You're sitting in a board room at Warren Buffett's Berkshire Hathaway headquarters in Omaha, Nebraska, tapping your leg anxiously. The Oracle of Omaha has called a meeting with you, the Oracle of March Madness, who's holding a perfect entry up to the Final Four in his (or her) Billion Dollar Bracket challenge.
The odds of someone successfully nailing every single game at the outset is 1 in 7.4 billion proposition, yet you've defied the odds, and here you sit. The gregarious Buffett perks up and says, "Let's talk about a buyout."
We will, but first a couple ground rules:
1. Buffett told ESPN's Rick Reilly that he would "definitely" offer a deal if someone reached the final game unscathed:
Let's say one fan got all the way to the final game unblemished. Would Buffett offer that fan a buyout?
"Well, I'm not sure Quicken would let me do that," he says. "But if it were me, I'd definitely offer a deal. ... Mathematically, it should be half of the $500 million* -- $250 million. But it's all relative. If I offered you $100 million to call off the bet, I bet you'd take it. Because $100 million to you is about the same as $250 million. But $100 million versus zero? That sounds alot worse."
*That's if you take a lump sum rather than a long-term payout.
For purposes of this discussion, assume that Buffett is seeking to minimize his exposure as much as possible, a position he clearly indicates by that remark.
2. Let's also assume that you do not have the ability to obtain a massive sum of money to hedge your picks.
This buyout discussion amounts to Howie Mandel's Deal or No Deal on steroids, where you've already had to sweat out a near 14-seed upset, a double-overtime rally by your East Region winner, and a mind-boggling 73 percent shooting performance by North Dakota State to beat Arizona in a Sweet 16 game in the West. In other words, you're heavily emotionally invested.
In a vacuum -- you’d still have only a 1 in 8 chance to nail each of the final three games -- if each game is a coin flip, which it is not because we don't know yet the quality of those teams. But 1 in 8 works for our purposes. So the theoretical number or true odds that you would hope to hear from Buffett is a $125 million buyout.
He knows you would probably take far less, unless you're a deranged lunatic with dreams of buying an NBA franchise and moving it to Seattle. In the real world, you've got a mortgage to pay, student loan debt or a kid on his way to college. Any figure with six zeroes attached would raise the hair on your arms.
Yet, this is called the Billion Dollar Bracket.
And you realize, this Buffett guy is all business, but he's got a great spirit. Won't he be reasonable here?
Probably not. So he comes at you with an offer of $25 million (20 percent of $125,000,000 -- the figure that 1 in 8 produces). He might even begin lower if he surmises that you're looking to punch the ticket and replace the above ground pool with an in-ground.
What the heck do you do? Is this even real?! You filled out the bracket with eyes glazed over at 11 p.m. on Tuesday night and now your sweaty palms are shaking on a gorgeous oak table in Omaha.Would you really turn down a few guaranteed millions for just a 1 in 8 chance for a billion?
So I ask: How much would you settle for? Be honest with yourself.
Me? I think he'd get me at $10-15 million. If he really put the screws into me with a $5 million initial offer, I would certainly try to get the number up, but I'd still have a hard time turning that down. That's life changing money right there. I could open the bar/barber shop combo I've always wanted, drink some MacAllan 18 while getting my neck shaved with a straight-edge razor, watching a baseball game on a 60-inch flatscreen.
Think about it for a minute and then respond to the poll below.