March Madness is the most awaited event of the year for the sports savvy. Not necessarily for sport itself, but because of the money a lucky person can win if they correctly guess the winners of all 63 games in the NCAA men’s college basketball tournament 2014. Although the odds are discouraging with one in 4,294,967,296, as Forbes calculates, it is still worth trying to win $1 billion from Warren Buffett’s Berkshire Hathaway and Dan Gilbert’s Quicken Loans. By Gabriela Motroc and Jonathan Jackson.
Astatement issued by Quicken Loans president and chief marketing officer Jay Farner presented the company’s mission, i.e. to create “amazing experiences for our clients”.
“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,” the statement says.
After a close examination of the March Madness prize, Forbes has come to the conclusion that Warren Buffett’s estimated fortune of $53 billion allows him to offer $1 billion to the person who pulls out a perfect March Madness combination. It will be offered either in 40 annual installments valued at $25 million or $500 million on the spot.
Moreover, the prizes do not stop here; Quicken Loans’ Facebook page suggests, “20 First Prizes of $100,000 each will go to the owners of the top twenty scoring brackets.” The winners will be determined after the tournament’s end, but the catch is that the amount of money can only be used for “buying, refinancing or remodeling a home”.
If there are more winners, although it would be statistically close to impossible, the $1 billion prize will be shared, regardless of whether the winners choose to share the installments or the whole amount of $500 million.
Warren Buffett even refers to one of the commercials for Geico, a company under the Berkshire Hathaway umbrella to describe this contest. “To quote a commercial from one of my companies, I’d dare to say it’s so easy to enter that even a caveman can do it.”
Anybody who is over 21 years old and is a resident of the United States can enter the contest beginning 3 March to 16 March 2014. Brackets will become available on 16 March, also known as the Selection Day and 10 million entrants will be the limit, on the condition that every household will have only one entry.
According to Forbes, tax consequences are an important issue that winners should not forget about. A person who chooses to accept the installments will pay approximately $394,213,920 in taxes and for the $500 million lump sum, one must pay $197,955,348.
Keeping in mind that the tax system is progressive is essential because this means that the new billionaire or millionaire will have to pay 10% on the first $9,075 as every American does. However, the system also has ways to get away with it… not completely, but to some extent.
For example, if the winner chooses to treat his $1 billion as a business, the money could be classed as ‘other income’, provided that he also reports reasonable expenses that are associated with the winnings, Forbes mentions.
The only way in which you can avoid paying taxes for your ‘other income’ which can be found on form 1040 at line 21, as Forbes clearly states, is to “refuse to accept a prize”, which means that you “do not include its value in your income”. However, this action would probably make all tax professionals raise their eyebrows.
All in all, the conclusion is that taxes cannot be avoided, but when the prize is as high as $1 billion, a few millions sound trivial…
Excerpted from an article originally published in the April/May 2014 issue of Think & Grow Rich Inc. magazine. If you are a subscriber to Think & Grow Rich Inc. magazine, you will receive this article in your April/May 2014 issue of TGR. If you are not a subscriber, click here to subscribe.