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Comment by startupfounder | Hacker News Reader

Buffett is making big money on this deal, increasing his personal brand and here is how (my guess):

Quicken is paying Buffett for the advertising exposure right before tax season.

Quicken is also taking out prize indemnity insurance[0] from National Indemnity Company[1] which Buffett owns.

Even if someone happens to beat the odds (which they won't) it's still a win-win for Buffett because he has stacked the odds in his favor.

Its 40 annual payments of $25M or a single payout of $500M. Also, they are only allowing 10M people to register.[2]

We should all take a note from his playbook on this one.

[0] http://en.wikipedia.org/wiki/Prize_indemnity_insurance

[1] http://en.wikipedia.org/wiki/National_Indemnity_Company

[2] http://www.latimes.com/business/money/la-fi-mo-warren-buffet...

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Fun Side Note:

The $10M Ansari XPRIZE payed out to Burt Rutan & SpaceShipOne was "hole-in-one" indemnity insurance because the insurer took the bet that a team couldn't get to space twice within the allotted time period. The Ansari family put up the money to pay the premium to get the $10M insurance. Genius.

This is also a fascinating story about thinking outside the box on a galactic scale.

http://www.thespacereview.com/article/234/1

http://www.ted.com/talks/peter_diamandis_on_our_next_giant_l...

This sounds very much like Buffet, but I doubt Buffett's being paid directly for it (He protects his image and reputation very carefully and wouldn't sell it out for any amount), just his insurance company for the premium.

It sounds like he just came up with the idea for fun.

Of course Buffett isn't getting paid directly, but if you look at the 2010 SEC filing[0] he owns 32.4% of the voting shares and 23.3% of the value of those shares. In my book Buffett and Berkshire are synonymous.

You are right that he is having fun with this, who wouldn't?

[0] http://www.sec.gov/Archives/edgar/data/315090/00011931251015...

On the topic of reputation Buffet was once quoted as saying, "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

So while he no doubt guards his reputation carefully if you follow him at all you'll notice he is also very much a sales man and often promotes his businesses and products. Berkshire's annual stock holders meeting is like a Berkshire brands convention and Buffet himself encourages people to take the opportunity to patronize the businesses.

In that sense I don't find this surprising at all.

The deal is with Quicken Loans, not Quicken/Intuit. The companies are no longer related and have separate ownership.

Quicken Loans is owned by Dan Gilbert who also owns the Cleveland Cavaliers, so he's obviously interested in basketball.

Berkshire isn't making big money on this.

Big money for his company these days is to generate a couple billion in profit off of a deal (eg the Bank of America, Goldman, GE deals).

The tiny premium this bet is likely to pay isn't worth getting out of bed in the morning for Buffett, except it was his idea and he likes to have fun with things of this sort. It's his version of a weekend golf bet (with the odds radically in his favor).

There is also a touch of irony. Buffet has always been about rational investment. Nothing explains his approach better, than "Always take advantage of market folly". If you don't know who the mark is, then it is you. Its a good way of making a point, possibly for the last time as he is 83 and will retire or die soon.

This is why I'm going to the Berkshire annual meeting this year. It might be my only chance to see him in person.

I've always found it odd how the lotteries do that. Win X Dollars. You can take it now as X/2 dollars, or you can take the 'whole thing' annually for the rest of your life in small amounts... where they mean less over time due to inflation... and you have to hope that the entity paying out is still around decades later. There doesn't seem to be a way to take your winnings in a way that preserves the purchasing power of those winnings at the time they were won.

It's because the annuity's figure is the purchasing power of those winnings at that time--the value you see as a jackpot is based on an annuity over a period of years. You're buying a lottery ticket to win a $XM dollar Y year annuity, with an allowed early exit (with penalty).

The choice to take the annuity or lump sum looks like its based on projected tax rates and projected return on the investment.[0]

[0] http://www.businessinsider.com/should-you-take-the-annuity-o...

uhh... correct me if i am wrong, but the PV of an annuity is generally NOT equal to X where the annuity pays N payments of X/N

So when they are saying "40 payments of $25 mil" that doesn't mean that $1B is the PV of said annuity. (I might have misunderstood you though)

America is the only country I've ever heard of that does this, BTW.

Marketing. It allows you to advertise a prize about double of what it normally would be.

Taxes. Lottery winnings may be taxed depending on state taxes. Though it is not clear if this is a lottery or gambling. Gambling winnings are not normally taxed in the US.

> Gambling winnings are not normally taxed in the US.

Where did you hear this? They're income, and subject to the income tax.

Not only that, you can deduct gambling losses from your income, if you're unlucky.

Not accurate. For US federal taxes, you can deduct gambling losses against gambling winnings, but not against your income.

If you earn $50,000 in income, $X in winnings, and $Y in losses, you pay taxes on $50,000 of income, plus taxes on $X-Y of winnings (if it's a positive number).

You can only deduct them from your _winnings_, not income[1]. You can't go to Vegas, blow $10,000 on a single round of blackjack and deduct that at the end of the year.

1: http://www.irs.gov/taxtopics/tc419.html

Taxed in the US but not in Canada I believe (IANAL etc)

Or maybe that is irrational, and your tendency towards Loss Aversion is lying to you. After getting your first cheque for $25M, your biggest worry shouldn't be about losses due to inflation on the remainder of the $1B sitting in trust, as you did not have $25M before, and now you do.

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