[NOTE: This article was compiled before the uncovering of 1) Amway's own admissions that the "tools" business is illegal and unethical, and 2) lawsuits filed by high-level distributors in which they admit that the majority of their income is made from the sale of tools and not from Amway products. That information can be found in the Directly Speaking article and in the lawsuits section, particularly the Hart, Morrison and Setzer suits.]
A frequent topic of debate regarding Amway are the "tools"--tapes, books and rallies--that Dexter Yager, Bill Britt and leaders of other Amway distributor groups move through their downlines. Amway distributors generally claim that 1) neither Britt, Yager, nor anyone else makes any significant amount of money from the sale of these tools, or 2) that they do make a lot of money from the sale of tools, but that the tools are absolutely necessary to achieve success in Amway.
There are a number of pieces of evidence that have convinced me that Yager and Britt and others are making the bulk of their money selling tools rather than Amway products.
[For more information on these distributor groups, see Ashley Wilkes' "Amway Motivational Organizations: The Nightmare Builders," and our links to other Amway Information Sites.]
* Dexter Yager telling Forbes magazine that 2/3 of his income comes from the sale of tools to his downline. While the typical response from Amway distributors is that this includes income from his other investments and enterprises, I've yet to see any evidence of this, and I've never seen any statement from Yager claiming that Forbes incorrectly reported what he said and meant. The meaning of the quote, when viewed in context, seems clear enough to me, and the quotes from Gregory and Marsh support my interpretation:
Amway is not a pyramid, an FTC judge ruled in 1979. But some of it's independent distributors apparently have turned their groups into pyramidlike operations. Known as "black hats," these middlemen push their recruits to consume Amway goods, skip the retailing and buy large amounts of non-Amway peripherals (tapes, books, suits, jewels and even tickets to motivational rallies.)
Dexter Yager, for example, from Rome, N.Y., is a distributor whose "downliners"--distributors downstream, who generate commissions for him--account for perhaps a third of Amway's direct-sales volume. He guesses his non-Amway tape-book-rally business brings two-thirds of his annual income--roughly $1.5 million. But, despite his being named, along with Amway and other defendants, in a lawsuit charging abusive sales practices, he insists that he has never coerced anyone into buying anything. "I'm just a free enterpriser who has built one of the largest organizations in the country ," he says.
But the non-Amway items count for a lot. Says Don Gregory, Van Andel's former speechwriter, "Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by getting enough people underneath to do the same. "
A company official says that about 35% of its products are consumed by the sellers themselves. But Charlie Marsh, one of Amway's ten largest distributors, says roughly 60% of his volume is consumed by his own sales force. And he thinks he's doing more actual retailing than anyone else.
Critics of the operation say DeVos and Van Andel failed to crack down hard enough on the black hats and that now they have trouble controlling them because they account for maybe half of the business. "A distributor shakeout years ago would have helped Amway," says Noel Black, a 14-year executive who recently left as head of international public affairs. "But they have yet to throw out any major distributor who is violating the rules."
Will Amway clean house? There are signs that it may. "I do not wish to control your actions, your day-to- day work, but I don't want anybody else out in the field controlling them for you either," DeVos has told distributors. "I need your help, folks. We must clean it up." Will a different Amway make the same old profits? Ah, that is even less clear.--"Cleaning Up?" Forbes 3/25/85
* The following was posted on the the misc.jobs.misc Usenet newsgroup by the IBM programmer who wrote Bill Britt's accounting software:
An earlier consulting job was for Bill Britt, in Durham NC, for you who don't know him, he's a VERY LARGE Amway Distributor. I wrote the SOAR Order/Entry,Inventory Control Package for them, still being used by a lot of Amway Distributors. While working for Bill, we were NOT allowed to become Distributors.....because we 'knew' things that most distributors didn't know....such as MOST of Bills money comes from Tapes and Books, not from Amway! By running it 'like' a religion there was a level of control that ran contrary to my nature. P.S., after working for them for over three and a half years, I saw few if ANY new distributors make it in the business....I personally would never become a distributor, but for those of you that have, good luck, ( let me know when you retire....if I keep saying that one day someone will …yeah, right )
Jack D. Carter Jr.
Only working at IBM, not Representing IBM
* The fact that Quorum charges for it's training tapes a fraction of what Yager and Britt charge for theirs. Some Amway distributors have claimed that Quorum "subsidizes" its tapes, but they have no evidence of that whatsoever, and Quorum distributors have responded that this is not so. It's been shown in some detail on the alt.business.multi- level Usenet newsgroup what the cost of producing the tapes really is, which puts the lie to the claims that Yager and Britt, who own their own production facilities, are selling their tapes at cost.
* Three years before that Forbes article, Phil Kerns, in his 1982 book "Fake It 'Til You Make It," also describes how he learned that the real money in Amway was being made from selling promotional tools. Kerns had already written a book prior to being recruited into Amway (his book on the People's Temple, which he came to realize was similar in some respects to Amway). Apparently his upline was eager for him to write pro-Amway books to be sold at rallies, and as a result Kerns had access to people and information that most distributors don't. Unfortunately for his upline, Kerns couldn't quit check his ethics at the door and got out when he figured out what was going on. Here are some excerpts from his book. Kerns did not use real names in the book, except for his own, of course. He does say that the rallies were held in Portland, Oregon, that "Mark" was an Emerald Direct and "Lester Cannon" was a Crown Direct and an ABA board member.
"Fake It 'Til You Make It," 1982.
From the Introduction:
The issue in this book is not the Corporation and not SOAP, but rather distributors who have a mission and a hope, a dream. Their mission is to sponsor others, and their hope and dream is to build a financial empire. To many of the distributors, no price is too great to pay in order to achieve this mission and this dream. One will discover in reading through these pages that there is, indeed, a price to be paid- -to a "hidden" business carefully concealed behind the infrastructure of Amway's hierarchy. It is a multi-million dollar enterprise, cleverly designed and fueled by excitement and hero worship.
Some have said that this "ghost" system of "non-Amway" produced materials has created a massive surge of grabby avariciousness from many of the top leaders, much more today than ever before. Other distributors complain that this selfishness is destroying the credibility of their own businesses, and they feel that if this display of outlandish coveting continues, it may inevitably destroy their own personal enterprises.
As soon as Mark closed the door, he focused his gaze towards me. Then, and very much the same way that he would open a sermon, he threw his arms outright and began to exclaim.
"Phil, you must become a Direct Distributor before September! Don't get me wrong. You're doing a great job, but you are going to have to sponsor a lot more people into this business if you want to make it! Lester Cannon wants you to be the guest speaker at his convention this fall. There will probably be over 15,000 people present. Can you imagine that? As an author, just think of all the money you'll make selling your books! You will need a semitrailer full of books to accommodate this crowd!" (Not until much later did realize the full impact of his emphasis on selling books.)
Our eyes remained riveted on Mark as he stormed back and forth across the room delivering his message.
"Phil, you have to be there! You won't believe this mob. They are the wildest and most excited group of people you will ever witness in your entire life. When Lester stand up and commands them to go to the back of the room and buy books, they obey!. It's crazy, but it's foolproof. It's simple. You'll walk out of that convention with a suitcase full of money.!"
"Man, they'll fill their arms full with books. They'll buy them by the case and run home to give them to their friends, downlines and anyone even remotely interested in the business."
"Listen to me, Phil! Last year I walked out of Lester's convention with two briefcases full of money from selling motivational books. I made over $100,000 in cash in one night. We're talking about 'megabucks.' You can do the same thing. I'm counting on you now.
Page 38 [describing events at a Portland rally] Mark obliged and together we hurried downstairs. It was a simple matter for Mark, since he was a star speaker, to introduce me to everyone and thus allow me the privilege of complete freedom all around the platform as well as backstage.
Now leaning on the stage, I had a bird's eye view of everything. I could hear the various Diamonds in another room arguing about who was going to get what share of the booty from this event. I watched Tom's wife, Debbie Anne Kenney, scurry back and forth with proceeds from the ticket sales. She was stacking money upon a table and seeking the assistance of others to count it. Most of the tickets, I was told, were sold prior to this particular event. However, tickets could still be purchased at the gates.
It was, indeed, a very interesting evening. Up on stage there was much talk of villas, cruises, expensive cars, banking practices and upcoming events. In the hallways, tables were heaped full of tapes, books and lots of American memorabilia. Events similar to this could go on all day and all weekend. Were there spinoffs? You bet. The record breaking ticket sales, catered dinners, books and cassettes were just a few. Others include soft drinks, hot dogs, calendars and even bumper stickers. At some of these events, it was not uncommon to see additional spinoffs such as the sale of suits, jewels and automobiles. All of these were considered "tools of the trade"--even custom-tailored suits. Whoever sponsored the event was like any well- schooled promoter. He would make certain that he profited from absolutely everything, if possible, sold at this event.
My thoughts came back to my own business. As the meeting continued in the auditorium, I went upstairs to question Mark as he supervised the sale of hundreds of books and tape packets.
"Mark, when I continually sponsor and don't retail as you have instructed, I don't make any profit. But tonight the light has really dawned on me. I have invited all my downlines to this event, and they will probably pay the asking price of $39 for your tape packet and purchase a myriad of motivational books, not to mention the admission fee, all of which will benefit no one except those putting on this gig, right?"
I did not receive a response. Mark has a unique way of ignoring a person when he want to but can keep right on smiling as he does. Mark was now autographing motivational packets. After a few moments he finally backed away from the table. He reached out and draped his arm across my shoulders. With a squeezy clasp and a smile, Mark led me across the hall to the stadium entryway. Thousands were crammed into the stadium singing, "God Bless America."
Together we stood and watched this spectacle. Hundreds now stood, many holding hands, and some swaying to the song's cadence.
"Look, Phil, they're happy. Just Look! That's what counts. You want to take that away from them?"
I couldn't believe my ears. I turned and solemnly walked away from my sponsor. My wife was waiting down the hall, and together we left this event in Portland, very disillusioned. Already we had spent hundreds of dollars on rallies and seminars prior to this particular "Free Enterprise Day." Well, it wasn't free. We weren't equals. Those who organized this event would walk away with their attache cases full of cash, just as they had previously predicted. The sponsors of these events almost always insist that tickets be paid in cash only. At many events I have seen doormen ask that checks be made out to "cash." No receipts are given.
I was now convinced how my uplines perceived this business. It was a colossal plan aimed to appeal only to selfishness and carnality: the obsession of money and things, regardless of the price. Their briefcases full of money was sufficient evidence of that.
Our zeal was gone. We were now uncertain about our future in this business. I assured my wife that our friends and family members were more important than all the money in the world. Besides, the Amway business, as we were instructed to conduct it, was showing us little or no profit. This evening was additional proof that the big money, indeed, was being made by a very select few, and not by selling soap.
Later we learned that many times these events were scheduled to be held concurrently with a function being offered by the Amway Corporation--the same date and the same city. The hosts would urge their downlines to attend _their_ rally rather than the Amway sponsored event.
Were the leaders really wanting to motivate these people, or were they wanting these individuals to spend money for their own profit? I felt I had already seen enough. Certainly over the months I had witnessed, unknowingly, millions of dollars being cleverly siphoned away from thousands of unsuspecting Amway distributors.
Forbes credits Kerns' book with inspiring the "60 Minutes" and "Donahue" shows examining Amway, and of generally causing no end of bad publicity for Amway. Despite this, Amway never took Kerns to court, something it certainly had the money to do.
* From the "60 Minutes" segment on Amway: "Beyond that [expenses associated with attending rallies], people who want to make it in Amway are told to buy the books and tapes and other motivating tools that will teach them how to do it. The market in these items runs into millions of dollars a year, and that cash goes not to the Amway Corporation, but to the high level distributors who run the rallies, paid for by the hopeful Amway novices who come to those rallies by the thousands.
* While I've heard many Amway distributors deny that anyone profits from moving the tapes through their downlines, other distributors (more honest, or perhaps just high up enough in the food chain to have been given a cut of the action) have stated otherwise. The following was posted some time ago on Prodigy by an ex-Pearl direct from Britt's group. He's one of several distributors I've met who had been successful at building their businesses, but left because they were disgusted by the sleazy practices the witnessed. This particular fellow said he called it quits after he found out his upline diamond was picking up some extra bucks selling phony Rolex watches to his downline.
You said that a tape costs you about 5.00 and that you "reinvest" $25.00/mo. back into your business. It looks to me like you are on the Tape of the week program. Lets look at a few interesring numbers. I think a Crown will have a minimum of 10,000 active people in their business. People like Yaeger or Britt the number is closer to 100,000. That is a conservative number Im sure. HMMMM!!Lets see now. tapes sell for 5.00 I wonder how much they cost to produce. If you have a hi volume it costs less than 2.00 to produce. Therefore it looks like there is a profit of at least 3.00 on each tape. Lets say I have 100,000 active people ordering 5 tapes a month. I believe thats an income of around $300,000/mo. It seems to me that its much better to be in the tools business than the soap business doesnt it??? Do you have any idea how much these guys make off a large rallie like Free Enterprise day??? Work some of the numbers Patrick. What do you think your upline makes when they have a weekend seminar???? Usually they charge about 200-300.00. Those functions are very profitable. Heck The speakers alone get paid 4,000-7,000. You see Patrick if you make Diamond, there are some organizations where you will make an extra 100,000/yr just in speaking engagements for other groups on the circuit. Now Im not saying its bad to make that kind of money doing something but lets not fool ourselves into thinking its a soap business OK?????
Ive watched your posts on all the subjects about your upline not making a dime off of the tapes and fucntions etc. And I am going to tell you for the third time that that is not the truth. When I was a direct in Amway I made $1.00 on every tape my upline Diamond pushed through my organization and I bought my rally tickets to sell to my group at far less than what my distributors paid for them. My directs made money off the tapes that went through thier personal group. Pat WAKE UP. Your statement is not based on the truth. Why pay 5.00 for a tape from your upline when you can buy a great motivational tape from Amway corp for about half the price???? Most Diamonds would prefer that you buy the tapes from them instead of the company. HMMM I wonder why????
(ex AMWAY Pearl Direct))
The truth is that there is a profit on the "tools" moved thru the organization. Also in most organizations that profit starts getting passed out a the direct level by the upline diamond. For someone on this board to state that "no profit is being made on tools" is an outright lie. This paticular issue is one of the big reasons that This MLM has got a poor reputation. ( the curiosity approach is the biggest reason). Rather than be oblivious to this FACT why not learn to acknowledge it and be prepared to give the reasons why its OK with you. The honest approach is better in my humble opinion.
(ex Amway Pearl direct)
P.S. The more some of the posters on this BB try to BS the people about this"Tools" thing, the more you will hear from me as to just what the truth is. As you can probably tell by now it is a real sore subject with me. Alot of people get hurt by this stuff.
Another distributor posted the following on Genie. This fellow got to Silver Producer, but also left rather than be a part of what he felt were unethical practices. He's still a distributor, but pays someone else to support his downline until they make direct.
> Obviously, someone is making money.....but not from the sale
> of products. The "tools" are the biggest money maker in this
Right you are ! In my upline support organization, they figure that about 1/2 their net is from over-ride bonuses and 1/2 is from selling their support tapes. This is for diamonds of course, but the Emeralds in our group also sell a fair amount of tapes.
This can be a complete conversation in itself .. and I've not the time. Anyone care to take the ball from here?
And here are yet more comments from ex-distributors whose witnessed first-hand how the tools business really works:
Once upon a time, long ago in a far away galaxy, I was an Amway distributor. It so happened that my sponcer and his upline were a VERY short line under Amways top dog distributer. It so happened that I also was well liked and pampered by these "royal" figures. Now, I don't know about you but I will tell you this, I had a quick change of heart after attending several of the typical rah-rah rallies and so called family reunions and was "invited" back stage at the close of one of these deals. I personally assited some very big named diamonds carry suit cases full of cash to the trunks of their cars. The source of the cash? Ticket sales to the events, cash only if you please. Book, tape and even motivational music tapes, cash only, if you please. Now being the enquiring little sould I was I asked how come, what for and why. First after being instructed to NEVER EVER question the activities of my upline I was told that I too would experience such weatlh if I were to hustle just a little bit more. And of course, let's not all forget the famous saying, "Well, ain't it great!!!" Funny thing is the goal posts keep getting moved back on you when you know or have seen "too" much.
I might ad that I was also told that not many persons realize that the big guns really don't make all that much from their direct sponcering and organizational efforts. Yes, I have seen the copies of the checks and the real ones at that and it is simply more than the average Joe makes a month. But the deal was that the real money was made once you were invited to join the speaking tours, split the cash profits from the rallies and their book and tape sales. Now, I know there are going to be flames comming out of my screen tomarrow. That's cool too. I know the real deal and that is all that is important. I found the important road was to become a networker not just another employee of such and such a company. Take care and good luck.
Dream on. Don't believe everything you hear at the rallies. I'm not going to go into this again - but I guarantee you that there are those in your upline getting $ from the tapes you buy. Maybe one day when *you* hit a higher jewel your *upline* will deem you worthy of their *priveledged knowledge* of how to make some side $ from other things than the sales of Amway products - and hopefully when that day comes your integrity will be high enough to call it quits (you wouldn't be the first to do it, unfotunately many don't quit but rather join the underhanded practices.)
Unlike you, I have listend to *both* Amway and Quorum tapes and I can tell you (as well as many others can tell you) that the information found on Quorum tapes is just as good if not better than the sob stories found on Amway tapes. Just because amway tapes cost $5/tape and Quorum tapes only cost $0.80/tape does not mean that the information found on Amway tapes is 8 or 9 times better than that found on Quorum tapes - all it means is that Quorum cares for it's distributors growth rather than for lining of upline distributor's pockets with the sale of inflated tapes.
I was in Amway for a few years, and like many others I wised up to the practices I saw. Once I hit the 4000 level and then the Silver level (right before I quit) I was lucky enough to be invited to the "hush hush meetings" and what I saw really made me sick. Not only wasn't I making much money, but I found out why! That's right - tape sales lining upline's pockets, etc. Yes, I did learn a lot while I was in Amway, and yes the concept of Amway is a fundamentally sound one, unfortunately many of the leaders are their practices are not.
These comments are typical of what I hear from ex-distributors; quite a contrast to the story you get from those who are still "in the business" and actively trying to recruit.
* The U.K. publication "Time Out" did an investigative piece on Amway that appeared in their 6/22/94 issue. Here's an excerpt from a letter they received from a reader:
Further to our recent telecon re: "The Amway Network Business" I am writing to you to highlight some of the problems I encountered having been in the business for a period of four years and reaching a level of 21%, and also meeting several people at the highest level.
When I was first introduced to the Network and shown how the business worked, I was lead to believe that it would only take a few hours of my spare time to build, and cost next to nothing (15 pounds) to get started. In reality once you became involved you because pressurised to PURCHASE books and tapes and attend all the meetings the length and breadth of the country.
The money made from the books and tapes and meetings went to the people at the top of the Network, which is where most of the money is made in the Network.
While I was in the Amway Network Business, I personally knew of four couples who had got into serious financial difficulties due to the burden of having to buy books and tapes and attend all the meetings to the point of losing their homes. There were also several couples who got divorced due to the nature of the business.
In conclusion I would like to say that this Network Business is an elaborate con designed to take advantage of genuine people who would like a business of their own, but in reality are only controlled and manipulated by the head of the Network.
* The Detroit Free Press did a series of articles on Amway back in 1982, including this one that focused mainly the hidden tools business.
"Motivation Has A Price At Amway," Detroit Free Press 10/26/82
"Beyond anything else, you've got to have a winning attitude, and your attitude can't be dependent on the facts. The facts never count. The most important thing is your attitude"--Amway super salesman Dexter Yager.
In Amway, the right attitude doesn't come cheaply. It is packaged and sold, just like Amway's soap powder, to a network of sales distributors across the country.
All that is required for success, the message promises, is to believe. But first the message must be bought.
Positive thinking flows from books and seminars and rallies where top distributors testify about their success. The promoters sell seats in the hall and tape-record the speeches for later sale in a nationwide chain of inspiration. Even Amway founders Rich Devos and Jay Van Andel exhortations can be had on tape for $1.95.
Keeping dreams of success alive--in the face of small earnings that are the fate of most Amway distributors- -is making some high-level distributors and motivators rich. In a pyramid inside a pyramid, low-level distributors buy packaged inspiration from those at the top.
In one case, according to the Internal Revenue Service, a special tax audit turned up one Amway promoter who sold $1 million worth of tape-recorded speeches and seminars in a year. Many distributors build a substantial second business by selling tapes and books produced outside Amway.
Lonie Lamb, 32, or Shawnee, Okla., who left Amway last August after climbing several steps in the hierarchy, said one Amway distributor he personally brought into the network now grosses about $20,000 a month.
"He makes about $4,000 to $6,000 from Amway and about $14,000 a month from tapes and rallies," said Lamb, who now works form a competing direct sales company, Olde Worlde Inc.
Amway distributors who drop out of the business speak ruefully of spending hundreds of dollars on attending motivational seminars and hundreds of hours listening to tape-recorded advice without ever making any money from selling Amway products.
Amway estimated in 1979 that distributors held 5,000 motivational meeting in the United States each week, in addition to recruiting meetings.
"You can make a lot of money _on_ the business, but not _from_ the business," said Dave Crowe, 38, a former high-level Amway distributor who left Amway in 1977 after 7-1/2 years to join Olde Worlde.
Olde Worlde, based in North Carolina, was founded by former high-level Amway distributors Ken and Carol Mackovic, who hoped to make more money running their own company. Olde Worlde, which attracts many former Amway distributors, doesn't hold Amway-type rallies and says it doesn't tapes as vigorously as Amway does.
"Some of the bigger people…really make their money from the multitudes of people who are in Amway, not from the Amway (sales) plan," said Crowe, who made half his $70,000 Amway income from selling tapes and from fees for telling his story at motivational rallies.
SPREADING THE DREAM
People in the direct-selling business, including some Amway competitors, say the cost of a mass-produced tape is between 45 cents and $1, since speakers get no royalty fees. In fact, speeches given at rallies years ago are still being sold by Amway distributors for $3 to $4, with high-level distributors splitting the profit as the tapes move down the pyramid.
Besides perpetuating the dream, the speakers tell jokes about their own troubles getting started in Amway, recite stories that illustrate perseverance in the face of adversity, and give tips on how to recruit others.
In one recorded speech, Cherry Meadows, a high-level distributor from Nashville, Tenn., offers pointers on how a woman can help out in the Amway business. The undated tape recording is still being sold.
She describes how she once recruited a grocery store manager by offering him a business opportunity but refusing to give him any details.
"I just looked up at him, real innocent, batted my big baby blues and said 'it's his (her husband Jerry's) business; you'll just have to talk to him about it," Cherry told the audience at a rally.
"And girls, that works. You don't have to have all the answers. You don't have to be real sharp and sophisticated. Just look dumb."
Distributors are told to listen to cassette tapes in every spare moment, especially while driving. The way the people at the top tell it, the tapes are a basic ingredient of Amway success.
Skip Ross, an Ohio distributor and a favorite Amway success story, in a tape-recorded speech in March 1977, told how he rose to the top: "I controlled my environment. I never watched a television program. I never listened to a radio. I never read a newspaper. I never read a magazine. I never listened to a negative conversation for 18 months. I spent a minimum of an hour and a half a day reading the books, listening to the tapes and thinking positive kind of thoughts. In that 18-month period my life was totally revolutionized."
As it is true in any sales organization, where the greatest threat lies in becoming discouraged, positive thinking plays an important role in Amway. Distributors are repeatedly told to ignore the rejection that inevitably comes with the territory.
Speakers at Amway rallies--whose words are recorded for resale--praise the Amway system, caution against "stinking thinking," praise God and Jesus, encourage distributors to have faith even when they're not making any money, and ridicule those who drop out of Amway, branding them as losers.
Rallies and speeches are intended to spur distributors to work harder in the face of the overwhelming odds of failure. Half of those who join Amway each year quit, although that turnover rate is low by comparison to other direct-sales companies, the Federal Trade Commission found in 1979.
For every 400 people who pay $71.95 for a sales kit and become distributors, only one will make it up the first step of the Amway hierarchy to direct distributor, the Federal Trade Commission found after an investigation that concluded Amway is not an illegal pyramid scheme. From there, a distributor moves through ranks designated by gemstones--ruby, pearl, emerald, diamond-- to the pinnacle of crown ambassador.
Each higher rank entitles a distributor to bigger commissions and other rewards such as expense-paid foreign vacations.
For the quarter of one percent of Amway distributors who become direct distributors, the average monthly commission at that level is only $621, Amway Corp. said. This is in addition to profit from selling products.
"When a man's worked hard for three or four or five months, two to five nights a week, and he's only making 40 bucks or $100 a month, you've got to have a rally to keep him in the business," said Lamb, the former Amway distributor from Oklahoma.
RALLIES A TRADEMARK
Such meetings have been a feature of Amway since it was founded in 1959 by Van Andel and Devos, today chairman and president respectively. They are still the sole owners of the business, with headquarters and a manufacturing plant in Ada, Mich.
Since the beginning, Amway has held conventions for distributors in nearby Grand Rapids. These conventions have grown so large that Amway bought, renovated and expanded the old Pantlind Hotel (now the Amway Grand Plaza) in Grand Rapids to accommodate the thousands who regularly flock into town.
In recent years, high-level distributors have gotten into the act as well, organizing their own rallies and selling their own sales aids independently of the corporation. Since 1971, some distributors have held the Free Enterprise Day rallies to celebrate Amway and the system that allowed it to flourish.
Other rallies organized by distributors go by the names of Dream Night, Moving-Up Seminar, Leadership Weekend and Family Reunion. Distributors--as many as 15,000 at a time--pay as much as $15 to $27 apiece for a combination pep rally, revival meeting and sales seminar--a weekend of song, prayer and success stories told by Amway "stars."
Bob Keefe, 38, and his wife Mary Kaye, 31, successful Amway distributors from Lapeer, think of the monthly rallies they attend as vacations. "It always helps to be with positive people," said Bob.
Dave Crowe, the Olde Worlde distributor, agreed motivational rallies are important, but said the Amway rallies sometimes became silly.
Though the rallies frequently lasted until the early morning, most distributors remain in their seats, alert and cheerful to the end. At one rally, Crowe and his wife, Martha, attended in Charlotte, N.C., distributors joined in chanting "Five to six / Nights a week," referring to how often they would try to recruit new distributors.
"Here's doctors, lawyers, professional people--unbelievable--mature adults standing there saying 'Five to six / Nights a week' at 2 o'clock in the morning, he recalled.
The next morning, distributors, bleary-eyed from too little sleep, greeted each other in the hotel coffee shop by saying "five to six nights a week" instead of "good morning," Crowe added. "There were lots of strange things. Some of those things I didn't do."
ONE COUPLE WHO QUIT
Michael and Angelea DeAngelis of West Bloomfield threw themselves wholeheartedly into Amway when they joined last October, and spent $3,000 attending rallies that their sponsor told them would help them succeed.
After about six months, they stopped trying to sell products or recruit others because they were selling less than $100 worth of products each month. They were spending 40 ours or more a week between them on Amway, leaving no time to spend with their sons, Michael, 2-1/2, and Christian, 5-1/2.
Michael, 31, and electrical contractor, called a halt to attending rallies because he figured their purpose was to distract members from the fact that "you don't even have Las Vegas odds" in the Amway system.
He also resented the star system, which holds successful Amway distributors up for emulation.
"It was like masters and slaves," said Michael. "There are all these people who are never going to make it. They are going to try so hard, but eventually, they are going to drop out. And up above them you have a few successful people."
The pressure to buy tapes of those rally speeches is intense, many active and former distributors told the Free Press.
Fred Harris, a double diamond distributor from Harrisburg, Pa., told one rally that to build the Amway business, a distributor must read at least one chapter form a motivational book and listen to one tape every day, and attend one seminar a month.
What if you're interested, but your spouse won't cooperate? Read the book out loud so he can't avoid hearing them, advised Cherry Meadows, the distributor from Nashville, in a tape recorded at a rally last Jan. 1. "If he won't listen to the tapes, play them at the dinner table."
Distributors are encouraged to sign up for a tape-of-the-week program under which they automatically receive a new tape every seven days from higher-level distributors. The DeAngelis couple spent about $250 on 70 tapes during their six months in Amway.
Amway Corp. sells speeches by the highest-level distributors and by founders Devos and Van Andel on cassette tapes for $1.95 each. Titles now include "Try or Cry," "The Wishmores and the Havemores," and "Millionaires Success Formula," described in an Amway catalog as "how to make money, presented (by Van Andel) in easily-remembered concise fashion and illustrated with humorous stories, serious examples and relevant quotes from the classics."
The tapes are meant to keep alive the dreams that distributors cultivate by pasting on their refrigerators pictures of cars, vacations spots and other goals.
"How would you like to make 10 times what your local banker makes?" high-ranking distributor Bill Britt of Durham, N.C., says on a tape produced independently of Amway. "I make more money than any lawyer I know. I make more money than any professional I know."
Bob Keefe, the emerald distributor from Lapeer, said the tapes are a valuable way for a new Amway distributor to learn how to build a business.
"There are two ways of learning," he said in an interview. "One is by experience, where you learn from your own personal mistakes. The other is you learn by wisdom, where you learn by the experiences of other people. What the tapes do, they provide an opportunity to listen and learn and avoid making mistakes."
But they do more than that. The tapes exhort distributors to keep the faith, even when they're not making money, and they label distributors losers if they think of quitting.
"It's just incredible the mind control they use," said a disillusioned Julie Greenwood, of Wisconsin, who was an Amway distributor for three years. "They get you listening to these tapes every day, and the tapes don't really talk about Amway. What they talk about is losers and winners…And when you start hearing this every day…you start thinking, wow, if I don't do this, I'm going to be a loser."
By the time the Greenwoods finally left Amway last February on the advice of a marriage counselor, to save their marriage, they had lost $8,000 and all their spare time for the previous three years.
"I got away from the tapes and I got away form the brainwashing of the whole thing," Julie said. "And I started to realize what we were doing… I started to say to Bill, 'What have we been doing?…Nothing but work for three years."
* According to a recent three-part article on Yager in the Charlotte Observer, things don't seem to have changed much since the Detroit Free Press article. Following is the second part of that series, which appeared on 3/20/95.
YAGER MOTIVATIONAL TAPES REEL IN CASH
INSPIRING AMWAY SALES IS GOAL; CRITICS QUESTION THE MESSAGE, PROFITS SECOND OF THREE PARTS
The hub of Dexter Yager's worldwide empire is a bustling factory on South Boulevard.
The factory doesn't produce Amway soaps or cleaners. It cranks out millions of motivational tapes each year for the Charlotte-based Amway magnate's network of distributors.
Within its red-brick walls, Yager's positive-thinking message is captured in cassettes. Dream big. Be "persistent and consistent." Avoid "stinking thinking."
The tapes are the linchpin in the Yager family's motivation-building enterprise called Internet Services Corp. The $35 million-a-year spin- off of Yager's Amway business generates consistent profits and persistent problems.
Yager's network of 1 million distributors -- Amway's largest -- provides a ready-made market for the Yager motivation sideline. Yager says his "support system" strengthens Amway sales, but ex- distributors argue that its central focus is selling to the sales force.
Some Amway dropouts say the Yager system's psychological impact is more subtle. They say it promotes some practices that seem to conflict with official Amway policies. And the endless stream of motivation aids keeps marginal salespeople believing -- in the face of poor results -- that success is just around the bend.
"The tapes and books kept me brainwashed," said Bruce Roeser of Stone Mountain, Ga., who spent 13 years in Yager's Amway network. "They get you in his frame of mind that you need to feed on the materials in order to survive."
Roeser said the barrage of motivation aids put him "in a performance trap" where he obsessed about achieving, but felt mired in failure.
"It's like trying to put together a white picture puzzle," he said. "You're always missing the critical piece and it's always something else you have to buy."
Roeser said he spent $30,000 on tapes, books and rallies before dropping out of Amway and filing bankruptcy in 1992.
Roeser received weekly tapes from Charlotte.
Each week, tens of thousands of Yager distributors pay $5 or more for the featured audiocassette. The tape-of-the-week is shipped to 50 states and 10 foreign countries.
The Yager family's Internet has prospered through the sales of such motivational tools. Its tapes, videos, books, pamphlets, elaborately staged rallies and a fledgling satellite network comprise an integrated system that's unrivaled in other Amway networks called downlines.
"We're very proactive in developing methods to grow the business," said Doyle Yager, 36, Dexter's son and chief executive officer of Internet.
Leaders in Yager's Amway network say the motivation aids help new recruits build confidence.
"Each of us are what we are because of what we think," said Henry Gilewicz of Lake Wylie. "Books and people will shape your life."
Dexter Yager said his Amway and Internet businesses give him an income of "several million" a year. He said he makes more from Amway sales than Internet profits, but stays too busy to track his income.
Yager calls Internet "a very successful venture."
But a Pennsylvania lawsuit by former Amway distributors calls it "a pyramid-type scheme" that has "coerced" thousands of Amway recruits into purchasing marginally useful materials.
And the Yager sideline stirs questions among consumer advocates who monitor multilevel marketing businesses. Multilevel marketing involves layers of salespeople who recruit others and earn a commission on their recruits' sales. It's a legal business technique that can be abused.
Linda Golodner, executive director of the National Consumers League, said people in direct sales usually can't afford many extra expenses.
"There are certainly books on the market on how to be effective and they don't cost $5 a week," she said. "It sounds like Mr. Yager has made a lot and he's forgetting these people who are in need of extra money to make ends meet."
EARNINGS MUST BE DISCLOSED
David Kirkman, an assistant N.C. attorney general, said he's received no complaints about Internet and can't comment on its practices.
But he said consumers should look closely at the costs before they involve themselves in multilevel marketing businesses.
"It's a form of investment and all investments have risks," he said. "You need to evaluate them as best you can."
N.C. law prohibits pyramid schemes, businesses that focus on recruiting large numbers of salespeople and coerce them into buying costly inventory and sales aids. If a company gouges its sales force with such practices as "inventory loading," said Kirkman, it may cross the line from a legal multilevel marketing business to a pyramid.
The Federal Trade Commission ruled in 1979 that Amway is not a pyramid because it sells retail products.
But a few years later, the FTC ordered the corporation to disclose earnings information to new recruits. The company's sales and marketing plan shows that the average active distributor -- about 46% are deemed active -- makes $65 a month.
Five former distributors sued Yager, his companies, a key operative, and the Amway Corp. last year, contending that they were misled about the costs, profitability, and chances of succeeding in Amway.
The class-action lawsuit could potentially involve thousands of former distributors, court papers say. The suit is pending in Philadelphia.
The ex-distributors portray the Yager network as a maverick in the Amway world. They contend that its leaders promote consuming Amway products over selling them, that they place motivation above sales training and encourage the use of subterfuge to recruit people.
Such tactics seem to go against the grain of some Amway Corp. policies, they say.
Amway's policies say distributors should sell to 10 retail customers a month and should not use deception in recruiting.
Ex-distributors in Yager's network say no one encouraged them to develop customers and that they were trained to invite people to meetings without telling them the meetings were Amway presentations.
Internet President Jeff Yager said, "Everyone who signs up in Amway knows it's Amway."
Two earlier lawsuits, filed in Ohio in 1984 and Washington in 1985, also accused Yager's network of badgering distributors to purchase motivational tools. The suits were settled under agreements that kept the terms secret.
"I settled nothing with those people," said Yager. "I got out."
Bill Britt, a mega-distributor in Yager's downline who produces his own motivation materials, was also sued. Britt, a former Chapel Hill resident, lives in Florida and declined comment through his lawyer.
"Since I'm one of the largest distributors, I get sued," Yager said. "Most times, most people blame somebody else for their failure."
OBJECTIONS RAISED TO TAPES
John and Stacy Hanrahan of Springfield, Pa., filed the Pennsylvania suit after telling a television news show last year that selling Amway cost them financially and almost broke up their marriage.
They contend that Yager and Britt have violated price-fixing laws by dividing up the huge motivational "tools" market among themselves. They charge that virtually all of the 1 million distributors in Yager's downline buy motivational materials from either Yager or Britt.
The couple said ex-Amway distributors who saw them on TV flooded them with calls and letters, saying they spent far more money on tapes, books and rallies than they made selling Amway. They cited intense pressure to buy from their "upline" sponsors.
Stacy Hanrahan said the ex-distributors seem particularly incensed about spending money on the tape-of- the-week, though it was just one of many costs they incurred in Amway.
"Someone chooses the tape and you get it whether you want it or not," she said. "We're finding that they aren't wanted, that we're receiving many from former distributors that are still in wrappings."
Hanrahan said the tapes offer little sales training and include some material she finds objectionable, including "condescending" references to women and the non-Amway work world.
She said ex-distributors believed that their sponsors would take their business, or refuse to help them expand it, if they didn't buy the "tools."
"They'd say, If you don't support us, we won't support you,' " she said.
What made the threats so potent was the relationship that sponsors develop with their recruits, she explained. New distributors are encouraged to bring their marital and other personal problems to their Amway higher-up and defer to their "counseling."
The "upline" becomes the lifeline to success, she said. And the upline usually profits on the motivational materials.
"The real money's being made with the tapes," John Hanrahan said. "To me, it's extortion."
"I have never coerced anybody to buy anything that I made money on," said Dexter Yager.
TAPES HELPED, YAGER SAYS
The 55-year-old multimillionaire said he became interested in motivation because he needed a boost when he first began selling Amway 31 years ago. He said he experienced an initial flurry of business before he hit several years of uneven results.
"My first three years in the business I never read a positive-thinking book. I never listened to a tape," he said.
"I was dealing with big dreams one day and discouragement the next," he said. "And I didn't know how to get it together."
Yager said it helped him to read positive-thinking books. In the 1970s, he began selling them to his network. Then he began writing his own books -- he's produced 12 -- and recording his speeches.
In 1980, he and his family formed a corporation called Freedom Distributing. It became Internet Services Corp. in 1989 and by that time, three of Yager's seven children -- Doyle, Jeff and Steve -- were running it.
Yager spends most of his time traveling and speaking to his network's distributors while his sons run the family's Charlotte businesses.
Doyle's the CEO, Jeff's president and Steve vice president of Internet, which operates in a large complex on Steele Creek Road.
But the real hive of activity is at Intercontinental Communication Corp. of America, the division of Internet that records speeches, duplicates tapes, and has begun developing satellite programming.
Located at 4447 South Blvd., ICCA employs about 120 people and operates 24 hours a day, said Harrell Canning, vice president. Most of its work is Yager-related but it handles non-Amway contracts as well.
On a recent workday, the 18,000-square-foot production floor was buzzing with workers checking tape reels, monitoring sound quality and packing boxes of finished cassettes. Snippets of speeches filled the air and a cassette titled "We Need a Burning Desire" rolled off the production line.
Most of the tapes are speeches by "Diamonds" and other high-ranking Amway distributors. Canning said ICCA regularly records speeches at Yager sales meetings for cassette release.
In turn, the rallies are a lucrative vehicle for selling the finished cassettes, videos, books and other Yager items.
The Yagers stage several major rallies yearly -- including "Free Enterprise Day" events in Atlanta and Salt Lake City that have drawn crowds of 80,000 or more in recent years -- as well as smaller sales meetings.
Doyle said the company puts on about 18 events yearly.
Tickets to the large weekend events can cost as much as $100. They usually showcase a politically conservative speaker -- George Bush and Ronald Reagan have appeared in recent years -- as well as Amway speakers and country music.
Diana Lackey, a former Internet employee who helped staff some rallies, said certain books and tapes were heavily promoted during the shows, resulting in flurries of sales at merchandise tables. She said people would often buy $200 and $300 of tapes at a time.
Sales were so brisk, she said, that the Monday after the rallies, key Internet employees would lock themselves in a conference room all day to count cash.
Lackey said she worked at Internet more than four years, keeping records on audiocassette orders and sales. She said Internet paid ICCA 55 cents to duplicate each tape.
The tapes were sold to "Diamonds" for varying prices -- usually $1 to $2 apiece, she said. But by the time they got to the newest recruits, the price had jumped to $5.
More than 200 new Internet tapes were released yearly and millions of tapes changed hands, she said.
Lackey, 26, said she was fired from Internet last September after a supervisor accused her of disloyalty.
"I don't know that much about it," said Doyle Yager of Lackey's firing. "I don't remember exactly what the reason was; I thought it was lack of performance."
Jeff Yager said Internet's costs of producing tapes are higher than 55 cents a cassette because they include overhead as well as raw materials.
"Sure you make money. You have to to stay in business," he said, adding that $5 a tape is a reasonable price.
Tom Eggleston, chief operating officer of Amway Corp., said the corporation has no problem with the Yagers' motivation sideline.
"We are satisfied that the retail selling price is competitive with similar training materials in the marketplace and delivers good value for distributors," he said.
Eggleston said the corporation reviews many Internet training materials and cassette tapes "to assure that they fairly and accurately depict the earnings potential and other aspects of the business."
He said Amway has emphasized that purchase of such materials is voluntary.
But many former Yager network distributors told The Observer that they could not withstand unrelenting pressure to buy them.
Some said they were urged to run up big credit-card bills if necessary to purchase materials and attend rallies.
Roger Maynard, 39, of Dallas said he dropped out of Amway last year after three years as a distributor. He said he spent almost $5,000 on Amway products and motivational materials, but got little financial return.
He said he asked his sponsor if he could listen to the sponsor's tapes, but the distributor instructed him to buy his own.
"He said you don't have to buy the tapes and go to the meetings, but the people that were successful did," he said. "They said some people sold their TVs to go to rallies."
Another former distributor, Arthur Bouchard of Pawtucket, R.I., said, "They tell you that the tapes, books and seminars are optional, but so is success."
Bouchard, 43, said he built a network of 39 people, but still couldn't support himself with Amway. He said he piled up debts of $10,000 during his four years in the business and filed bankruptcy last year after dropping out.
He said the tapes didn't help him build his business because they contained no information on selling. Mostly, he said, they were speeches recorded at rallies.
"Dexter throws a good party, but there's nothing to learn there."
Roeser, the former distributor from Georgia, said he recently threw out about 400 tapes and other motivational materials left from his Amway days, hauling away six filled garbage bags.
"I think Dexter had the right idea with the communications system," he said. "It just started getting so profitable that it became a self- perpetuating animal."
* Around the same time as the Detroit Free Press article appeared, the state of Wisconsin was investigating Amway. It was to find that Amway distributors were regularly lying about their incomes. (An examination of the actual tax returns of all Amway distributors in the state over a period of two years revealed that the average income of all Direct Distributors was a NET LOSS of $918 per year.) The following is one of a number of letters that was sent to the Wisconsin DA's office during that investigation.
Letter to Wisconsin state AG Bronson La Follette, in response to announcement of state's investigation into Amway, received 8/82.
Recently I read an article in the St. Paul Pioneer Press on this Amway problem. In January of this year I got into the Amway business. After about two thousand dollars worth of tapes, books, products, etc. I finally figured out this whole thing was a scam.
What the article stated was about what was happening in our "leg" of Amway. They drastically misrepresented what could be achieved in the plan they showed, short of a life and death situation.
I'm writing this letter to find out who I should contact to find out if this "leg" is legitimate or not, in my area.
I also would be interested in recovering the money I invested in tapes, books, and expenses over the last several months.
I showed the plan to a few people before I realized that this was a scam. I would like to know what I could do to get out of this Amway business before I get in trouble, too. One of the people I got involved is John ****, a cousin of mine. He also woke up to the fact that this was a scam after he had sold his guns, truck, etc. to try and get the business of Amway going.
This is happening to a number of people in my area and it bothers me that our state can let such a thing happen. I would be interested in knowing if the state could send someone over and investigate this problem. Thank you for your time.
* I know of at least five civil lawsuits that were filed by Amway distributors who were lied to about how the big money is really made in Amway, and were coerced into throwing away money on large amounts of unneccesary motivational tools. For details on these cases, see the Lawsuits page.
There are some (but not all) of my reasons for believing that Bill Britt, Dexter Yager, and other Amway high rollers are making most of their money selling motivational tools rather than Amway products.
In my opinion the fact that the data from a number of independent sources is highly corroborative, not to mention the sheer quantity of it, indicates to me a high probability that Britt, Yager and the other Amway "high rollers" are making the bulk of their money milking their downlines via the coerced sale of motivational tools.