Amway is a multi-level marketing company: the structure is triangular, but don't call it a pyramid scheme. The Federal Trade Commission already tried and failed. Now, hundreds of MLMs like Amway are embedded in America's towns and cities, and in the highest offices in government. So how did this happen?
Produced by Anna Mazarakis and Clare Rawlinson, with Dan Bobkoff, Amy Pedulla, and Sarah Wyman, with reporting from The Dream's Jane Marie and Dann Gallucci.
Note: This transcript may contain errors.
DAN BOBKOFF: Jane Marie grew up in a small town near Flint, Michigan called Owosso. And back then, in the 70s and 80s, General Motors was the obvious place to work. But not for everyone.
JANE MARIE: My great grandma was an Avon lady. I grew up going to Tupperware parties with my mom and then my aunts and my grandmother and my uncle. And for me it's like an everyday part of my life.
DB: The thing about Michigan is that it is like a mecca for multi-level marketing companies like Avon, Tupperware, and Mary Kay. It's an MLM Heartland.
JM: Kind of everyone from back home has some connection, if not working as a distributor for one of these companies, you know going to parties.
DB: Jane was surrounded by MLMs, but skeptical of them. Except for one moment, when she had a brief flirtation with an MLM.
JM: I'd forgotten this, blocked it from my memory. But I remember right when I was 20 I hosted one at my house once.
DANN GALLUCCI: I didn't even know that.
DB: That's Jane's partner, Dan.
JM: I told you. (laughs) It was a lingerie one.
DB: Oh.
JM: And they brought in like a rolling wardrobe rack and then there were like prizes. And if you - if you modeled it in front of everyone, it was all ladies, but if you'd come out of the bathroom and like show the night gown or whatever you would get like extra prizes. So I got a lot of extra prizes because I have no humility, no shame.
DB: What were the prizes?
JM: Just like an extra pair of panties or you know a candle or it was gross, like don't get me wrong it was totally gross. But it was fun. I had a good time.
DB: How old were you?
JM: Twenty. Yeah yeah.
DB: And did you like have a conception of MLMs and all these reputations and all that back then?
JM: Me? Yes. I've never joined one myself.
DB: But she still couldn't fully avoid them.
When Jane moved to Los Angeles, she'd see Facebook posts from friends back home trying to recruit new distributors to this or that MLM and she'd wonder: how is this Ok? How is this not a pyramid scheme?
For the last year, she and Dann have been answering those questions.
And, to understand how this $200 billion industry exists, you have to start with one name
CLIP: Amway may be the answer.
From Business Insider and Stitcher, this is Household Name: brands you know, stories you don't. I'm Dan Bobkoff.
On this show, we look at how famous companies affect our lives and culture - sometimes on a national scale, sometimes just on a very personal level. And you might be surprised at how much Amway has shaped American life in the last half century.
Amway is the godfather of all multilevel marketing.
Amway is the oldest.
Amway is the biggest.
The most powerful MLM of them all.
About forty years ago Amway convinced a judge that it's not some illegal pyramid scheme.
That one moment emboldened an entire industry, leading to an explosion of MLMs.
Maybe your friends have tried to get you to buy some yoga pants or skin creams. Maybe they've tried to get you to sell them too.
So today, we're teaming up with Jane and Dann to find out how any of this is legal? Why do people sign up? And who's actually making the money here?
Stay with us.
ACT I
BERNIE SANDERS: Thank you Mr. Chairman and Mrs. DeVos...and thanks for being with us and dropping into the office a few days ago...
DB: It's early 2017. Senators are grilling Betsy DeVos on her way to becoming education secretary. She's a controversial pick. She didn't have much experience in education, but she's donated a lot of money to charter schools. Betsy DeVos is rich and Senator Bernie Sanders has a question about that.
BS: Would you be so kind as to tell us how much money your family has contributed to the Republican party over the past 30 years?
BETSY DEVOS: Senator thank you first of all for the question, I was pleased to meet you in your office last week. I wish I could give you that number, I don't know.
BS: I have heard the number is 200 million. Is that the ballpark?
BD: Collectively? My entire family? Yes that's possible
DB: It's possible because of Betsy's father in law, Rich DeVos, and the company he co-founded in 1959: Amway.
RICH DEVOS: I was 23 - All I know is this business - I spent my life at it - went pretty good but wasn't always easy.
DB: You could say Amway sells products. But really what Amway sells is something more quintessentially American the idea that anyone can be an entrepreneur and make a fortune.
If you don't know what multilevel marketing is, here's the short version. First it recruits regular people to sell its products. Those people then recruit more salespeople, and they earn commission from all the salespeople beneath them. They're called the "downline."
The early recruits come out the best because they earn commissions on what their recruits sell, and commissions on their recruit's recruits, and their recruits' recruits' recruits all the way down the line.
The higher you are on the chain, the better it is for you.
If all this sounds like a pyramid scheme, well. you're not far off. It is in the shape of a triangle, but legally, there is a line between a pyramid scheme and multi-level marketing.
Which brings us back to Jane Marie and Dann Gallucci. They both live in Los Angeles now. For the past year, they've been making a podcast that confronts head-on the world of multilevel marketing in America.
Jane was a reporter for This American Life, and Dann was a rock musician - until they became partners at their own production studio.
DB: What kind of partners are you? Professional romantic?
JM: Yeah. So we're both. As partners partners like sitting around Netflixing and chilling we were like 'We should have a recording studio. We should make the thing that we want, we should make the place where we want to work.'
DB: Nice.
JM: So we did.
DB: And last week, they launched a new show called The Dream. Here's a bit of their trailer.
TRAILER: Pyramid schemes are agains the law, ok? But this is not one of them.
In this area I was encountering women that didn't have bank accounts, that had their credit cards shut off.
People that failed were told, 'You failed because you didn't work hard enough.'
They know that what they're setting up is taking advantage of people.
No authority in the country right now will openly acknowledge this for what it is.
JM: you know all of those annoying Facebook ads you see. 'We have an incredible business opportunity for you. How would you like to earn a living working ten hours a week and only selling candles,' like that kind of thing.
DB: I don't get those ads.
JM: You don't get those ads?
DB: No but I get ads for Ziprecruiter telling me that they're sponsoring podcasts. So I think I've been very very typecast.
JM: You don't have enough cousins in rural Michigan. Female female cousins in rural Michigan who who really like make-up and that's all. That's my whole feed on Facebook. So we have this thread going throughout the series of my personal experience and my family and my hometown and how these companies flourish there and then you know our big question was why? Why are they flourishing? Why when we see the numbers and we know that people aren't making money, how is this a thing? And Dann discovered that the reason was Amway. So he's going to tell the story of all of that. Of the history of MLMs, of the history of Amway, and what happened to Amway and the industry of multilevel marketing after Amway beat the FTC.
DB: Okay so before I talked to Jane and Dann, I was only vaguely aware of Amway. I knew it sold a lot of things but I couldn't tell you what they were. So let's get a little Amway 101.
DG: Amway was started in 1959 by two people who - Rich de Vos and Jay van Andell. They had themselves started out as sales people for a company called Nutrilite which is arguably the first multi-level marketing company.
They had tried and failed at several different businesses and then became Nutrilite distributors and performed well because they got in really early. But one of the problems with Nutrilite was that they sold dietary supplements and at that time the FDA was cracking down on dietary supplements in a major way, and felt like Nutrilite's science was not really backing up their claims.
So Van Andel and De Vos decided that they shouldn't be in the supplement game and decided to sell a soap called Friske and that was their first product.
DB: So this is the birth of Amway. Soap!
But it's a lot more than that now. Today, Amway sells more than 450 products - beauty products, skincare, electronics, kitchen products and along the way, Rich Devos and Jay van Andel got over their fear of selling dietary supplements. Amway actually bought Nutrilite in the '70s..
NUTRILITE AD: Nutrilite pioneered nutrient supplements in 1934...
DB: Now it's the company's biggest seller.
DB: What made you so obsessed with Amway?
DG: The reason I became obsessed with them was specifically because as I would talk to various people who were experts on MLMs. And what people kept saying to me was there was a case that happened in 1979 and it was the FTC v. Amway where the government had been successfully prosecuting MLMs for the prior decade.
It seemed as though the government had decided that multilevel marketing was a fraudulent business model - for about ten years they were taking down several of the biggest companies and very high profile cases.
DB: Perhaps the most high profile takedown of an alleged pyramid scheme by Federal Trade Commission's was its case against a company called Holiday Magic in 1974. This was an MLM that sold scented cosmetics, and some kind of personal empowerment.
HOLIDAY MAGIC: Today, I am earning more money each week than 96% of the American people earn a year. Soon, my earnings per day will be likewise. This money will continue as long as I desire it to...Wealth comes from giving something of value to other persons who are willing to pay for this value...
DB: The FTC charged Holiday Magic with deceptive trade practices. It became a success story for the opponents of MLMs. In this moment it seemed the FTC was about to take down the whole industry.
DG: And then it changed with that Amway case, they used the same evidence and the same tactics going into this Amway case but they lost. And because of that loss, a lot of people feel like the industry was emboldened that they would be able to operate more freely.
DB: Amway insists it's not a pyramid scheme...it says it's possible to make more money than people above you on the chain. Amway even made a YouTube video explaining why it's not one.
YOUTUBE AMWAY CLIP: Unfortunately, people, companies and even countries get stuck with labels that aren't true. Those labels can ruin reputations. Amway has one of those untrue labels: pyramid scheme. So lets better understand that label, so we can remove it...
DB: The video goes on to explain the ways Amway avoids meeting the legal definition of a pyramid scheme. And it essentially lists the same reasons the judge gave in 1979 when he ruled Amway wasn't one.
Here are the main reasons.
To sell for Amway, you become what it calls an Independent Business Owner, or IBO. It costs almost nothing to become an IBO. Like $100 or less. And then consumers actually want the Amway products those IBOs are selling to their friends and family. Maybe many of them really do like the shampoo and knife sets. Amway always emphasizes this point. They did so again when we contacted them for comment, , writing that quote "Amway has long been recognized as a legitimate direct selling business, primarily because Amway business owners sell quality products to consumers and no one earns income unless products are sold." And if those products don't sell, Amway allows the IBOs to return the leftovers for a refund.
But then you read the company's business reference guide - which is this 56-page PDF that explains how IBOs actually make money - and it's not very enticing.
First of all, it said in 2016, less than half of Amway's Independent Business owners were active. Active means they did something Amway-related: like selling something or at least trying to sell a product. Or maybe they met with someone they're trying to recruit. And then for those who are active, Amway says the average income for its IBOs is less than $2500. Per year. That's like $200 a month. And that doesn't include a lot of expenses to run the business. Amway even admits, often those expenses a higher than what people earn...and there isn't an estimate of how much money people are losing, if they're not active every month of the year...which Amways says "of course some people choose not to be."
All that's in the fine print.
We asked Amway about this and the company wrote saying: "Amway is a low-cost, low-risk option for people to supplement their income. While most conduct their Amway businesses part-time, which is common in our industry, some grow their business beyond that."
The ways each MLM works is a little different. But if this is the picture we get just from looking at Amway, how do any of these schemes manage to attract people?
DG: Well the promises are that you can make - it's entirely up to you. But if you work hard enough, commit yourself to this, if you do everything that they tell you to do, and that's a long list, then you have the chance to make millions. One of my favorite quotes is a guy named Robert Fitzpatrick who is one of the experts that we talked to, was at an Amway meeting and someone spoke up and said 'you know well I'm a schoolteacher. I mean how is it - like how is this going to affect me?' Or whatever. And someone said 'well that's a loser job, being a schoolteacher. You don't want that, not for you or for your family. You know you want this. You want to be rich, you want to prove to everyone in your community, everyone in your family that you can do this, that you can provide for them, not only what you need but all of your dreams what you want.' I mean everything about the way these companies operates involves heightened emotion. And one of the reasons for that as well is that the last thing that they want anyone to do ever is to look at the actual numbers.
JM: And be rational.
DG: That's not what the conversation should be ever. Because if you were to look at those numbers, first of all, it takes so long and people will get bored and walk away. But ultimately you would find that it's next to impossible to be successful
DB: Is that true for Amway too? Are they all about emotion?
DG: Absolutely. Opportunity meetings. Yes.
ARCHIVAL: We didn't know when we would become financially successful but we knew it was coming soon because we have a system no different than you.
When we spout off to our friend we are putting stakes in the ground, and here's out company - they look at us - and if they don't see us making headway, we care creating doubt in them.
DG: They all follow the same line which is you know you're reaching out emotionally to people.
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