Lazy Man and Money

  • Blog
  • Home
  • About
    • What I’m Doing Now
  • Consumer Protection
    • Is Le-vel Thrive a Scam?
    • Is Jusuru a Scam?
    • Is Beachbody’s Shakeology a Scam?
    • Is “It Works” a Scam?
    • Is Neora (Nerium) a Scam?
    • Youngevity Scam?
    • Are DoTERRA Essential Oils a Scam?
    • Is Plexus a Scam?
    • Is Jeunesse a Scam?
    • Is Kangen Water a Scam?
    • ViSalus Scam Exposed!
    • Is AdvoCare a Scam?
  • Contact
  • Archive

Passive Income Update: February 2021

March 10, 2021 by Lazy Man 2 Comments

Passive Income Pyramid
My Passive Income Pyramid

In January’s report, I mentioned that things weren’t looking much better in 2021 with the insurrection, but that seems a little on the backburner now. We’re getting a lot of vaccines in people’s arms. Things may not have run very smoothly everywhere, but it’s working and getting better. More vaccine is getting available, we’re getting more of it in people. COVID cases have dropped a lot, then plateaued, and maybe dropping again. I’m still optimistic that continued vaccines and summertime will be a more powerful combination than the variants.

The kids finished up their snowboarding lessons in February. The younger kid liked skiing better last year and the older kid liked snowboarding this year. I think I will try snowboarding next season, but I might need some lessons. The problem I have with a lot of these activities is that they don’t take adults and kids (such as a family) in the same lesson. The only instruction they had for adults was on a Wednesday evening, which wouldn’t fit my schedule.

We continued karate lessons and the kids are on the verge of their orange belt. It’s been really helpful for focus and discipline. The kids just love it too. They ran the second “parents night out” in two months, so the kids sword techniques should be getting better. If not, at least my wife and I got some time out. We went bowling a couple of times too. The alleys are running at low capacity so social distancing isn’t an issue. It’s almost like pre-COVID times.

My 7-year-old earning his third orange stripe on his yellow belt.

The kids also their 100th day of in-person school. It’s a bit of a celebration at our school in the lower grades as they use it to help with place value. At first and second grade, they phase out the celebration a bit. I think it’s a big accomplishment on everyone’s part (especially the school’s, but other parents as well).

That’s enough lead-in… let’s start the Passive Income report. I used to call this the Alternative Income Report, but everyone loves passive income better. While I transition to the new terminology, there may be some “alternative income” mentions including the FAQ. If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you’ll likely have a lot of questions.

The way I calculate these numbers requires that long explanation – it isn’t intuitive at all. The reason why I do things a little differently is that this catalogs a journey. For example, we don’t have passive income from our rental properties while we are paying down their mortgages. Instead, I calculate the percentage of equity we have to show where on that journey we are. Each month you see that the bank owns less and we own more. When we get to owning 100% there will be no mortgages and all that rental income can be used for living expenses.

Lazy Man’s Passive Income – February 2020

I categorize our passive income into 3 main sources that are largely represented in my passive income pyramid. For this report, I ignore the bottom section, “career/job” – that’s not passive at all. (I do have some income in that area, but that’s not the focus of this report.) I combine dog sitting and blogging into one section of “somewhat active” income. I leave real estate and investment income as their own separate main sources of very passive income.

1. Blogging + Dog Sitting Income

Blogging income rebounded a lot in February. It had previously dropped so far that I’m tempted to say it had nowhere else to go. I won’t because it can always drop to zero.

Dog sitting income was very bad once again. It still feels like no one is traveling due to COVID, so they don’t need their dogs watched. I don’t expect this to change much until the summer starts. That’s when there is a chance that things open up and tourism gets going again.

Over the last couple of months, I picked up a new freelance client who has some blog editing work for me to do. This isn’t passive income at all, so I don’t include it here. I mention it only because even as these passive income sources are down, the overall total income is looking good.

My dog found a friend on the beach. He hasn’t been able to play with other dogs much in the last year because it’s uncomfortable to ask owners who you don’t know during these times. My dog is the darker yellow one, age 12, and the other dog is puppy golden. (Awwwww!!!!)

In January, dogs and blogs combined for a total of $957.59 – the lowest in years. In February, it was:

Total Blogging + Dog Sitting Income: $887.91

While that represents a new low, it’s actually a higher average per day. February’s 28 days gives us about 10% earning time than January, right? I think dog sitting will come back, so there’s room for this double fairly easily.

When dog sitting comes back my kids can pitch in to help. My 8-year old is extremely good with dogs at this point. He can feed them, let them out, and play with them in the yard. My 7-year-old is good too. This help means that I can pay them a legitimately earned income (a small percentage of the overall dog-sitting income). Because the income is earned they can save money in their kid Roth IRAs and it will be money that they’ll never pay tax on. I want to get them more involved in blogging, taking pictures and things like that, but it’s going slow. They get enough school work, home work, and extra-curriculars.

(Note: The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

2. Rental Property Income

The new condo this year is starting to get regular checks which is extremely helpful. Because we rolled over equity from the sale of an old condo our expenses are around $1000 a month, but we get a check for $1600. It’s nice to have cash flow on properties instead of just building equity that is very difficult to access.

As for February’s numbers, Zillow’s estimates on that new property went up 10%. That’s a big gain, but it is more in line with the comps that I had expected. We paid down the mortgages as we always do. In 2020, we gained around $60K in equity. So far this year, due to that growth, we’ve gained $30K. The housing market is really moving.

It can be difficult to deal with tenants, but I like to think of those equity gains as a salary. The “work” for last year’s $60,000 is pretty minimal. We had to work a little more for the $30,000 this year, but $10,000/mo. isn’t bad. Of course, equity isn’t really salary – we can’t spend the money, because it isn’t liquid.

We got to bowling a couple of times, first time in a year. The kids have more arm strength now and can get the occasional strikee – as in this frame of a video I was lucky enough to film.
This month we went from 62.12% to 63.51% ownership of the equity in our properties. In pure dollars and cents, we gained $23,370 in equity last month. That’s far, far from typical, but I think it is reasonable given what I’ve been reading about the markets.

If we owned the rental properties with no mortgages (100% of the equity), I calculate that, after insurance, property taxes, condo fees, and estimated condo maintenance we’d make about $3,400 a month. That number represents our net gain.

If you multiply our expected net rent $3400 by the amount of equity we have (i.e. where we are on our journey), 63.51%, you get $2,159 in estimated monthly passive income. When I started tracking this (January, 2017), we only owned 36.4% of the properties and they had lower rents. The math worked out to $1,174 back then. So in a little more than 4 years, we’ve seen the number grow $985/mo. That’s good passive growth in 4 years.

As the years march on, the ratio will grow to 100% of a rent that should net $3,400 monthly after expenses. Since rent is inflation-resistant, we can raise it as costs of living go up. We don’t have to factor in inflation like other investments. So we can think of it as around $40,000/yr. of income in today’s dollars buying the same value in the future. That should be enough money for us to live on with our own home paid off (plus our solar panels, frugal shopping habits, and military healthcare.)

In the previous report, the rental property income was $2,104.

Total Rental Property Income: $2,159

3. Dividend Income

For this section, I assume we will earn a 2.5% dividend yield on our holdings. That could be from a high-dividend ETF or from simply holding strong companies that have a long history of dividend growth. There are some income investing ideas here. We can also look at making passive income with dividend kings. If I wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get closer to a 4% average dividend yield. That link to the newsletter has a special discount rate and in full disclosure, I make a few dollars if you sign up for it.

The market has been doing great, but it is taking a bit of a break due to the yield curve. Also, some of my satellite stocks have done really well, but they’ve been giving up their gains. I didn’t expect Snapchat, Pinterest, and solar panel ETFs to be up 5x, but they were and I was fortunate enough to lock in some of those gains. Overall, we are well-diversified with most of our money in index funds. The US total market has dropped about 5% and emerging markets nearly 10%.

The kids really like the Dog Man graphic novels and will put away TV and video games for them. Unfortunately, there are less than a dozen, so it only kept them busy for a week. Captain Underpants by the same author isn’t working quite as well.

Last month, our portfolio hovered around all-time highs. As I mentioned, I was getting nervous that the markets were too high. I executed on my plan to continue to stay fully invested but moving more money to bonds. It was a small move of money from stock to bonds mostly for the psychological effect of being active. The small amounts seem to add up and when stocks dropped last March, I was able to buy in at lower prices by cashing in some bonds that didn’t drop as much.

With emerging markets dropping 10% from their highs, I started to move a little of that bond money to buy more of those shares at a discount. I hope most investors are not doing what I do and just leave the money where it is passively. That’s what we do with my wife’s retirement accounts. For investors who want to try to do a little better, I think I’m doing well in buying low and selling high.

We continue to get a profit-sharing check since I bought (a lot of) a company. The business was almost ideally positioned in this pandameic due to its virtual nature. The investment income from this is essentially the same as dividend income. It is taxed differently, but for the purposes of this report, it makes sense to group together all stock ownership in this bucket.

Total Dividend-ish Income: $3,527

Last month, it was $3,549. We dropped $22, which isn’t that much considering. This number rarely moves that much, but slow and steady wins the race. When I did this exercise in 2017 we were at $1180/mo.

Annualized, this monthly $3,527 is $42,324. If our mortgage was paid off, we might be able to live on this by itself. However, because most of our investments are in retirement accounts, we can’t use much of this potential income for now. (We can use the profit-sharing check as it goes straight to our checking account.) We’ll probably let this investment continue to compound for another 15 years until we are age 59.5. Then we’ll have to see if we want to tap it or let it continue until we are required to take some of it at age 72.

Very Close to Passive Income

Our “very close to passive income” is a combination of rental property income and dividend income. If there were some royalty income from books, movies, or music, I’d include that as well. I’m too tone-deaf to have a rockstar music career, but maybe I’ll write a book someday.

The stock market has been fair steady since the drop and recovery when COVID first came around. The rental property income typically keeps going up because the mortgages are always getting paid down every month and they generally appreciate a little. Unless there’s a housing market crash, this should continue to happen.

I love having both types of income working together for us. I think everyone interested in FIRE should have stocks and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most people in the case of an unfortunate economic event. We’ll still likely get rent checks if the stock market crashes. We’ll still get dividend checks if a tenant is late paying for awhile. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.

My 7-year-old is honing his culinary presentation skills with a little desert art.

We are a full year into the most ginormous unfortunate event that I can remember in my life. Stocks went down a lot, but then went back up. Real estate just gone up. We’ve been lucky to have tenants who are still working and able to pay rent. Well, one couldn’t, but used the opportunity to sell at a market high and buy a property closer to us at a relatively low price. Overall, the plan keeps rolling along, even during COVID-19.

While the stock market is doing well, the real economy is still bad. It used to be terrible, but people are getting back to work and jobs are coming back. We’ve got a president who is working to end the COVID crisis. We’re getting stimulus checks and vaccines in arms. He’s starting to try to reverse the climate change disaster that causes so many natural disasters. Even if you are a heartless soul who doesn’t care about the people losing everything in fires, you should be able to agree that American business works best when it literally doesn’t have to put out fires. Good climate policy is simply good economic policy.

Very Close to Passive Income: $5,686

Last month it was $5,653. The $5,686 extends our all-time high yet again. As you can tell from the chart below, it just keeps moving in the right direction. It had been the stock market driving the gains for awhile. It slipped up, but the real estate market took the ball and ran with it.

This would be over $68,000 a year of almost completely passive income. What’s better is that there would be no need to touch the investments themselves. We wouldn’t have to sell stocks or get a reverse mortgage. Property maintenance and property taxes for rental properties are already factored in. We would still have all the underlying assets (property, stocks, etc.) and be able to pass these on to the kids for them to build on – unless we choose to draw them down for more fun, charity, or other spending.

This “very close to passive income” has grown from $2,354/mo. in January 2017. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for the profit-sharing check). We have gained more than $3,000 in passive-ish income over 4 years. I wonder if we can get to $8,000/mo. in passive income by the start of 2025, another 4 years. That’s a little aggressive, but it would give us something to hope for.

Final Passive Income

When you add up “dogs and blogs” to the “very close to passive income” you get:

Passive Income: $6,565.91

Last month it was $6,610.59. It’s another drop, but it would have been growth if it hadn’t been a short month. It seems like this is going to be a consistent number for a little while.

I’d like to see this average $8,000 in 2021, but I need a plan to add something new – it doesn’t look like dogs and blogs is going to get me there. For now, I’ll just be happy that with four different income streams (and two consistent ones), there isn’t much room for everything to drop.

This $6,500+/mo income is nearly $80,000 a year. That largely hypothetical annual income for writing on a blog, taking care of one dog, and investing is really nice. In the long term, $78K would be a lot more income than we’d need – given our necessary expenses for the next 45 years. Of course, those necessary expenses aren’t going to cover all our spending, but it’s a large percentage of it.

As 2020 has proven, you never know what bad news is lurking around the corner. This preparation gives us the financial flexibility to fight it.

None of the numbers here include my wife’s bread-winning pharmacist income, her vested military pension (more passive income), or the freelance work I’ve been doing over the last couple of years (which isn’t passive at all). That’s the fuel that drives the passive income engine – it allows us to live well and invest. My income doesn’t match my wife’s, but I’m good at stretching a dollar in almost all our spending.

We got a lot of snow in February, so we went sledding a few times.

As always, I’m still hoping to write a book someday. That would add some more passive income. My wife will probably get her book out first. She’s had an incredibly interesting life until she met me – I am so boring. I may tip my toe into self-publishing sometime this year. I would love to talk to a real publisher, but I don’t want to take on the “job” of writing. That’s probably a deal-breaker. If you know someone who I could talk to contact me.

My favorite thing about the graph below is that it doesn’t dip down too far. It’s been above $6,000 for a while now. Though we are getting close to dipping below that $6,000 mark. If it dips below $6000 and touches $5000, we’ll have to examine some things.

(Once again, the blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

Net Worth Update

My net worth updates aren’t very exciting as I don’t share the exact numbers. That’s why it’s just a footnote here.

I truly believe that net worth is one of the most important numbers in personal finance so it is worth sharing in some way. Showing relative growth can be useful.

February was another good month for our net worth. We saw it jump 1.20%. For the year overall, our net worth is up 4.41%. We’ve seen our net worth over 30% in last 14 months. With the Rule of 72, we’d double our net worth in around 2.5 years. That’s probably too good to last forever.

Diversification helps a lot in bad times. Even when the stock market was way down, we were still grounded with our real estate. We can’t control the market, but we can be happy that the amazing river of compound interest has been working well for us over the years.

I feel it’s important to acknowledge that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 15 years. FIRE wasn’t a “thing” back then, but it’s in the news a lot now. We naturally are further along in that journey than some younger readers who may be just starting out. If you are one of these readers, I hope you won’t be discouraged by some of the numbers above. I didn’t start many of these graphs until year 11 of blogging (year 13 of early retirement planning). Please try to use it as motivation for what may be possible (depending on your circumstances and market luck) over 10-15 years.

There’s a big wild card in calculating our net worth. Now that my wife’s pension is vested, it’s reasonable to ask whether to include it in our net worth. I decided that it does make sense to include it. She could have earned more direct monetary compensation if she didn’t work for the government. That would have boosted all the numbers across the board. Calculating pension value is not easy, but here’s the best way to know what a pension is worth. In the end, it seems my wife’s pension may be worth $2.3 million. However, like most of the money mentioned in this article, this isn’t money we can spend right now.

Because the pension would dominate our net worth, I’ll note two separate numbers in my personal spreadsheet. I don’t share the numbers anyway, aside from these hints, so I don’t think it should matter much to you. It’s not like I’m suggesting that you might want to make a financial-based decision on a pension.

How was your February? Let me know in the comments.

Filed Under: Alternative Income Tagged With: passive income

Three Attractive High-Yield Dividend Stocks For 2021

March 8, 2021 by Lazy Man 5 Comments

Today, I am rushing to get 2020 taxes filed in hopes of getting the next stimulus check. We had a one-time business event in 2019 that put us out of the range. In 2020, with a loss of some income due to COVID, we’ll probably qualify. If we can get our 2020 taxes to the tax preparer today, we may get them filed in time. If you are in a similar situation, I hope you are getting your taxes in quickly too.

Nate Parsh at Sure Dividend was kind enough to fill in with one of my favorite topics of late – high-yield dividend stocks. At the end of the article, I explain why I like them so much lately.

With the 10-year treasury bond and the S&P 500 both yielding approximately 1.5%, investors looking for income may feel that their investment choices are limited.

One way to produce more income would be to seek out higher-yielding investments. However, this is not without risk, as a high yield could be a sign of a company facing significant challenges. Income investors should be wary of the highest-yielding stocks, as a dividend cut could be forthcoming. Still, there are many high dividend stocks that offer a very safe dividend.

The following 3 dividend stocks have yields significantly above the market average, along with the potential for future dividend growth.

AT&T Inc.

AT&T Inc. (NYSE: T) can trace its roots back to the late-1800’s and Alexander Graham Bell. Today, the company is the largest communication company in the world. AT&T has a market capitalization in excess of $200 billion and generated almost $172 billion of revenue in 2020.

AT&T’s business did face some COVID-19 headwinds last year, particularly in the company’s WarnerMedia and domestic wireless services business. Overall, revenue declined 5% while adjusted earnings-per-share decreased 11%. AT&T stated that the pandemic reduced adjusted earnings-per-share by $0.43 during the year. That said, the company does expect both top and bottom-lines to grow ~1% in 2021 as business stabilizes.

AT&T has loaded up its balance sheet over the past few years thanks to a number of high-profile acquisitions, including the company’s purchase of DirectTV in 2015 for $48.5 billion ($67 billion when including debt) and its $85.4 billion purchase of Time Warner in 2018. Total debt reached a high of nearly $170 billion in 2018 as a result.

To its credit, AT&T has worked diligently to reduce its debt obligations over the past few years by divesting non-core assets, including selling its stake in Hulu in 2019. More recently, the company has announced that it will be selling a minority interest in DirecTV to a private equity firm. Originally, the company was looking to sell the entire business.

The company used proceeds from the sale of its stake in Hulu (~$1.8 billion) to pay down debt. AT&T has pledged to do the same with the nearly $8 billion it will receive in the DirecTV transaction. While debt remains high (approximately $152 billion as of the end of 2020), the coverage ratio has improved slightly and AT&T has a targeted cover ratio of 2.0 to 2.5x by 2022 down from 2.8x just two years prior.

Even with the recent difficulty, we believe AT&T an attractive option for income investors as the company produces robust levels of free cash flow every year. For example, the company generated $27.5 billion of free cash flow last year and expects to produce a similar amount in 2021. Just 61% of free cash flow last year was distributed in the form of dividends.

Shares offer a 7.4% dividend yield and the company has raised its dividend for 36 consecutive years, which makes it a member of the Dividend Aristocrat index. With a projected earnings payout ratio of 65% for the current year, the sheer size of the company’s free cash flow, and the ongoing reduction in debt, it is likely that AT&T’s high dividend yield is very safe from a potential cut.

International Business Machines Corporation

International Business Machines Corporation (IBM) provides integrated enterprise solutions for software, hardware, and services. The company typically provides end-to-end solutions for its customers, making IBM a one-stop shop for its clients. IBM has a market capitalization of $108 billion and produced revenue of almost $74 billion last year.

Somewhat famously, IBM has reported declining revenues for several years in a row. This continued in 2020 as sales fell 6.5% and 4.6% for the fourth quarter and full year, respectively.

The demand for cloud-related product offerings has surged over the past few years and IBM has been slow to react to the sea change. IBM has tried to gain more of a foothold in this space by acquiring Red Hat for $34 billion in 2019.

Under the direction of new CEO Arvind Krishna, IBM will be splitting into two companies. The new IBM will contain the Hybrid Cloud and AI business with a focus on software. The second company, which is yet to be named, will focus on Managed Infrastructure Services. This is a good move in our opinion as the growth rates for the cloud business will likely be higher than the legacy business.

IBM is clearly behind other cloud giants, but this is a sector that is expected to grow at a high double-digit percentage over just the next five years. Focusing an entire company on cloud computing should pay off for the new IBM.

While IBM’s business has been rather poor over the last decade, it has still provided a strong dividend yield. The company has now increased its dividend for the past 25 years, which has gained the company membership among the Dividend Aristocrats. Dividend growth has been solid, with a compound annual growth rate of 8.4% over the last decade.

The dividend appears to be well protected as well. The company distributed just 39% of its $15 billion of free cash flow in the form of dividends last year. IBM’s projected earnings payout ratio is 59% for 2021, down from 75% last year.

With a 5.3% yield, shareholders are being paid generously to wait for the company to find its place in the cloud computing space.

Ford Motor Company

Ford Motor Company (F) was incorporated in 1903 and, over the last 118 years, has transformed into one of the world’s largest automakers. The company provides a popular assortment of cars, trucks, and SUVs. Ford is valued at just under $50 billion and generated revenues of $116 billion in 2020.

Ford may seem like an odd addition to a list of attractive dividend-paying stocks since the company paused its dividend in the midst of dealing with COVID-19. That being said, the stock offered a high yield for quite some time leading up to the pandemic. Shares averaged a dividend yield of 5.2% from 2015 through 2019, showing that Ford was no stranger to paying a high yield.

The company needed all available capital to make it through the worst parts of the pandemic and prudently paused its dividend.

Leadership did not mention what conditions would need to occur for the dividend to be reinstated, but we believe that a recovery from the COVID-19 pandemic will eventually take place. With the start of the vaccine rollout and additional stimulus from governments around the world, we feel that Ford could be in a prime position to return to pre-pandemic growth once COVID-19 is dealt with.

Even under difficult circumstances, Ford still had free cash flow of $18.5 billion in 2020. In 2019, the last year the company paid each of its quarterly dividends, the free cash flow payout ratio was a very reasonable 40%.

While Ford likely faces headwinds in the near term due to the unknown duration of COVID-19, there appears to be a possibility that the company could reinstate its dividend at some point. Given Ford’s history and free cash flow, it is likely that the yield could be quite generous for shareholders willing to take a long-term view of the company.

Final thoughts

Income investors are limited on their investment options in today’s market. This class of investors also has to be careful in reaching for yield. AT&T and IBM are two companies that have short-term challenges, but pay a generous and well-covered dividend. For investors with more risk appetite, Ford could also offer a high yield following a recovery from the pandemic.

Disclosure: The author (Nate Parsh) is long T
Disclosure: The publisher (Lazy Man and Money) is long all three stocks (T, IBM, and Ford)

Publisher’s Thoughts

With the disclosure above, you may notice that I invest in all the above companies. I had given Nate some ideas to look into for the article. Before Ford paused its dividend, it was paying out around a 12% yield as the market crashed with COVID. I decided to hold on, even with the paused dividend, and the stock is up nearly 100% from where I bought it at. If they resume dividends it could have a high yield on cost.

I’ve become more of a fan of high-yield dividend stocks over the last few years because the interest rates from other investments have been low. There may be more risk in these individual companies, but I think it is worth it.

Filed Under: Investing Tagged With: high-yield dividend stocks

No, Your MLM Health Product Doesn’t “Work.”

March 5, 2021 by Lazy Man 101 Comments

Stop MLM

[Today we’re continuing to celebrate National Consumer Protection Week with more MLM scam awareness via an article from the past. The FTC has some good advice on MLMs from its recent consumer warnings, “Most people who join MLMs make little or no money. And, if promoters emphasize recruiting as the real way to make money, walk away.”]

I write today’s article in response to the thousands and thousands of comments that I’ve gotten from multi-level marketing (MLM) distributors for various products who make the claim that their products helped with such and such medical condition. Some of these include Le-Vel Thrive, DoTerra Essential Oils, It Works, Enagic Kangen Water, Youngevity, ASEA, Plexus, and Beachbody Shakeology. Those are just the companies/products that are still around.

Some of the popular MLMs that have disappeared are: MonaVie, Jusuru, Nerium, Vemma.

As you can tell, I wrote some in-depth reviews on all those companies/products. I think those are about half of the MLMs that I’ve covered in detail on this blog. Over the last 5 years I stopped covering MLMs for 4 reasons:

  1. They are all 99% the same – Health MLMs copy what makes sales from each other and below can be seen as their marketing blueprint. Once you debunked a dozen of the same scams, it gets kind of boring.
  2. I had two wonderful boys who deserve my time.
  3. I got bored with winning defamation lawsuits. Four companies spent over 2 million dollars in lawyers and court fees. It creates a lot of work and time.
  4. Great organizations like Truth in Advertsing are now around to fill the need.

As Dr. Jonny Bowden has written:

“New Rules: No More Claiming Mona Vie Cures Cancer!

Nor, for that matter, AIDS. Nor lupus, GERD, acne, age spots, arthritis, a balding scalp or sagging libido.

Nope. Sorry.

And lest you think I’m picking on poor MonaVie, the same is true of Xango, Mangosteen, Xocai, Tahitian Noni, and all the other ridiculously overpriced and oversold juices promoted by scientifically illiterate multi-level marketing ‘distributors’ who repeat these claims with the sincerity and earnestness of a Kucinich volunteer.”

Dr. Bowden isn’t alone in citing that these testimonials are bunk. Neil DeGrasse Tyson, perhaps best known for the popular Cosmos show, says such testimonials are “the worst form of evidence that you could possibly bring forth.” The key quote begins around the 1:50 mark, but you should invest the 6 minutes to watch the whole video.



Having received thousands of testimonials like Dr. Bowden mentioned and documented them on this site, I think it is safe to say that the people making these claims are typically those who are scientifically illiterate. They don’t offer up the clinical trials that measure the efficacy of the products. The companies themselves never put together large-scale clinical trials to prove their products are safe and effective. They rely on the “worst form of evidence”, testimonies because the scientific process in place would expose the products as ineffective.

Dr. Bowden wrote that article before the aforementioned Jusuru and Asea were around.

When you include the products that Bowden mentioned, we have 8 products that are all reportedly able to cure or aid with almost every condition known to mankind. I’ll add Xowii, Zrii, and Nopalea to round out to an even dozen. Though some of them have overlapping exotic ingredients like acai, there is no single ingredient common to all of them that could provide a reasonable explanation of healing benefits. Additionally, other products with the same exotic ingredients such as Sambazon (which has organic acai) that are sold through traditional retailers have no reported healing benefits. These 12 products only have three things in common (that I can see): they are digested, they are all sold via MLM, they are all extremely expensive. In addition, each company (I think) has hired a doctor (or a scientific advisory board) to endorse their product, which is something you don’t find with Ocean Spray (a juice like MonaVie, Jusuru) or your standard multi-vitamin (similar to some Youngevity products).

Clearly, the only logical conclusion is that selling a product via MLM bestows some magical properties allowing it to cure nearly anything or everything. Wait that isn’t logical, is it? Well, I can’t think of any other reasons for the claims… or can I?

What’s Behind All These MLM Health Claims

There are a number of factors at play with these claims:

  • The Placebo Effect – This provides the most obvious answer as to why people feel these products help them. The American Cancer Society says that placebos have an effect in 1 of 3 people. Here’s a great 3-minute video illustrating The Strange Powers of the Placebo Effect. This alone explains why people report a product with no known therapeutic value “works”:



    Update: Actually I like this short video better:

    Need a little more convincing? Here’s Dove’s Real Beauty Patches campaign that has 20 million views:

    Note: It looks like Dove took down the original video at https://www.youtube.com/watch?v=EGDMXvdwN5c. Maybe the campaign ended, I found another version of the video here:

    While the product seemed to be effective to the women using it, it had no therapeutic ingredients at all. There’s not really a difference between an MLM miracle cure and this Dove patch. Both have testimonials of people swearing that it works. Neither has the large-scale clinical trials to convince the FDA that the product has a therapeutic effect.

    In Time’s review of the campaign, the author says: “I just can’t believe the thinly-veiled marketing ruse that there is a patch that can make us more beautiful. It makes women seem too gullible, too desperate, and overall helpless against the all-knowing master manipulators at Unilever.”

    Imagine what happens when the product is a juice or a pill and pitched for some internal medical condition. It’s much more believable than Dove’s patch, which gives you an understanding of the master manipulators of MLM.

    Some people try to claim that the placebo effect can’t possibly be a factor because they didn’t believe it would help them. Research shows that even if you know you are taking a sugar pill with no active ingredients, it can make you feel better. So if you find yourself feeling better, you might just want to go to a local CVS and buy the cheapest you can find, maybe a low-dose of vitamin C.

    However, it’s worth understanding that it is well-known and well-researched that Vitamin Supplements Don’t Provide Health Benefits. Of course we knew that studies confirm that you shouldn’t waste money on vitamins for years.

    Need still more evidence of the placebo effect? It seems that 20% of people can “hear” this silent gif:

    Does anyone in visual perception know why you can hear this gif? pic.twitter.com/mcT22Lzfkp

    — Lisa DeBruine ???? (@lisadebruine) December 2, 2017

  • Spontaneous Improvement Regardless of Intervention – Sometimes things get better over time even without intervention. Many distributors are subject to drawing a causation between taking a product and the condition getting better when no such causation exists. The Latin for this fallacy is Post hoc ergo propter hoc, which means “after this, therefore because of this.” This is sometimes referred to as the “Rooster Syndrome”; “believing that the rooster’s crowing causes the sun to rise.”
  • Observer-Expectancy Effect – Since the products are usually pitched with the health claims, one taking the product may have this expectation.
  • Conscious Deception – Let’s call a spade a spade. It’s very difficult to convince people to buy $40 bottles of juice when they are used to spending $3 for juice. One of the easiest ways to close this gap is to pitch the product as an alternative to costlier medicines. I’m not saying that every MLM distributor is dishonest, but let’s agree that some are. What percentage? It’s impossible to say.
  • Price-Placebo Effect – As the Washington Post reported, people who were able to buy identical energy drinks at different prices showed very significant differences in unscrambling words. Even though the researchers made clear that the drinks were identical, those paying more had better performance. The researchers concluded, “The price-placebo effect comes from the fact that you form this global belief that low price equals low quality.” The article also showed, “A wine connoisseur who pays extra feels different from someone who pays less for the same bottle of wine because the larger financial investment increases the motivation to be satisfied.”

    In addition, the LA Times reports ‘Expensive’ placebos work better than ‘cheap’ ones, study finds. An interesting quote:

    “Instead of testing a placebo against an actual drug, they pitted two placebos against each other. The only difference between the two sham treatments was their purported price.”

    So this study shows a direct correlation as to why even a non-salesman, product-user of MLM products could be convinced that the products “work” while even people using known “sham treatments” would report the same.

    Thus when I show that Youngevity products’ prices are 4 times Amazon’s for nearly equivalent nutrition, I get a response from distributors that they “feel” the difference. Let’s go back to the placebo video above (this one). It notes that paying more for a product makes the placebo effect stronger. That’s proof positive that there’s an additive effect to these points.

  • GroupThink – Unless you’ve taken a psychology class or two, you may never have heard this term before. Wikipedia explains it:

    “Groupthink is a psychological phenomenon that occurs within a group of people, in which the desire for harmony or conformity in the group results in an incorrect or deviant decision-making outcome. Group members try to minimize conflict and reach a consensus decision without critical evaluation of alternative ideas or viewpoints, and by isolating themselves from outside influences.

    Loyalty to the group requires individuals to avoid raising controversial issues or alternative solutions, and there is a loss of individual creativity, uniqueness, and independent thinking. The dysfunctional group dynamics of the ‘ingroup’ produces an ‘illusion of invulnerability (an inflated certainty that the right decision has been made). Thus the ‘ingroup’ significantly overrates their own abilities in decision-making, and significantly underrates the abilities of their opponents (the ‘outgroup’).”

    In addition Abraham Maslow’s Hierarchy of Needs, puts Belongingness amongst his 8 basic needs of humans.

    Both of these dynamics come into play with MLM as GroupThink inhibits the ability to analyze the opportunity. In fact, MLM proponents often suggest that people can “plug into the system” removing all individual creativity, uniqueness, and independent thinking. MonaVie has used GroupThink to send its distributors a message of “you are either with us or against us” and tell them to unfriend distributors from social networks who have moved on to other companies.

    I’m reminded of the Funny or Die demonstration of how students tricked into drinking nonalcoholic beer exhibited drunk behavior:

    Non-Alcoholic Keg Prank of 2002 (Princeton) – watch more funny videos

    Groupthink at its finest, right?

  • Social Proof From a Trusted Friend – Many of these products are introduced by a friend or family, who are often quite zealous about the product and the “business opportunity.” This enthusiasm coming from a trusted source creates an obvious motivation for wanting the product to “work.”
  • Cognitive dissonance – Cognitive dissonance can be thought of a person altering reality to fit his/her perception. Specifically, the Wikipedia article claims, “After someone has performed dissonant behavior, they may find external consonant elements. A snake oil salesman may find a justification for promoting falsehoods (e.g. large personal gain), but may otherwise need to change his views about the falsehoods themselves.”

    This is the same kind of phenomenon that is found in those predicting the world is going to end, except at least with those people there is a clear expiration on their erroneous belief… when the world doesn’t end. Unfortunately, with MLM health products, there is no clear and obvious end-result that can be pointed to.

Any of the above by themselves would explain the testimonials. However, when you combine them all together, the result of the testimonials is of little surprise. We humans in general are an optimistic bunch and we all want to believe that these products are the solution to our health and financial security for not only us but our friends (by sharing the “opportunity” with them). To use the Washington Post’s words, “our motivation to be satisfied” is significantly increased by the business opportunity and our desire to help our loved ones.

Let’s run some numbers. If the placebo effect is responsible for 1 in 3 people making a claim the MLM products work, what about all the above additional factors layered onto that? I’m going to speculate that pushes it to 60%, perhaps even higher. I admit this is speculation, but I don’t have a research lab and wouldn’t know how to really conduct an accurate experiment combining all these factors. If an MLM gets 10,000 people to try the product, that’s 6,000 people who are going to come away with a positive experience. The other 4,000 will move on with their lives and probably never mention the product again. A good percentage of the 6,000 will join the MLM to make money and spread the word that the products “work.” They explain away the 4,000 by saying something to the effect of “Everyone’s different and nothing works on everyone.” In actuality, the products haven’t been shown to work for anyone.

(And if my speculation of 60% (due to the factors above) is off, the placebo effect alone still counts for 3,333 people thinking it worked and another 6,667 that continued on with their lives never thinking about the product again.)

Nonetheless, that’s where you get thousands of testimonials for any number of unrelated medical conditions across any number of unrelated products that are all sold via the same MLM distribution method. Maybe it’s just me, but I find it a better explanation than, “Whenever a product is delivered via MLM the product gets bestowed with magical healing powers.”

For these reasons, it really is best to avoid the “Just Try Our ‘Product X!'” pitch when it comes to MLM products. You don’t have the time or the money to try all the health products in the world anyway.

It’s easy for distributors to ignore the fact that if any the products worked as promised, the companies would get their products approved as treatments for such medical conditions and make billions of dollars. Many MLM distributors falsely say that such claims can’t be about supplements, but when supplements work, the FDA allows claims to be made. You don’t have to look any further than calcium and vitamin D which have been shown to help with osteoporosis.

The Appeal to Good Health

Each of the companies that I mentioned makes an appeal that it will make you healthier. Since everyone has a vested interest in their own good health, it is an easy sales pitch to make. There are plenty of news reports citing promising supplement studies, which makes some of the products seem credible. The news rarely reports on the subsequent studies that show that the supplements don’t work. Something “not” working isn’t news and doesn’t bring in high ratings by giving people hope. This NY Times article covers this phenomenon well.

It turns out that there’s extensive evidence in studies involving millions of people that you shouldn’t waste your money on supplements. If you think this article is thorough, I implore you to read that one as I think it is just as thorough.

Still, people seem to ignore it and go with anecdotal evidence instead. That kind of evidence can go both ways though. Here’s a Slate article from someone who grew up doing all the healthy things, but didn’t get vaccinated. The result was that she was sick all the time. The article even makes the point that it is anecdotal and decisions shouldn’t be based on it, yet that’s what people are doing with these MLM products all the time. If you took away the anecdotes from all the reasons above, you’d have a product that no one would buy at the exorbitant price points… unless as part of some kind of misleading business opportunity such as the MLM ones that the FTC describes here.

What is “working”?

You may have noticed I put “working” in quotes throughout this article. That’s because that’s the magic word distributors use when leaving comments on my site. “MonaVie works” and “Youngevity works”, etc. The interesting thing is that there is no consistent definition of what constitutes “working” with these products. I often ask them what clinical effectiveness research is behind the product, because as PubMed says:

“Clinical effectiveness research finds answers to the question ‘What works?’ in medical and health care.”

None of the products that I’ve mentioned have clinical effectiveness research to say that it “works” for any medical condition.

But As Long As People Feel Better It’s All Good, Right?

A first glance this appears to make sense. Many supporters of MLMs have said, “Who cares as long as people feel better?”

There are at least three things wrong with this line of thinking:

  • The Economics – What about the people who are paying an expensive price who don’t experience anything special? They might be thinking that they are doing their health a great service, but aren’t. That money could be used for proven health improvements like healthier food or maybe a gym membership. What about the people who actually believe that the product represents a legitimate health breakthrough and invest a significant portion of their life savings in a “business opportunity” where it is extensively shown that 99% of people lose money.
  • Placebos are Dangerous – That article make the point pretty clear.
  • Self-Licensing Causes An Overall Decrease in Health – This Wikipedia article makes a point about study involving supplements:

    “A 2011 study published by researchers in Taiwan indicated that people who take multivitamin pills, especially those who believe that they are receiving significant health benefits from supplement use, are more prone to subsequently engage in unhealthy activities. Participants in the study were divided into two groups, both of which were given placebo pills; one group was correctly informed that the pills contained no active ingredients and the other group was told that the pills were multivitamin supplements. Survey results showed that participants who thought that they had received a multivitamin were predisposed to smoking more cigarettes and more likely to believe that they were invulnerable to harm, injury, and disease… Participants who believed they were given a multivitamin were also less likely to exercise and to choose healthier food and had a higher desire to engage in ‘hedonic activities that involve instant gratification but pose long-term health hazards, such as casual sex, sunbathing wild parties, and excessive drinking… In the ‘multivitamin’ group, the more supplements a participant used, the less likely they were to exercise, and smoking was highest among participants who expressed a conscious belief that multivitamins increased health.”

In my MonaVie article, distributors had erroneously claimed that 2 ounces of MonaVie was equal to eating 13 fruits. They then said that this justified the $40 price for the bottle. As a result, these people were making bad health decisions due to misinformation. That doesn’t even factor self-licensing in.

Are These Claims Even Legal?

It doesn’t seem as if they are. MLM distributors are typically not educated by the companies to follow the FTC guidelines on endorsements. That article states:

“Advertisers still must have adequate substantiation to support claims made through endorsements in the same way they’re required to if they had made the representation directly. In other words, advertisers may not convey through testimonials claims they could not otherwise prove with competent and reliable evidence. But one key revision of particular interest to electronic retailers is the new standard for endorsements that don’t represent the experience buyers can expect from using the advertised product themselves.

…

Despite the unequivocal requirement that the disclosures must be clear and conspicuous, some advertisers flouted this directive by cherry-picking their best-case scenario, touting those results in banner headlines, and dropping an all-but-invisible footnote with the cryptic statement, ‘Results not typical’ or ‘Individual results may vary.’

No more. As the revised guidelines make clear, testimonials reporting specific results achieved by using the product or service generally will be interpreted to mean that the endorser’s experience is what others typically can expect to achieve. That leaves advertisers with two choices: 1) Have adequate proof to back up that claim, or 2) ‘Clearly and conspicuously disclose the generally expected performance in the depicted circumstances.'”

MLM distributors endorsing the products simply aren’t allowed to give a testimonial that they believe that the product helped with their arthritis… unless the MLM company has demonstrated significant scientific proof. As mentioned above, no MLM company has met the requirement to show the FDA that it works. I don’t know of an MLM company that has even tried.

Not only are these claims a violation of the FTC endorsement guidelines, but they are also a violation of The Dietary Supplement Health and Education Act of 1994 (DSHEA) where supplements can’t make claims to help with medical conditions with the notable exception of these well-studied claims such as vitamin D and calcium helping with osteoporosis.

As MonaVie CEO said to Newsweek in 2008 about keeping its million distributors (at the time) compliant with these laws, “It’s next to impossible, like herding cats.” Unfortunately, Newsweek didn’t pose the logical follow-up questions to him, “Why did you unleash the cats in the first place? Why don’t you just solve the problem by distributing through traditional means where there are no false claims?” The solution to the problem that MonaVie caused is obvious, it just doesn’t help sell $40 bottles of juice.

I’ve found that most often MLM companies will cover their ass in public with a blog post saying all the right things, but in private they coach distributors to use these illegal medical claims.

It’s not just a few bad eggs either. It’s commonplace. How common? Truth in Advertising extensively show as many as 97% of nutritional companies have these claims. Here are some of their findings:

“TINA.org’s investigation found that out of 62 member companies selling nutritional supplements, 60 have distributors who are making (or have made) claims that their products can diagnose, treat, cure, prevent, alleviate the symptoms of, and/or reduce the risk of developing a multitude of diseases, which means they are making illegal disease-treatment claims.

TINA.org has cataloged well over a thousand such inappropriate health claims, ranging from cancer cures to disappearing gangrene.

Or as I like to put it, “How else are you going to sell $40 bottles of juice?” Perhaps that the reason why MonaVie collapsed. It was never the juice which was outed to be nothing more than “expensive flavored water” by its inventor.

What About Weight Loss Shakes?

A number of MLMs such as Herbalife, One 24, ViSalus and MonaVie sell some kind of weight-loss shake. These products “work” as expected. That is to say that their nutritional label is likely to be accurate. Beyond the label, there’s nothing that special. You can save a lot of money by going with Slim Fast or Carnation Instant Breakfast Essentials that has essentially the equivalent nutritional content at usually less than 1/3rd the price.

Picking one weight-loss shake over another isn’t going to make or break a diet. It’s everything else, eating well and exercising, that has been shown time and time again to work. People normally don’t stay on shakes their whole lives. Without a change of underlying diet and/or exercise habits the weight comes back. For this reason, I’m not a huge fan of meal replacement shakes.

Final Thought

I’ll let you in on a little secret. When I create Lazymandium, a mix of garlic, turmeric, cacao, and chili powder, and sell it via MLM at a price of 30 pills for $50, it doesn’t “work.” I’m simply using known psychology to exploit you and make your wallet a little lighter for my own benefit.

Originally Published: February 16, 2013.

Filed Under: MLM Tagged With: Health, perception, scams

Is Every MLM a Scam?

March 4, 2021 by Lazy Man 131 Comments

Stop MLM

[Today we’re continuing to celebrate National Consumer Protection Week with more MLM scam awareness. The FTC has some good advice on MLMs from its recent consumer warnings, “Most people who join MLMs make little or no money. And, if promoters emphasize recruiting as the real way to make money, walk away.”]

A few years ago, I wrote an article asking if Miessense Scam. One of their distributors wrote in an email to me:

I get the impression that people think you are against all direct selling / network marketing companies. Perhaps one of these days, you can take a look at the company I am involved with … although we are direct selling / network marketing, we consider ourselves much different than most of the others … we put an emphasis on obtaining customers more than we do recruiting reps.

When you see all the components of our company, you may just be able to write something positive and shut some of these naysayers up :)

MLMers often use this as criticism of critics. Usually, it is the more simple form, “You just hate MLM.”

No, it’s not that “I just hate MLM”, it’s that I hate consumer fraud and illegal pyramid schemes. If I wrote about how wrong domestic violence was, what kind of nut would respond with, “You just hate domestic violence!”?

That comparison hinges on my opinion that MLM is fraud and an illegal pyramid scheme. Hopefully, I’ll prove that in this article. However, the complexity of the fraud is so expansive that books spanning several hundred pages are written on the topic. I hold that as a higher level of proof than I can provide in this blog post.

My argument is going to be like a horse and water. You can bring the horse to water, but you can’t make him drink. I’ll bring the information to readers, but if they are brainwashed to think MLM is legitimate, I won’t be able to change their minds… even as I cite the FTC. Even as I cite an article designed to help deprogram the brainwashed MLMers.

MLM, Fraud, and Pyramid Schemes

It sounds dangerous to say that every MLM is a scam. However, I have looked at and written about dozens now, there hasn’t been one that has been CLOSE to being legitimate. Is every person in prison guilty of a crime? I can’t be certain for sure, but at some point the pattern is unmistakable. Here’s a sampling of some I’ve looked at:

Le-Vel ThriveIt Works!Plexus
Beachbody Shakeology
DoTerra
Youngevity
Neora
Asea
Vollara

I’ve looked at a lot more than that box above, but many of them are out of business. Some of them have been found by the FTC to be scams after I’ve written about them. Those include AdvoCare, Vemma, and Herbalife.

Many of the MLMs I looked at were confidence games that relied on shady company “doctors” relying on bad science to push their nutritional supplement. That pattern has led to numerous MLMers erroneously claim that their product is a miracle or “helps the body heal itself.” No the MLM products do not do this.

But are MLMs pyramid schemes? I keep going back to what the FTC said in the past:

“Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”

When I look at the people making the top money in MLM, it is because they have massive organizations of recruits and the money is based on their sales to them. In fact, this is the pitch of every MLM I’ve looked at. It is very common for them to show that if you recruit/enroll 3, who recruit/enroll 3, who recruit/enroll 3, etc. you’ll have an organization of hundreds or thousands of people.

I can’t see any way of interpreting the FTC’s words other than these very high-ranking distributors at MLMs are running illegal pyramid schemes. The MLM company itself attempts to shield itself legally from its distributor’s actions, but that argument is like Napster claiming that they didn’t foster illegal activity when users shared music. MLM companies are in a far worse legal position than Napster was because Napster wasn’t directly paying people for the illegal activity and taking a cut of the profits for themselves.

No one has ever been able to explain to me how MLMs could possibly be legitimate.

Their best efforts point to companies that are still running after a number of years. They make the claim, “If it was illegal it would be shut down.” That is what Fortune Hi-Tech Marketing said… before the FTC shut them down for being a rigged game.

It was true for Vemma and AdvoCare that ran their pyramid schemes for a decade or more before being shut down.

There are thousands of MLM companies and the FTC’s budget is very limited. They have a lot of things to do outside of MLM and one single MLM could tie up millions of dollars of that budget in a court battle. There’s a great explanation on Bloomberg about this: An Insider Explains Why the FTC Can’t Put an End to Pyramid Schemes.

A lack of effective law enforcement does not make something legal. If I become really good at stealing old ladies’ purses in a town that has no policemen, it doesn’t mean it is legal because I haven’t been caught.

No one wants to bring up the fact that Bernie Madoff ran a $50 billion scheme or how Enron was a $100 billion-dollar company. These MLM companies are peons in comparison to those schemes that ran unchecked for years and years. It isn’t surprising that many MLMs would be able to fly under the radar.

As much as they try to fly under the FTC’s radar. It feels like every MLM I’ve covered has gotten sued for being an illegal pyramid scheme. You can see a number of them here or this amazing list. There seems to be a new MLM getting into trouble every month.

If a company is legitimate and has a legitimate product, it doesn’t make business sense to associate themselves with MLMs/pyramid schemes. They could simply pay a good commission that would make people want to join without the recruitment/pyramid scheme aspect. Such a simple change would save a legitimate company from taking on the legal risk that could be a death blow to their business.

Since it doesn’t make sense for a legitimate business to take on this unnecessary risk, it stands to reason that companies that purposely choose to take on this risk do it because they know it is necessary for them… and that they aren’t legitimate businesses.

Why It Is Hard or Impossible to Find a Legitimate MLM?

I’ve thought long and hard about why this would be. Why doesn’t anyone any come up with a good MLM? It isn’t really that hard to do. I’ve written How an MLM Can Show It Isn’t an Illegal Pyramid Scheme. I’m happy to consult with an MLM to make them legit.

I believe that MLMs don’t want advice on how to become legit. I think I know why… legit MLMs can’t compete with the illegitimate ones and be profitable.

To understand why that may be the case you have to know that as Harper’s Magazine says:

“[Mary Kay’s consultants] couldn’t have it all because Mary Kay’s business model (like that of any multilevel-marketing enterprise) is designed primarily to profit from, rather than enrich, its workforce.”

It is reinforced by this article showing that MonaVie’s business model is MLM not juice. The product is juice, but no one buys $40 bottles of juice. The business model is getting people interested in a business opportunity that happens to have an admission fee of buying $40 bottles of juice.

The FTC found this to be true of BurnLounge in its pyramid scheme investigation:

Simply put, products sold by a legitimate MLM should be principally sold to consumers who are not pursuing a business opportunity. For good reason, the law has always taken a skeptical view of paying compensation to someone based on the presumed ‘internal consumption’ or ‘personal consumption’ of recruits who are pursuing a business opportunity. When a product is tied to a business opportunity, experience teaches that the people buying it may well be motivated by reasons other than actual product demand.

One of the more vivid examples of this comes from the BurnLounge case. The activities of the BurnLounge defendants included selling packages of music-related merchandise. Before the FTC brought its enforcement action, anyone who wanted to participate in the business opportunity was also required to buy a package. BurnLounge had monthly revenues of over $475,000 from package sales, but those revenues did not reflect consumer demand for BurnLounge’s merchandise. After the FTC filed suit, charging that BurnLounge made deceptive income representations and paid compensation that was tied to recruitment rather than the sale of merchandise, the court entered a preliminary injunction that radically changed BurnLounge’s operations. Under the preliminary injunction, distributors could still buy BurnLounge products if they liked the merchandise, but they could no longer advance in the business opportunity.

What happened to sales? In only two months, they plummeted from over $475,000 to less than $11,000. As it turned out, at most, only a small minority of sales had been motivated by actual product demand…

MLMs compete fiercely for other MLM distributors. They poach distributors from other MLMs all the time. Almost every MLM makes distributors sign an agreement to not work for another MLM. It doesn’t matter if the product they are selling is unrelated. That’s because the people are the product to an MLM company.

This is where MLMs “race to the bottom.”

There has been very little regulation in the industry, so companies and distributors often get away with all sorts of illegal claims. I’ve written about MonaVie juice and being pushed as cancer medication. The Huffington Post has covered it as well back in 2008. Truth in Advertising categorized thousands of these illegal health claims.

Let’s pretend you want to run a profitable legitimate MLM organization. How do you recruit distributors and handcuff what they say in an environment of other companies running illegal pyramid schemes? You can’t. If everyone is allowed to put a pile of aces up their sleeves in a poker tournament and you play an honest game, you aren’t going to be in the tournament very long.

Imagine if there were no drug testing in the NFL. It would be extraordinarily difficult for a clean linebacker to compete for a job against a group that are extensive steroids users. This is precisely the problem that Major League Baseball players had during the steroid era.

This is where I believe MLMs are. Every new MLM has to come up with a selling point to lure distributors. This selling point has increasingly become more and more misleading. It went from selling food containers (Tupperware) to make-up (Mary Kay), to juice/shakes/pills. The juice/shakes/pill MLMs add (bad) science and (illegal) health claims to make the scheme more compelling. Who knows how much worse the deception will go in competition for distributors?

So that’s my answer for the commenters like the one above who says “I get the impression that people think you are against all direct selling/network marketing companies.”

I am against them, but only because I see systemic fraud (as the FTC has warned about) and the lack of active regulatory body despite the FTC’s best efforts.

This article was originally published on March 20, 2015

Filed Under: MLM Tagged With: scams

Get a Year of Paramount Plus for $30 (50% off) – Last Chance!

March 3, 2021 by Lazy Man Leave a Comment

Paramount PlusI don’t usually share too many deals, probably less than five a year. It’s rare that I feel that a deal is worth sharing and it won’t be sold out before you get a chance to read it. (I apologize to my mail subscribers, but this may be delivered too late. I’m working on making the subscriptions work faster.)

If you saw the Super Bowl, you may have noticed that there’s yet another new streaming service, Paramount Plus. It’s a rebrand of the CBS All Access with some new content. I hadn’t been very interested because I don’t watch a lot of CBS, but I noticed there’s some Nickelodeon content for the kids. They are excited about a new SpongeBob movie on the service.

The last thing I need is another streaming service bill to add to Netflix, Disney+, Hulu, and Amazon Prime (which we use mostly for the free shipping). We’re looking to get rid of some streaming services to possibly add HBO Max in the future. However, we got Disney+ on a 3-year deal ($140 for three years – $3.88/mo) and Hulu on a 1-year deal ($2/mo.).

The latest deal for Paramount Plus is in line with those deals. If you sign up for CBS All Access (today is the last day) and use the promo code PARAMOUNTPLUS, you’ll get a year of Paramount Plus (it will switch over tomorrow) for $30. That’s ad-supported, but still a price of $2.50 a month. I figure that the SpongeBob movie in the theaters would generally cost the family at least $30, so it’s almost like getting everything else free.

I signed up myself for it last night and the process was very easy. Now, I can finally watch the last season of The Big Bang Theory that I missed… except that I can’t. It turns out that the CBS show was not on CBS All Access (perhaps CBS Some Access would have been better). The good news is that when we move on from Netflix and get HBO Max, it’ll be waiting there for me to binge.

Filed Under: Deals Tagged With: Paramount Plus

  • « Previous Page
  • 1
  • 2
  • 3
  • 4
  • 5
  • …
  • 525
  • Next Page »

As Seen In…

Join and Follow

RSS Feed
RSS Feed

Follow Me on Pinterest

Search The Site

Recent Comments

  • Lazy Man on SMBX: Crowdfunding Small Businesses
  • Joe on SMBX: Crowdfunding Small Businesses
  • Ashley A Brooks on Is “It Works” a Scam?
  • Impersonal Finances on When 92% Isn’t Enough
  • Rob on WorldVentures and MLM Lawsuits

Please note that we may have a financial relationship with the companies mentioned on this site. We frequently review products or services that we have been given access to for free. However, we do not accept compensation in any form in exchange for positive reviews, and the reviews found on this site represent the opinions of the author.


© Copyright 2006-2021 · Perfect Plan Publishing, Inc. · All Rights Reserved · Privacy Policy · Advertising · A Narrow Bridge Media Design