Why Warren Buffett’s Billion-Dollar Prize To Predict The Perfect NCAA Bracket Matters

By this time next year, the world could see one more geeky billionaire. Investment mogul Warren Buffett’s Berkshire Hathaway company is backing a billion-dollar prize to predict the perfect NCAA tournament bracket.

“We’ve seen a lot of contests offering a million dollars for putting together a good bracket, which got us thinking, what is the perfect bracket worth? We decided a billion dollars seems right for such an impressive feat,” said Jay Farner, President and Chief Marketing Officer of Quicken Loans, whose company is partnering with Berkshire Hathaway to fund the monstrous endeavor.

The prize is interesting not because world peace has been held back by sub-optimal prediction algorithms, but by the testing of a very important scientific hypothesis: We can pay for innovation. If the billion dollars induces a winner, it will suggest that the big innovations can be overcome with enough people thinking about the problem.

Prize-based competitions have become a major strategy for startups and governments alike, since the X Prize foundation successfully kicked off a new cottage industry of commercial space flight with a $10,000,000 bounty.

The 2004 Ansari space X Prize (re)popularized a national innovation strategy over a century old. Since then, it has become more commonplace among the nation’s tech companies.

In 2009, Netflix awarded $1 million to a programmer, who improved their recommendation engine (though it never ended up implementing it). Fueled by the momentum of the strategy, the White House is now a fan of promoting innovation through Challenge.gov, a clearinghouse for prize-based competitions.

Prizes often seed a total amount of investment more than the award. Each team, regardless of whether they win, has to fund a certain amount of hours. Moreover, the teams often spend more than the prize amount, because they’re in the competition to win or because it could kickstart a lucrative business. The competition is seen as an investment.

Prizes are a tricky business and don’t always work. Potentially, a massive purse could just bulldoze out all of the difficulties in conducting a successful competition.

Anyone over the age of 21 is eligible to be among the 10 million registered participants. Winners will receive $25 million a year, or enough to buy a house in San Francisco. The odds are not in people’s favor, however. The odds of predicting 63 perfect games is 1 in 9.2 quintillion (that’s 18 zeros).

For math fans, here’s a university professor explaining the calculation.