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.''

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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 percent 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.''

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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.

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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.''