Last week, a Dallas federal court concluded that Yahoo! Inc. (“Yahoo”) should be paid over $913,000 in attorneys’ fees in connection with its March Madness sweepstakes promotion, bringing Yahoo’s total award in the case to more than $1.5 million.

How did the sweepstakes promotion take such a turn for the worse?

March Madness Sweepstakes Promotion and Lawsuit

In 2014, Yahoo wanted to sponsor a March Madness sweepstakes promotion 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. Yahoo retained the services of prize risk management company SCA Promotions, Inc. (“SCA”), which calculates the odds of a promotion winner and secures coverage for the sponsor’s offered prize.

In December 2013, Yahoo and SCA signed a contract for the billion-dollar March Madness sweepstakes promotion. Yahoo agreed to pay $11 million to SCA and made an initial scheduled payment of $1.1 million shortly after signing the sweepstakes fulfillment contract.

In January 2014, when Quicken Loans publicly announced that it was teaming up with Warren Buffet and Berkshire Hathaway to sponsor a very similar “Billion Dollar Bracket Challenge,” Yahoo changed course and worked out a deal with Quicken (and without SCA) to become a co-sponsor of that sweepstakes promotion. Later that month, SCA sued Yahoo in the U.S. District Court for the Northern District of Texas (Case No. 3:14-cv-00957-O), alleging breach of contract and claiming that Yahoo owed SCA nearly $10 million.

As we reported last December, the district court ultimately granted Yahoo’s motion for summary judgment and dismissed the sweepstakes lawsuit, ruling that Yahoo was entitled to a refund of $550,000 from SCA and its costs and attorneys’ fees. SCA has appealed the decision.

Court’s Award of Attorneys’ Fees

On November 21, 2016, the Court found that Yahoo should be awarded $913,961.23 in attorneys’ fees.

While Yahoo had moved for over $2.4 million in attorneys’ fees, expert and mediator expenses and related costs, Yahoo did not segregate its fees as ordinarily required under Texas law. Further, the Court determined that a number of Yahoo’s attorneys had unreasonable billing rates and allegedly used questionable billing judgment and practices. As a result, the Court drastically reduced Yahoo’s award of attorneys’ fees (although the remainder is substantial).

When viewed in tandem with the Court’s previous $550,000 judgment and an earlier $70,269.88 bill of costs, Yahoo’s award now exceeds $1.5 million.

Protect Yourself

As the above-referenced case illustrates, it makes good business and legal sense for businesses operating in the promotional sweepstakes space to speak with an experienced marketing attorney before launching a sweepstakes promotion, signing any related agreements and/or commencing legal action in connection therewith.