The other side of the lucky shot

Carbone-WilliamFans of the Oklahoma City Thunder have quite a run going this year. Last month, in back-to-back games, lucky fans chosen to take a half-court shot for $20,000, courtesy of MidFirst Bank, successfully made the shot. Statistics suggest the odds of this are somewhere in the 1-in-250 range. More impressively, this is the fifth winner in the last 22 games. The odds of at least five winners are in the 1-in-15,000 trials range. For MidFirst Bank the cost of this promotion appears to be adding up… But is it?

Many companies seek the publicity and goodwill of promotional events. The prizes for these events can range from a gift certificate for correctly answering a trivia question to the million-dollar grand prize for McDonald’s Monopoly game. Because of the nature of these games, the cost of running the promotion is usually unknown to the sponsor until the event is over. While this is obvious for the half-court shot scenario, the cost of the Monopoly game can vary based on the number of completed sets of properties, the percentage of winners who go through the process to collect their prizes, and the number of game pieces casually tossed in the trash. McDonald’s has removed some of the uncertainty by adjusting the odds to limit the total potential prize pool, but that isn’t an option for all promotions.

MidFirst Bank can attest that promotions such as the half-court shot for cash or hole-in-one for a car are potentially much more costly than the odds would predict. For this reason, companies such as Odds on Promotions and SCA Promotions exist to allow the sponsor to trade the uncertain potential payout for a known fee. Similar to an insurance policy, the promotion sponsor will pay a fee to the promotional company to organize the event and pay any winners. In an interview with ESPN, SCA’s founder Bob Hamman described the rather actuarial method used to derive premiums, using frequency and severity calculations with a profit provision. The math here has developed with the rest of the industry, with winning frequencies moving from a “SWAG,” or “Scientific Wild-Ass Guess,” to derivations using databases of historical data. By using this insurance-like product, the cost of the promotion becomes known for the sponsoring entity.

Unfortunately for MidFirst, it is running the promotion on its own and has been paying the full cash prize to each of the winners. MidFirst chairman Jeff Records, who is also a part owner of the Thunder, says the bank is happily paying the winners and will continue the promotion. So while Thunder fans enjoy the surprisingly lucrative promotion, bank investors likely have mixed feelings about the surprisingly expensive advertising.

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