My reason for asking this question is that a local radio station has a promotion where the listener has to name eight songs in the correct order to win $1,000,000. I know the odds are around 40,000 to 1 of answering correctly but does the station really have a mill handy or is it another party that is insuring the prize winnings? Same thing with the local pro hockey team and a grocery chain promotion which states that if a player scores 5 goals in one game then the entry chosen wins a million smackers.
If there is only a very small chance that someone will win the prize, then it’s likely that insurance is involved. Some statistician at the company figures out the odds that a win will occur and bases the premium on that.
If there is a good or assured chance that the prize will be given out - and not parceled out over a period of years like the lottery allows - then the amount is a small percentage of the company’s overall promotion and advertising budget and worth while for the attention it brings.
I guess it would have to be a small company with a small marketing budget as well, since those companies wouldn’t likely have that kind of money kicking around. I wonder how much the premiums would be?
Come to think of it I remember a jewelry promotion that if it snowed x inches on day y then all the purchases were free. Same kind of thing I guess.
I found a company called SCA Promotions/SCA Insurance Specialists that specializes in this sort of thing. If they can calculate the odds well, it might be a nice business.