Don't Cry Over the Ticketmaster Settlement

Ticketmaster is offering $1.50 discounts to settle allegations that it ripped off customers. But believe it or not, our justice system actually worked this time.

Ticketmaster is offering $1.50 discounts -- yes, that's 150 cents -- to settle allegations that it ripped off customers. Believe it or not, it's a sign that justice system actually worked.

Bieber Fever girls or outraged Ticketmaster customers? Both, probably. (Reuters)

Nobody likes Ticketmaster. It's the grubby middle-man of live entertainment, the troll beneath the bridge, the toll booth lodged squarely between music fans and their favorite artists. If you've ever bought a concert ticket online, you know the frustration of seeing the company slap $10 or more in fees onto your purchase.

That's why so many are galled by the recently proposed class action settlement between Ticketmaster and a group of plaintiffs who accused it of ripping off customers by charging excessive "order processing" fees. This week, roughly 56 million Americans who used Ticketmaster over the last decade began receiving emails (written in unfortunate legalese) telling them they were eligible for a $1.50 discount on up to 17 Ticketmaster purchases during the next four years -- one for each ticket they got overcharged on. Another smaller group, which had tickets delivered by UPS, will be eligible for a bit more.

It's what's known as a "coupon" settlement. The victims get a discount from the company that bilked them. Meanwhile, the lawyers get paid cash a little more than $1.50. Sixteen million dollars more, in fact.

It sounds absurd that the lawyers make a killing while the consumers get a pittance. But hold your outrage. It's also an example of our legal system actually working.

In fact, it's a prime showcase of why our class action system is so vital in the first place.

A STANDING-O FOR CLASS ACTIONS

Class action lawsuits are designed to deal with mass injustices. But not all injustices are created equal. Some cases involve true travesties, where each of the victims could bring a big suit on their own. Think of the women who sued over the deadly effects of silicone breast implants. But that's a rare situation. Very often, the injustices are small. Piddly even. They're the sorts of cases where individual damages are so picayune that no lawyer in their right mind would ever represent a lone plaintiff. They'd never make money off it.

That's where class actions are crucial. By rounding up all the plaintiffs into a single group, and letting just a few lawyers represent them, it creates an incentive for firms to take these cases. If that profit motive didn't exist, we'd have to rely entirely on government lawyers, especially in consumer protection suits. And while state attorneys general are good about pursuing those cases, they have limited resources. In the end, we need private lawyers to go after big corporations.

Especially Ticketmaster. The best case scenario for this case was that customers would get back all they money they overpaid in "order processing" fees, which averaged $4 each (the case doesn't involve the much more expensive "convenience fees" Ticketmaster also tacks on). The typical Ticketmaster customer bought three tickets in the last 12 years -- the time period at issue. That comes out to $12 in awards.

No lawyer would spend eight years on a $12 case against Ticketmaster. But he might spend eight years on a $12-per-person case against Ticketmaster on behalf of more than 56 million people.

And that's how it worked out. The case involved roughly 160 million transactions at $4 each. If Ticketmaster lost at trial and failed on its appeals, which is a big if, it would have had to pay a maximum of about $640 million. But the court could easily hand it less if it decided a portion of the fees were fair. A settlement provides certainty. In this case, it maxes out at $265 million. And if enough customers don't claim their discounts, then Ticketmaster is required to donate up to $45 million worth of cash and free tickets to charity.

Even if you compare the lawyers' fees to the minimum $45 million payout, they're within reason. In class actions, a 30% take isn't unheard of. It sounds steep. But if plaintiffs' lawyers couldn't make money off of class actions, they wouldn't take them. They'd go off and chase ambulances instead. That's free enterprise at work.

THE JUSTICE SYSTEM AT WORK

It's not a perfect system. There is a long and rich history in this country of utterly bogus class action settlements, particularly involving coupons. The ultimate horror story involved a suit over a bank's handling escrow funds, in which many members of the class ended up paying more money in attorney's fees than they received in the settlement. In 2005, the Bush administration signed legislation that sought to curb the most egregious instances of such abuse.

This isn't that kind of abuse.

Because here's the thing: Most music fans could probably use the discount. If most of us want to buy tickets to a show, we have to go through Ticketmaster. We have to pay the toll booth. And that injustice isn't changing soon. When the Obama administration allowed it to merge with LiveNation, the country's largest venue owner, Ticketmaster only tightened its grip on the entertainment industry. As famed music critic Jim DeRogatis recently put it during a radio interview, "What Walmart is to retail, Ticketmaster-LiveNation is to the entertainment, live music business."

So at least the little guy got something this time around. And if the result seems kind of absurd, trust me, this is our justice system working.