At 16, Zucker started a business enticing people to pay $1 to take a swing at a golf ball. The prize for a hole in one from 150 yards: $1 million. He rented space from a driving range and persuaded an insurance company to allow him to pay a premium for a million-dollar policy. No one made it, but Zucker made some extra cash.
From the insurance company's perspective, it's a $1 million bet they are taking that no one will be able to achieve it.
From the participant's perspective it's a $1 ticket to a $1 million lottery. From Zucker's perspective a business (I would call it a scheme) for making money. Quite interesting.
On a related note, Ansari X PRIZE (for the first private space flight) was partly funded through a similar deal with an insurance company.
A lot of crazy promotions are. Jordan's Furniture (in Massachusetts) ran a promotion where if the Red Sox won the world series, all furniture purchased in the month before would be free. Their radio ads actually answered "How are you doing this? With an insurance policy. That way, if the Red Sox win, we can be happy too." And the Red Sox did win the pennant, and lots of people got free furniture. http://abcnews.go.com/Business/PersonalFinance/Story?id=3771...
A bunch of crazy dot-coms were also funded with insurance policies, eg. treeloot.com (the infamous punch-the-monkey ads). Berkshire Hathaway annual reports often describe a bunch of them, as they're often the ones underwriting them.
Interesting. It's illegal to bet on baseball in most places. But Jordan's Furniture can buy an "insurance policy" that pays them money only when the Red Sox win the world series.
The reason insurance is generally exempt from gambling laws is that you are supposed to use insurance to protect you financially from what would otherwise be a negative event. Which I think fits here...
US Hole In One, too. http://www.prlog.org/10092942-hole-in-one-insurance-odds-gol... :The "average" golfer's chances of making a hole in one from 165 yards out are 1:12500. Heres a question for probability geeks: are the chances of anyone out of 12,500 people, each trying once, higher than for 1 person trying 12,500 times?
Well, if you assume all 12,500 people are of the same ability as the one person (perhaps it is sufficient for their abilities to be randomly drawn from the same population distribution, but I'm not sure of this), then you're taking independent observations from the same distribution, and both situations are essentially identical. However, you'd probably learn something after a couple thousand shots, so I'd give the 1 person a better chance.
The odds can vary a bit on where the hole is located and what kind of grass is next to the hole. When you are looking at these averages they are hitting a golf ball on to a green, which typically is rather soft and allows the ball to stop relatively close to where it lands. A well hit shot that lands on the green with backspin, will slow the ball down quickly, and then it rolls at a speed which may be slow enough where it can fall into the hole.
If you are trying to hit a ball into a hole at a driving range, the driving range could have either longer grass that slows the ball down quicker or alternatively, it could be on concrete with artificial turf, both of which would make it harder for someone like a PGA professional to find the optimum place to hit the ball.
That being said, it would have been an interesting business prospect to try an arbitrage the contest by buying a large amount of tickets and hiring a PGA pro.
If the 1:12500 odds are right, then each shot pays an average of 80 dollars. (I know nothing about actuarial science, so correct me if I'm wrong...) Seems like you'd need an 81 dollar premium per driver to profit.
Further, there's a lot of asymmetrical information possibilities. What if a pro golfer (whose odds might be 1:500) decides to show up?
This is one of the best ideas i've ever heard.