December 11, 2018

How Quicken Profited $500 Million Off The Billion Dollar Bracket Challenge

2014/04/05 8:51 am 112 0 comments

Quicken Loans and Buffett made stacks of cash betting on basketball

If you’ve been following March Madness and filled out your own bracket, you’ve probably registered for or heard about the hype surrounding The Billion Dollar Bracket Challenge – the glorified tournament pool that promised one billion dollars to anyone that filled out the “perfect bracket”.

Whether you selected teams based on their mascots, or you spent the day studying each match up, anyone that’s ever filled out a bracket for the annual March tournament knows that a “perfect bracket” in which you predict all 67 games correctly is pretty much impossible.

And math nerds and the media went crazy with those odds:

 …the actual odds for a single person choosing all the game winners randomly to be about one in 148 pentillion (that’s 1 in 148,000,000,000,000,000,000)

…even a skilled handicapper would have at best about a 1-in-1-billion chance of completing a perfect 67-game bracket…

Powerball.com says that the odds of winning the jackpot prize is 1 in 175,223,510.175 million versus 9.2 quintillion? You’re 53 billion times more likely to win the Powerball than get a perfect bracket.

The official challenge website odds: Mathematical odds of winning the Grand Prize are 1:9,223,372,036,854,775,808

And though not entirely possible, the most-likely scenario happened — not one bracket survived. There were many upsets during the tournament, but there wasn’t going to be any upsets in the Bracket Challenge. In other words, no one got the perfect bracket. It wasn’t even close.

Obviously, Quicken Loans and Warren Buffett, who insured the grand prize, knew that they were insuring a very, very, very unlikely scenario. I mean Buffett makes a living off taking risks in the stock market and is one of the wealthiest men in the history of history, he’s not going to make a gamble where the odds are not in his favor in some way.

So why do it then?

Take this website. This is Interbasket’s third article we’ve written about Billion Dollar Bracket. The Challenge made headlines and is still making waves. The coverage and publicity and fame that was showered on the challenge and those involved have been priceless. And because no one won the ultimate prize, it didn’t cost Quicken Loans a billion dollars.

Quicken did promise to award $100,000 to the top 20 “imperfect” brackets, so there’s $2 million there, plus any associated costs.

I am confident that Quicken Loans was happy to pay out because the company stands to make at least $50 million from the promotion. Let’s just say that their costs (marketing, fees, lawyers) were $500,000, that means the contest cost them $2.5 million. A huge chunk of money, but when you consider that there was a 20X Return On Investment from their March Madness marketing campaign, it was a well-played move:

…the contest was a major success for advertising; Buffett and Quicken enjoyed the publicity, and the valuable information gathered from every contest participant is now in possession of a company that can use it for generating leads and analyzing demographics.

So, in essence, Quicken Loans puts up an all but unattainable prize, and in return … marketing data from every one of the 8.7 million contestants. Some rough, back of the napkin ROI calculations show that even if just 0.001% of those customers end up going with Quicken Loans for their mortgage, the company comes out as if they won the powerball.

8,700 new customers x $6000 in mortgage interest* = $52 million

And that’s just money they make from the first year of mortgage interest, not the full life of the loan. We’re also not considering all the priceless branding and publicity that Quicken Loans received.

Amortization tables for 30-year mortgages means home owners will be paying mortgage interest for 18 years on average. Considering that the calculation above shows the profit from just the first year of mortgage interest, one can easily see how that $52 million could easily be $500 million or more over the lifetime of those loans coming from the Bracket Challenge.

And that my basketball friends, is how Quicken Loans and Warren Buffett were the true winners of the Billion Dollar Bracket Challenge.

Discuss the Billion Dollar Bracket Challenge in our NCAA Basketball Forum

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