Question

Texas A&M decides to invite a high profile band to perform during graduation week at Kyle stadium since they anticipate a very high demand for entertainment during that time. After carefully considering Rolling Stones and Justin Bieber, the university decides that Rolling Stones are the better choice (no kidding!). The band agrees to perform at the modest price of $500,000 (paid after the concert). As a result of the agreement, the university sells $1,000,000 worth of tickets for the concert. Justin Bieber would have agreed to perform for $100,000, but would have generated only $400,000 in revenue. The university orders $20,000 worth of the band merchandise to give away in the weeks prior to the concert to advertise the event. They also spent $50,000 on an ice statue of the band positioned in front of the Evan's library that does not have any useful purpose besides looking cool. The day of the event, Rolling Stones cancels due to a rough night for the band partying in a local pub. The university is forced to reimburse people for their tickets and spends additional $200,000 to compensate out of town individuals for incidental expenses associated with attending the concert. The university sues the band for breach of contract.

You are hired to represent the university in the lawsuit. You insist that the appropriate damages for the university are expecation damages. What is the amount of the expectation damages to the university?

Given the reputation of the band, the court decides that opportunity cost damages are more appropriate in this case. What is the size of the opportunity cost damages? Assume that the $70,000 expense for the merchandise give away and the ice statue would not have been incurred if the university contracted with Bieber.

Suppose that the university is willing to settle for reliance damages. What is the amount of these damages?

The defense argues that the university's expense on the ice statue was unreasonable. They request the court to reward hypothetical expectation damages. If the court finds their argument convincing, what should be the amount of the hypothetical expectation damages awarded to the university?

Answer 1

The university has agreed to pay $500000 to Rolling Stone band and was expecting to generate $1000000 in ticket sales. The university also incurred expenses for merchandise and ice statue which was $70000.
However, the band cancelled the program and the university is now seeking damages.
It should be noted that the university had chosen Rolling Stone over Justin Bieber who has agreed for the show for $100000. The reason that university choose for Rolling Stone is that Justin Bieber show was expected to make only $400000 in ticket sales.

a) The opportunity cost of choosing Rolling Stone is $300000 because that is the gain university would have made if it had chosen Justin Bieber.
400000 - 100000 = 300000
This the approximate amount of damages the if the opportunity cost is being considered.

b) Reliance damages are the damages awarded to the victim to allow him to regain the financial position before the incident. The university if willing to settle for the reliance damages then it would seek $270000.
The university had to forego the amount spent on merchandise which was $20000 and $50000 on ice statue.
Further, it had to incur additional expenses of $200000 for out of town ticket buyers.

c) The expectation damages can be calculated by assuming the contract has been fulfilled and the non breaching party is then receives the damages. The band argues that the cost of ice statue is unreasonable.
Still, the court will award at least of $220000 in damages. The court will decide on the reasonable cost incurred for ice statue and it will add that into the expected damages.
I guess, the actual amount of damages by this method would be around $240000 to $250000.