Robert FitzPatrick, one of the foremost experts on multi-level marketing, published a piece entitled “What John Oliver Didn’t Have Time To Say In His Hilarious Exposé Of Herbalife And MLM” on Seeking Alpha. (register for free to read the whole article) As always, he did a masterful job o flaying out the case against MLMs, which are nothing more than elaborate pyramid schemes set up to look like legitimate businesses.
As of the writing of this post, the YouTube video of the complete episode Multilevel Marketing: Last Week Tonight with John Oliver (HBO) had over 5 million views. The program made the point (in a very articulate, yet humorous way) that MLMs are nothing but pyramid schemes.
FitzPatrick expands on the episode:
…essentially, all MLMs are the same. Trickery, lying, and losses, as well as “lack of retail sales”, which were discussed in the show, are intrinsic to a pyramid scheme, including:
- 99% of consumers are unprofitable
- actual “income averages” are not disclosed or obscured
- churn rates are massive and are always covered up
- owners and top recruiters get virtually all the money while virtually no one else makes a dime.
- little or no retailing, despite being called “direct selling.”
- products are absurdly priced and insanely hyped for having miraculous (and obviously false) health powers.
- inexplicable “growth” even when the economy tanks, there is no demonstrable “demand” for the scheme’s “product” and 80% of the salespeople quit each year.
- targeting economically vulnerable people
- majority of revenue ultimately comes from the MLM participants, not the general buying public.
I’ve summarized below some of FitzPatrick’s facts about multi-level marketing.
- Endless Chain Recruiting – MLM features endless chain recruiting, in which rewards are contingent on recruiting others. However, it is statistically impossible to succeed in such a scheme. The last ones in always lose, and they’re always the vast majority of the total participants. MLMs promote the idea of “unlimited income” and that the newest person has the same opportunity as the first one in, but both of these are false and fraudulent.
- Pay to Play – In order to participate in the MLM scheme, you must pay. There are initial fees and product purchases. The products must be purchased on an ongoing basis in order to continue to “qualify” for commission payments. The purchase of the products looks legitimate because the participants could sell those products to customers. However, the reality is that very little retailing for a profit actually occurs.
- Money Transfer – A key feature of MLM is the transfer of money from the last person to join to those above him or her. There is a complex pay plan that divvies up the payments to multiple levels, and most receive very small amounts that are nothing more than a carrot dangled to keep them in as long as possible. FitzPatrick writes: “At Nu Skin, for example, 80% of all the reward money winds up in the hands of the top 1%. 93% of the participants get paid nothing at all. And since the MLM’s use “products” to camouflage the transfer, only about 40-50% of the total “purchase” money paid in by the newest recruit can be transferred as reward. The rest is needed to cover the scheme’s product and administration costs, and raked off as “profit” for the owners and their shareholders.:
- Closed Market Swindle – The money for rewards in MLM comes from the participants. If someone pays $100 to join and that is the only source of funds, then no one can gain from that $100 investment without others losing. Essentially, the money is just being transferred in the chain. Of course, the MLMs claim that the payments are actually “purchases” and that there is another source of money: retailing of the products. But time and again, it has been found that profitable retailing does not occur in MLM on any meaningful level.
Read Robert’s article for more explanation and details.
Dear Tracy Coenen,
Re: Eric Scheibler’s “Merchants of Deception” and my involvement with Eric as guide, mentor and consultant in the writing of his book -helping him get through the disaster called Amway.
I am writing because I found your website in which you reveal that you are reading Eric Scheibler’s “Merchants of Deception”. I was the first Amway distributor/victim to post a website that exposed the truth about Amway motivational organizations (AMO’ S). I posted my site in 1996 (Google: AMO’s, The Nightmare Builders) after being sucked into Amway by my wife who was doing it secretly for three months with the person who sponsored her.
I told my wife I had no interest in doing Amway because I knew it was a scam. She threatened to divorce me if I did not “Work hard to help build her dream”. I acquiesced although I made an agreement with myself that it would only be temporary. After four years of working hard -following my upline’s advice and attending all the functions/rallies and buying all the tools we were told that were needed in order to succeed in “the business”, I looked at the books and was shocked to see that we had accrued a net loss of $15,000 due to the cost of motivational tools and being told that selling retail was not necessary – only recruiting had to be done – plus buying from your own business and programming our recruits do the same.
Eric Sheibeler found my website and after months of questioning my assertions and hating my guts for “spoiling his dreams”, Eric finally began to see the truth in his own business and that his up line was manipulating his distributors because Eric was beginning to question the ethics of the Amway business.
Eventually Eric sent me an email thanking me for saving his life and edify me as a “hero”. He eventually sent me the iconic picture of the lone Chinese citizen standing in front of a military tank in Tiananmen Square stating that he viewed me as that was what I was doing with my site to reveal the truth about Amway.
When Eric informed me that Amway was keeping his bonus check and he was not able to make his mortgage payment I sent him the money with no expectation of being repaid.
After my site being on the Internet for four years Amway decided to throw every legal motion at me that they could possibly conjure up in an attempt to bankrupt me and drive me insane. It didn’t work. I ended up threatening to sue them for abuse of the legal process, filing a SLAPP suit against me in an attempt attempt to shut me up and frightened me into taking my website down. None of their bogus litigation or threats worked. Frankly, the whole fascist initiative launch by Amway against me backfired and I ended up getting a settlement.
If you read Merchants of Deception carefully you’ll see that Eric has included my story – how my site pulled him from the jaws of insanity – in his book in several places. I also write a strong endorsement of Eric’s book at the beginning.
What has piqued my interest and got my blood boiling is our president – elect’s recent appointment of Betsy DeVos as his choice for Secretary of Education.
In a sense this is a double-edged sword because Betsy DeVos is part of the Amway family (read: alt-right Christian fundamentalist, mafia like, filthy rich, stealth right wing super PAC). “Betsy” knows nothing about how to run public education at any level and would be a disaster for the country if approved as Secretary of Education. Her goal would be to create Christian-based charter schools – as part of an education privatization initiative. That educational paradigm she has a great deal of experience in establishing.
On the other hand, this is a chance to expose the criminal nature of Amway -it’s scandal plagued criminal past and it’s tacit approval of what it’s so-called unaffiliated organizations for motivation are doing with respect to deception, fraud, predatory practices and blatant criminal activity.
The Amway motivational organizations are the real source of the great wealth for Amway’s Black Hat distributors. John Oliver mentions nothing of this which is actually the most damning aspect of Amway.
AMO’s are a shadow businesses owned and operated by the highest level Amway distributors. These shadow businesses bring in hundreds of millions in profits from their rallies, tapes, books, seminars and other “motivational tools” which they program (read: brainwash) all of their downline IBO’s to believe that they will not be able to succeed without – meaning they will not be able to create an endless residual wealthy income without their motivational teachings. The truth is, all but less than 1% of distributors will ever be able to make a significant profit even with the motivational tool business “educating” them
The costs of motivational tools always put Amway IBO’s Black hole debt from which they are never able to escape n. That happened with me and my family which was eventually torn apart by the fraudulent, predatory, exploitive shenanigans of my motivational organization – Worldwide Dream Builders.
I had been revealing on my Facebook page truths about two criminal enterprises – Alticore/Amway Global/Quixtar and the Church of Scientology. My page she was being hacked into on a regular basis – content changed and removed and libelous statements posted to my timeline. Eventually my site was canceled by Facebook because of postings made by the hackers that were made by hackers to slander many of my friends . I lost 3500 friends and over 400 followers. I have no doubt that it was either one or both of these wretched enterprises responsible for the loss of my Facebook account.
I’m wondering if we could work together with Eric Scheibler to launch a campaign against the appointment of Betsy DeVos. Personally, I can go through the petition route, however I would prefer not to work alone. Since Eric Scheibler is a close friend and you are becoming familiar with him through his book I thought it might be effective if we somehow work together. Your site and your efforts/agendas are extremely admirable and I have great respect for what you are doing.
Kindly
Ashley Wilkes
Independent film producer
Creator of special digital effects – still in the motion
Screenwriter
Digital artist
Working on a new website which will be in operation within weeks