Why Investors and Politicians Love the Multilevel Marketing (MLM) Industry

William W. Keep, PhD

Corporate capitalism means: “the amount of power and influence corporations and large
business interest groups have over government policy, including the policies of regulatory
agencies and influencing political campaigns (see corporate welfare).” With the increasing
amount spent each election cycle candidates asks donors, corporate PACs, and what
OpenSecrets.org calls company “Affiliates” for more.

Donations and lobbying from one industry stand out. Not because it fears regulations that might
stifle technological innovation, inhibit research and development of life-saving drugs, or
hamstring the flow of capital to grow industries but because it apparently fears transparency.
What could happen if verifiable information interferes with the self-serving industry patter with
documented misleading claims where the vast majority of participates lose money? Perhaps the
MLM industry knows, and perhaps that is why some leading MLM companies
disproportionately fund politicians and lobbyists. Representing less than 1% US Retail Trade
with a steadily declining share over the past twenty years, MLM companies created quite the
political presence that extends decades (here, here, and here). The charts below tell part of the
story.

OpenSecrets.org and publicly available data chart the political contributions by company
“Affiliates” (e.g., an OpenSecrets.org term referring to company PACs, executive giving, etc.) of
three large MLM companies – Primerica, Amway, and Melaleuca and firms in much, much
larger industries that face regulatory oversight – Meta (technology), Pfizer (pharmaceuticals),
and Goldman Sachs (financial services).

U.S. Political Contributions by

Company "Affiliates" as % of Total
0.00160 Revenue
0.00140

0.00120

0.00100

0.00080

0.00060

0.00040

0.00020

-
2012 2014 2016 2018 2020
Primerica Amway Melaleuca
Meta Pfizer Goldman Sachs
OpenSecrets.org, public documents, some Melaleuca employment #s extrapolated from available data
Except for 2012, MLM company “Affiliates” generally spent more on political donations as a
percent of revenue than the non-MLM firms, and in some cases much more. Melaleuca stands
out, often out spending the others by multiples. In the 2016, 2018, and 2020 Amway “Affiliates”
ramped up giving relative to earlier years.

Some readers might argue that two of these MLM companies are not public and, therefore, of no
interest to investors. Because regulations impact an entire industry, efforts to forestall regulations
will be of interest to anyone benefitting from the industry’s current situation. Amway and
Melaleuca appear to be exerting exceptional financial efforts and serve on the BOD of the U.S.
Chamber of Commerce, an organization apparently more concerned with finding hidden
regulator agendas than misleading or deceptive business practices.

Decades of efforts to forestall regulatory oversight of the MLM industry have benefitted
politicians and investors. Politicians get funds and investors, including some of the biggest
investment firms in the country, get returns from a high margin industry rife with documented
consumer harm. One politician noted that supporting the industry is about “jobs and growth and
about individuals being able to own their own businesses.” Given her favorable experience
selling books in college for Southwestern Company decades ago, did she not need to see
the actual current data?

The Federal Trade Commission (FTC) issued multiple warnings to MLM companies and the
Direct Selling Association (DSA) regarding misleading product and earnings claims (this is not
your grandmother’s Avon lady). And a number of MLM companies have been subject to
enforcement actions based on pyramid scheme complaints, including members of the DSA. At
the same time, public MLM companies produces above average margins, to the delight of
America’s biggest investors (e.g., BlackRock, Vanguard, State Street, Renaissance Technology,
FMR, etc.). There are multiple ways to protect margins (e.g., patents, brand loyalty, etc.),
including spending to forestall regulatory oversight that threatens to make verifiable information
more readily available.

When money talks someone has to provide the words, and that is the role of lobbyists. The chart
below combines political donations with company specific lobbying expenditures. When it
comes to political giving as a percent of revenue Primera does not stand out. When adding
lobbying expenditures it leads the pack, spending more as a percent of revenue than all of the
other five firms. By 2016 the three MLM companies are spending multiples as a percent of
revenue relative to Meta, Pfizer, and Goldman Sachs. Either they are profligate spenders or they
think they are getting their monies worth.
 U.S. Political Contributions by Com-
pany "Affiliates" + Lobbying Expen-
ditures as % of Total Revenue
0.001800
0.001600
0.001400
0.001200
0.001000
0.000800
0.000600
0.000400
0.000200
0.000000
2012 2014 2016 2018 2020

Primerica Amway Melaleuca

Meta Pfizer Goldman Sachs
OpenSecrets.org, public documents, some Melaleuca employment #s extrapolated from available data

Within the past twelve months the FTC published two Advance Notice of Proposed Rulemaking,
one regarding earnings and money-making claims and the other changes to the current Business
Opportunity Rule. Both could impact the MLM industry. Industry comments deliver chest-
thumping patter about self-regulation (that does not work) and the wonders of people creating
their own business.

Warren Buffet famously said, “It’s only when the tide goes out that you learn who’s been
swimming naked.” Effective FTC Rules could reduce misleading claims, increase the availability
of verifiable information, and provide data on the probability of success. The tide of misleading
information will go out. What is the MLM industry afraid of?