02.25.13

The New York Mets & Amway – A Collision Between 2 Crooked, Sinking Ships

Posted in Baseball, The Marketplace at 7:27 pm by

Under what possible circumstances would an MLB franchise in the nation’s no. 1 market be compelled to sell storefront space at their own ballpark to a company that recently settled a class action lawsuit over pseudo-pyramid scheme practices?  When the team in question is the New York Mets — no stranger to such associations — and they’ve learned they cannot turn erect an Indian casino next door, well, Shawn Marcum’s paycheck isn’t going to grow on trees. Or in the words of Capital New York’s Howard Megdal, after providing unprecedented hospitality to Amway, the Mets “seem to have made the calculation that whatever money they’re getting from the deal trumps any cosmetic problems that might stem from the association.”

Amway is a multilevel marketing opportunity, to use the euphemism, or a pyramid scheme, to use the terminology of its critics. Individuals sign up as “Independent Business Owners”, or I.B.O.s, to sell an array of Amway products, buying them up front while simultaneously recruiting others to join Amway as well.

The Federal Trade Commission differentiates between legitimate MLMs and pyramid schemes using a set of criteria that came into being in part because of complaints about Amway going back decades. The most basic requirement is that participants sell a reasonable percentage of the products to outsiders, meaning the company is not subsisting primarily on new backers buying in to pay the old backers.

When a class-action lawsuit against Amway’s now-defunct North American distribution arm, Quixtar, asserted that products were almost always sold to the next level of distributors, that Amway participants were asked to pay exorbitant up-front costs, that well over 99 percent of Amway participants lost money and that any effort to recoup losses were only possible in an expensive arbitration process, a judge allowed the lawsuit to go forward, calling the Amway contract stipluations “a weapon to harass … and ultimately bankrupt their opponents.” A year later, Amway settled the suit for $155 million.

Amway’s troubles aren’t over; there’s been renewed focus on MLMs of late, with Herbalife, a company operating using Amway’s business model, declared a pyramid scheme in a European court last year.

The company revealed that the Securities and Exchange Commission is now investigating it. The Federal Trade Commission recently shut down Fortune High-Tech Marketing, another MLM, in January.

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