement firm Challenger, Gray & Christmas more than 50-million office workers will participate in office gambling pools this year. To put that in perspective that’s more than 1/3 of the entire national workforce. If you work in an office there’s a greater than 50% chance you’ll be in at least one pool.

The average cost to buy into an office pool is $5 and the average American office has about 16 employees at any given time. An estimated $3 billion will put into pools across the country. That puts the average cost of entry at about $60 to win $1,000. The median wager is most likely closer to $20 per player with the average dragged higher by high-stakes pools in firms where the super wealthy work.

As American pastimes go March Madness pools are harmless, fun and a clear violation of federal laws. The NCAA takes in just under $1 billion per year selling television rights to the tournament but frowns on the office pool tradition. On its website the organization suggests fans fill out brackets “just for the fun of it” rather than the amount of money they could win. As usual the NCAA is flexible when it comes to morality.

The most popular legal alternative for those wishing to participate in March Madness is through Yahoo’s “Billion $ Bracket." Sponsored by Quicken Loans, the contest will pay a cool $1 billion to anyone who manages to correctly pick the winner of all 63 games played in the tournament.

In the unlikely event of someone winning the contest it won’t be Quicken Loans, but Berkshire Hathaway and their billionaire CEO Warrent Buffett, writing the billion-dollar check.

Unlike the scofflaws around the country participating in office pools Buffett isn’t breaking any laws. As Pealrman noted, what might be called gambling on an individual basis becomes insurance if done on a large enough scale.

Buffett is taking in a premium in exchange for insuring Quicken against a catastrophic loss. “This equation, in a nutshell, is the insurance industry,” Pearlman explains. “Actuaries figure out the odds of payout events occurring and then charges a premium to the odds to loss averse consumers.”

In this instance the chances of anyone filling out a perfect bracket are 9.2 quintillion to 1. Those are roughly the same odds of winning the Powerball lottery, getting attacked by a shark and dying of Fugu sushi poisoning combined.

The unofficial recommendation here is entering the Yahoo contest then printing out the bracket for your office pool as a hedge.

Good luck and happy March Madness!

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