Why do MLMs still exist?
Multilevel marketing companies—aka MLMs—hit most people’s radar around 2016.
At that time, Facebook had just launched its live capabilities. Being able to interact in real time allowed “consultants” to achieve higher engagement and more personal connection with their customers.
More broadly, John Oliver presented a scathing piece about how the MLM companies worked. (I can’t do Oliver’s piece justice, so take a look for yourself if you haven’t seen it already. It still holds up.)
Shortly thereafter, a documentary called Betting on Zero brought an even brighter spotlight onto MLMs. This film was the story of Bill Ackman, a Wall Street hedge fund manager, and his multi-year campaign to bring down Herbalife. Ackman bet billions of dollars that this MLM—what he called a pyramid scheme—would fold once people knew of the company’s deceptive marketing practices. These included forcing sales reps to buy massive amounts of powders and weight loss products costing thousands of dollars (known as inventory loading), and targeting the undocumented, an incredibly vulnerable population who are less likely to fight back for fear of being deported.
Pyramid Organizational Structure
Before we go further, let’s define a pyramid scheme. A pyramid scheme is an organizational structure where a salesperson is paid based on recruiting other salespeople instead of selling products. The initial salesperson makes commissions on the sales of everyone below them as well as anyone they bring in. With this structure, the people at the top make a whole lot of money while those below make next to nothing. For most MLMs, 99% of people don’t make anything.
MLM documentary series
While large swaths of the population were in pandemic lockdown, Amazon launched its doc series LuLaRich, which became the most-watched series on that platform. This program told the story of the fantastic rise of legging company, LuLaRoe, and its ultimate fall from grace, when the state of Washington won a judgment against it.
Throughout this time, negative press reports appeared in publications from The New Yorker to BuzzFeed to Good Housekeeping.
It was also during the pandemic that the antiMLM movement not only gained traction but exploded across social media, especially Instagram (antiMLM Nicole) and YouTube (see Hannah Alonzo), and the antiMLM subReddit became a bastion of hurt and helpful information.
If MLMs are so harmful, why do they still exist?
Great question. For the answer, you need to understand FTC vs. Amway.
Amway was founded in 1959 by Richard DeVos (father-in-law of Betsy Devos) and Jay Van Andel, both of Grand Rapids, Michigan. It is also important for this story to know that they are staunch supporters of and significant contributors to the Republican Party.
In 1975, the FTC accused Amway of being an illegal pyramid scheme. The Commission claimed that Amway focused on recruitment over sales and that the market was already saturated with too many salespeople, making it impossible for most people to make any money.
In 1979 after years of legal wrangling, the administrative judge in the case found for Amway.
People were gobsmacked. The FTC used the same argument (and the same attorney) they had in previous cases that they had won pretty handily. How come Amway got away with this when other companies didn’t?
Some of this has to do with marketing. Amway presented itself as the All-American company. Amway, after all, is short for “American way.” The company used Bob Hope, the most rah-rah of American of comedians and a performer widely known for entertaining the troops through the USO giving the company the most wholesome of patinas.
Gerald Ford with Amway founders, Van Andel and DeVos
The other reason is politics. In 1974 the country was just getting over Watergate. Nixon resigned and Gerald Ford became president. Ford was from Michigan, also home to Amway and its founders. As Republicans from the same state, there is little doubt that they donated to Mr. Ford’s campaign coffers when he was in the House of Representatives. (The picture above is from the Gerald Ford presidential website.)
According to an article in the Washington Post, DeVos and Van Andel had a 43-minute Oval Office meeting with Gerald Ford. It was later reported in a Michigan paper Van Andel commented that Gerald Ford was very aware of the issues that Amway was having with the FTC.
The connection among multi-level marketing, money, and the Republican Party continues to this day. You might also remember stories, like this one about MLMs donating to Kristen Sinema (while she was a Democrat, she certainly voted like a Republican).
Many believe that if Amway had lost, MLMs would have been stopped dead in its tracks. Instead, we’ve had more than 40 years of companies claiming female empowerment while putting them in debt and battering their self-esteem. It really is a crime, no matter what the FTC says.