December 2, 2015

sweepstakesEarlier this year, we reported on developments in a lawsuit filed by prize promotion and risk management company SCA Promotions, Inc. (“SCA”) against Yahoo! Inc. (“Yahoo”) in connection with a botched billion-dollar March Madness sweepstakes fulfillment contract. On November 18, 2015, the U.S. District Court for the Northern District of Texas granted Yahoo’s motion for summary judgment and dismissed the suit.

Why was Yahoo dragged into court for its sweepstakes promotion contract?

Yahoo’s Sweepstakes Fulfillment Contract with SCA

SCA’s lawsuit, originally filed in January 2014 in a Dallas County court before being removed to federal court last March, alleged that Yahoo sponsored a March Madness sweepstakes in which any participant who could correctly predict the winner of all 63 games in the NCAA Men’s Basketball Tournament would win a $1 billion prize.

In December 2013, Yahoo and SCA signed a sweepstakes fulfillment contract, in which SCA and another third-party underwriter would pay out the full $1 billion prize in the event of a winner and, in return, Yahoo would pay $11 million to SCA. Yahoo made an initial scheduled payment of $1.1 million to SCA shortly after signing the contract. However, in January 2014, after Quicken Loans publicly announced that it was teaming up with Warren Buffet and Berkshire Hathaway to sponsor a “Billion Dollar Bracket Challenge” – which, according to Yahoo, was essentially identical to Yahoo’s planned March Madness sweepstakes promotion – Yahoo worked out a deal with Quicken (and without SCA) to be a part of the Billion Dollar Bracket Challenge.

SCA and Yahoo’s sweepstakes fulfillment contract stated: “Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor.” SCA alleged that 50% of “the fee” amounted to $5.5 million (half of the full $11 million amount), which would mean that Yahoo owed SCA an additional $4.4 million.

Conversely, Yahoo argued, and the court agreed, that Yahoo’s liability “is limited to the amount of fees paid by Yahoo, which undisputedly total $1.1 million (of which Yahoo is entitled to a refund of $550,000).” As such, although SCA initiated the breach of contract suit, Yahoo actually stands to recoup half of its initial payment to SCA.

Sponsors: How Clear Are Your Sweepstakes Fulfillment Contracts?

While Yahoo stands to recover over a half-million dollars as a result of last month’s judgment, the contract language in question was less than clear, and a court could have just as easily slapped Yahoo with a $5.5 million cancellation penalty. Sponsors of sweepstakes and promotional contests can minimize the risk of this sort of predicament by including clear, unambiguous language in their sweepstakes fulfillment contracts, especially in key provisions of contracts involving large sums of money.

If you are interested in learning more about this topic, pursuing a sweepstakes-related venture, or if you have been served with legal process in connection with your marketing practices, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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