March Madness is coming a month early. The annual basketball tournament that the NCAA uses to determine the mens’ national champion in basketball that sees millions filling out their bracket, often for prizes, each year has some added contention this year.
On January 21, Quicken announced that it would offer a contest that would pay $1 billion to anyone who could correctly pick every basketball game in this March’s tournament field. Quicken claims that the idea is Warren Buffett’s and that he came up with it during a tour of Detroit with the company’s CEO Dan Gilbert.
Berkshire to insure Quicken’s contest
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) will insure the bet on the off-chance that anyone can pick a perfect bracket. Now, however, a small sweepstakes company in Dallas is claiming that it is owed $4.4 million by Yahoo for backing out of a contest that would also have made a billion dollar payout. The Dallas company, SCA Promotions, filed a suit against Yahoo! Inc. (NASDAQ:YHOO) on Friday.
According to the recently filed suit, SCA is claiming that Yahoo pulled out of the contest six days after Quicken announced their plans. Fortune.com has also reported that Buffett first went to Yahoo with the idea but found the company uninterested.
Yahoo! Inc. (NASDAQ:YHOO) declined to comment. Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) did not return an e-mail from Fortune.com requesting comment, and SCA referred to its lawyer for comment. “Yahoo’s position is that the idea did not come from Warren Buffett,” says Jeffrey Tillotson, who declined to comment further.
What is this madness?
It’s all quite Byzantine according to a source near the suit. It’s believed that Yahoo! Inc. (NASDAQ:YHOO) went to SCA last year with the idea of the contest. SCA then sought the insurance policy from Berkshire but were unable to negotiate a price, presumably because Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) wanted more than SCA was willing to pay. SCA then found someone else willing to insure the contest and signed an $11 million agreement with Yahoo to run the contest for the Internet portal.
Now the contentious part: SCA says that Yahoo! Inc. (NASDAQ:YHOO) maintained the right to cancel but was required to pay half of the contract. SCA has already been paid $1.1 million and is now seeking the remaining $4.4 million. Yahoo has asked for the $1.1 to be returned.
According to a source with knowledge of the suit, Yahoo! Inc. (NASDAQ:YHOO) first went with the idea of the contest and a billion-dollar prize to SCA last year. SCA then turned to Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) to try to purchase an insurance contract to protect it from having to pay out $1 billion. SCA says Yahoo had the right to cancel the contest, but that, according to the contract, it still owes SCA half the fee. Yahoo has already paid SCA $1.1 million, which Yahoo has asked for back. SCA is seeking the remaining $4.4 million.
It all may be quite the moot point given that the odds of randomly selecting a perfect bracket are 1 in 9.2 quintillion. That would put the price of the insurance policy in the neighborhood of $0.01. Thing is, it’s not random and a basketball expert could conceivably reduce those odds dramatically. Buffett has put the odds somewhere between 20 and 50 million to one and has led to speculation that he was looking for an eight figure fee from SCA.
In all likelihood, no one will pick a perfect bracket but it’s quite fun to get the “madness” of March started in February.