Income claims: Why are MLMs held to a different standard?

As InfoTrax Systems’ Vice President of commissions operations, I’ve made a career working with direct selling companies to design, develop, and execute their compensation strategies. I have seen firsthand the precautions most companies take to prevent entanglements with the many regulatory agencies that monitor our industry, especially when it comes to statements about earning potential.

Being aware of the scrutiny that MLM companies operate under, I have developed a habit of noticing non-direct selling companies that I feel would come under fire if they had to play by the same rules as MLMs.

Perhaps some of you are aware that this past weekend was no ordinary weekend; it was the beginning of the NFL season. While taking in a couple of games on TV, I (along with the rest of America) was inundated with ads for DraftKings and FanDuel. These are fantasy sports sites where users pay to join daily and weekly fantasy leagues with the potential of winning money. And, along with the sheer volume, something else stood out to me about these commercials.

It is through the lens of our industry’s regulatory practices—and against the backdrop of the recent Vemma shutdown—that I viewed the following commercials.

I have used both of these site to participate in fantasy leagues and this article should not be misconstrued as attacking these sites. Rather the purpose is to point out the inequity of the regulation MLMs have to conform to. Can you imagine the problems that a direct selling company would have running such commercials? These are commercials touting big checks and promising millions of dollars for nothing more than picking the best star athletes.

These are claims that an MLM could never be safe making. And notice the fine print. The advertisements claim that the average user’s 12-month winnings was $1,236. I don’t know exactly how they come up with that number, but they have sliced the data in a way that it is very favorable for them. Basic math tells you that more people are actually ending up behind than ahead. If somebody is winning $1 million, a lot of somebodies are losing $20.

There is something troubling about the freedom that these companies have in the claims they can make when compared to the caution that MLM companies must take.

Regarding the Vemma case specifically, the primary concern I have read and heard is how Vemma marketed their business opportunity. There are many (including the FTC, it would seem) who feel Vemma played too much on people’s desire for wealth. How are the above commercials different? These advertisements aren’t angled at viewers’ love of the game, but at their desire to win cash.

While no one would join a fantasy league wanting to lose, not everyone joins an MLM to make money. This important point is often ignored in criticisms of the industry. Behind each direct selling company are actual products which people choose to buy.

Along with their products and services, MLM companies offer a business opportunity through which motivated sales people can earn money using their talents. Not everyone has the personality or skill set for it, but there are many people who do very well either supplementing or replacing their income using the MLM model. For those individuals who venture into the business opportunity only to find it isn’t for them, companies following the DSA’s code of ethics offer a very competitive buyback policy.

I wouldn’t argue for these fantasy sports companies to be shut down. Nor would I argue that direct selling companies should not be subject to reasonable regulations. Instead, I simply ask why MLMs are held to a different standard.