John Oliver Says Multilevel Marketing Companies Like Herbalife Are Pyramid Schemes

John Oliver
"Good, hardworking people are going to keep getting caught up in these companies" unless awareness is raised, says Oliver. Last Week Tonight

"I would like to talk to you about an exciting opportunity," John Oliver teases at the top of Last Week Tonight's most recent feature segment. "I just need 30 minutes of your time to explain it, but it has the potential to transform your life."

Oliver is mocking the type of pitch multilevel marketing companies (MLMs) like Herbalife, Mary Kay and Amway use to court distributors. MLMs promise untold financial success for those who sign up to sell their products—which never appear on shelves—while working from home, according to their own schedules. These people's lives will be transformed, the MLMs promise—and, as Oliver explains, that is true. Unfortunately, it's usually not for the better, as Oliver says MLMs are, in fact, pyramid schemes.

So how does the MLM industry, which in 2015 did more than $36 billion in retail sales, work? Distributors buy products from an MLM company and then sell them at a markup to friends, family members, whoever. That is one way a distributor can make money, but it's not a very good one, Oliver says. Kyani, an MLM specializing in health and wellness products, reported that in 2015 less than 38 percent of active distributors received a commission check for $10 or more. In the same year, Nu Skin, a skin care MLM, reported that 93 percent of its distributors do not receive a commission check in an average month.

No, the primary way MLM distributors earn money is by recruiting their friends and family to be distributors as well, and then convincing them to recruit their friends and family to do the same. The result is a kind of pyramid, if you will, of distributors who buy up more and more product to sell, Oliver says. Part of what they spend goes to you, the enterprising "entrepreneur" who recruited them. This seems wrong, of course: that recruiting people to sell products is more lucrative than selling the products themselves, almost like it's some sort of scheme, if you will.

To highlight the particulars of the industry, Oliver focused on one of the largest MLMs, Herbalife. Herbalife sells nutritional supplements, which in 2015 accounted for $4.5 billion in sales. Everyone from Madeline Albright to Cristiano Ronaldo has endorsed its products. How effective are these products? It's hard to say. In the early '80s, Herbalife was accused of overstating the health benefits of its products, and while the company may no longer do this officially, it's distributors do so routinely, Oliver says. They are so desperate to sell off all of the Herbalife products they have been pressured into buying in bulk that they will claim they can do everything from curing cancer to helping women get pregnant, according to an investigation by ABC News. In the end, however, most distributors end up saddled with boxes of unsold product, which they will continue to buy because of the bonuses and discounts promised by the company, Oliver says.

So why is no one putting a stop to this? Oliver says the Federal Trade Commission has tried, but it's hard to investigate an industry that is so, as he puts it, "large and opaque." This year the FTC did conclude a years-long investigation into Herbalife, filing an official complaint in July that alleges the company incentivizes recruiting distributors over sales. The complaint essentially describes Herbalife as a pyramid scheme without actually using the term. When pressed about it, FTC Chairwoman Edith Ramirez even said that the "focus wasn't on the label," and that Herbalife was "not determined not to be a pyramid." OK.

As a result of the FTC's investigation, Herbalife was penalized to the tune of $200 million and vaguely ordered to legitimize its business. Herbalife spun this as "great news," announcing that its "mission to improve people's lives will continue to thrive."

Not only are MLMs inherently hard to investigate, Oliver says, they have lobbying power. When a documentary that exposes how MLMs can ruin lives showed at a Washington, D.C. film festival earlier this year, there were nearly 200 empty seats because an Herbalife lobbying firm bought out the theater.

This is all to say that MLMs are likely here to stay. So if you're down on your luck and someone appears on your TV offering a chance to transform your life quickly and easily all while working from home, just remember that if something seems too good to be true, it usually is.