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$1 billion Madness contest not just chance: Buffett

"I should be institutionalized," Warren Buffett joked on CNBC Friday—talking about how he's feeling about Berkshire Hathaway's part in insuring a contest by Quicken Loans to offer a billion dollars for the perfect March Madness bracket.

Buffett said in a "Squawk Box" interview that the odds are much better than just a coin-flip on each game—which would yield about a 1 in 9 quintillion chance in winning.

(Read more: Buffett: I'd be'surprised' if stock prices drop 50% )

Appearing with Buffett, Quicken Loans founder Dan Gilbert said, "When I heard 'quintillion,' I was going to say, 'Warren ... do we need insurance here?" But of course the answer was yes, Gilbert added.

The odds of winning increase when you look at some of the historical results in the tournament, Buffett explained. "The No. 1 seed team has beaten the No. 16 team over 100 times in a row. The No. 2 seed almost always beats the No. 15 seed."

If four No. 1 teams make it to Final Four, "I'm going into the witness protection program," Buffett joked.

Dan Gilbert and Warren Buffett
Adam Jeffery | CNBC
Dan Gilbert and Warren Buffett

Quicken Loans—whose founder owns the NBA's Cleveland Cavaliers—said the billion-dollar prize would be shared by any qualified contest participant who predicts the winners of every game.

Gilbert said Buffett pitched him the idea for the contest, after they toured Detroit—looking at the progress being made in the bankrupt city, where Quicken is based.

Asked if the cost of the insurance was $10 million, Gilbert said that number was in the ballpark—adding that working with Buffett was really easy: No red-tape, no committees.

"People say how do you price this thing. You price it for two things. You price it for one, that everyone will get it right; and secondly that someone will figure out a way to beat the game," Buffett said—adding he believes hackers will try.

"If we get past the first 32 games and there are say 200 people left," he continued. "I'll print out all their brackets and sleep on them."

The billion dollars would be paid in 40 annual installments of $25 million each. The winner (or winners) may also choose to get a lump sum payment of $500 million (or share in that amount).

Yahoo Sports designed the online bracket experience, and it's hosting the destination for the challenge.

The first 15 million qualified entrants to complete the registration process will be eligible to win the billion dollars. The window to enter closes at 1 a.m. EDT on Thursday, March 20.

In addition to the potential grand prize, Quicken said it will award $100,000 for each of the 20 most accurate "imperfect" brackets in the contest to use toward buying, refinancing or remodeling a home.

Quicken will also be directly donating $1 million to nonprofit education organizations in Detroit and Cleveland.

By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.

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