The growth of MLM amazed me, since it seemed obvious it was just a disguised pyramid scheme. Yet several persons whom I trusted and respected tried to recruit me into their downline. They convinced me that I may have misjudged the industry and that MLM may have a real future as a viable and ethical business model. By closing my mind to it I could be missing out on something really promising.

Finally, I decided to investigate MLM for myself—even to the point of seriously trying one highly rated program in an effort to prove for my self whether or not my original objections to MLM were valid. They were. A more detailed account of my participation and motivation for performing this research are included in Appendix A, along with my background and credentials.

On learning of my experience, many MLM enthusiasts from other companies suggested I try another company. But I felt my time and resources were too precious to waste. Besides, I was more interested in MLM as an issue for consumers generally than as a moneymaking vehicle for myself. If most MLM programs are merely cleverly disguised pyramid schemes with all the negative fallout of naked pyramid schemes, consumers need to be warned.

I decided to perform an informal telephone survey of persons who had had experience with a wide spectrum of other MLM programs. These included a variety of compensation systems—breakaway, binary, matrix, unilevel, etc. But all were organized as a multi-level hierarchy of distributors.

After hundreds of phone calls, I learned that even modest success (say, a minimum wage for the time spent) was extremely rare. After expenses were subtracted, including product purchases that would not likely have occurred had they not been enrolled in the program, the vast majority lost money, and some a great deal of time. Generally, those who invested the most, lost the most.

Though legitimate products are offered and recruiting fees for participation are disguised or eliminated (thereby getting around laws forbidding pyramid schemes), it became apparent that MLM generally is as pyramidal as any illegal pyramid scheme that could be conceived. As one MLM author admitted:

This “pyramid” effect reinforces the philosophy of many people in the MLM industry that the best way to make a substantial income with the least amount of actual selling is to recruit other people to do the work. Income is therefore generated through establishing the network, and not through the actual selling of products. Interviews with current MLM salespeople and distributors [from 11 different MLM companies] revealed a startling 100% that expressed this same philosophy.¹

One thing that my interviews revealed was a surprising number of maxed out credit cards, foreclosed homes, bankruptcies, and broken homes resulting from compulsive participation in MLM programs. A relative of a couple caught up in such a tragedy reported the following about one MLM addict:

He went bonkers with his latest MLM deal. He felt the necessity to buy a fancy sports car and the best suits to appear well-heeled, then quit his job and mortgaged his home—without his wife’s permission. She was distraught when she found out, but he just responded with grandiose ideas and big promises.

Since she did not “catch the vision,” he felt his wife was holding him back. He continued to call the shots without consulting her. She lost all trust in him, and the family began to unravel. They lost their home and wound up in bankruptcy. She was embarrassed when they were forced to move in with her parents.

This couple finally divorced. Living in a trailer, he is still chasing his MLM dream. He doesn’t make alimony or child support payments. Why should he? Plenty of money is always just around the corner. Then he will catch up.²

MLM supporters are quick to point out that such irresponsible behavior had more to do with the person than with the program. But my interviews convinced me that such “multi-level junkies” are more common than is often acknowledged—certainly more common than in other types of businesses I have observed. For at least some participants there seems to be an addictive component to multi-level programs, whether it be MLM or illegal pyramid schemes—very much akin to an addiction to gambling.

I began sharing my research and experience in speeches to groups, and the feedback was interesting. One tax accountant said he had worked for H&R Block as one of the principals in northern Utah for many years, during which time his group had completed about 15,000 tax returns, several hundred of whom were MLM distributors. He said that in all that time he could remember only one of the MLM distributors who had reported a net profit on his return—and that person was bankrupt within a year!

This observation caught my attention. So I surveyed other tax accountants, financial planners, insurance agents, and other professionals who had access to people’s financial records. Their responses were very similar—actual profits resulting from MLM participation were extremely rare. This heightened my suspicion that MLM was in fact a pyramid scheme—masked as a legitimate system for marketing products.

If in fact less than one in 100 or one in 1000 distributors ever earns a profit from MLM, that in itself would lean towards multi-level programs being classified as a bogus business opportunity—or as a pyramid scheme, depending on the definition— rather than as a legitimate business. This is especially true when such programs are touted by MLM promoters as “the opportunity of a lifetime,” etc. At the very least, MLM’s should be watched for violations of laws against deceptive sales practices, such as overstating potential earnings.

1. Michael P. Harden, Ph.D., Handbook of Multi-level Marketing (Carrollton, Texas: Promontory Publishing: 1987), p. 29.
2. Jon M. Taylor, Ph. D., The Network Marketing Game (Kaysville, Utah: King Alfred Press, 1997), p. 100.