System Income -- Who is right?

If you are seriously investigating the Amway business and the associated motivation business, you are probably asking yourself "Who is right?" Most Amway distributors will say little money is made from the tools. Most of the Amway-info sites will tell you a lot of money is made from the business of selling hope. Another question you should ask yourself is "What is the significance of the whole issue of system income?"

To answer the latter question first, when you are shown the plan, probably no reference was made to the fact that profits are even made from the system. Even though Amway and the ADA Board have provided forms that clearly state that some distributors do make a profit from the "tools" business, most people are unaware of this fact until they read about it on websites like mine. It would not suprise me if this fact is not even mentioned to a prospect unless they ask questions.

If you review the expense information provided by myself and many, many others, you will find that the greatest expense a distributor will have is being "core" and particpating in the system. The amount of money spent buying books, cassette tapes, video tapes, all the other BSM's, attending all of the seminar/rallies, weekend functions, and the cost of driving to these functions plus hotels and meals, far exceeds any other expense a distributor will encounter while building an Amway business. So if a person is expected to shell out thousands of dollars on these activities, it should be be important that the distributor knows that there is a profit motive above the product bonuses involved in all of the advice to buy this book or that tape or to attend functions.

Some distributors will say some of these systems are non-profit organizations. The only way that can be proved or disproved is to compare the cost of the Business Support Materials (BSM's) and functions. If the cost of these things in a non-profit system is about the same as a for profit system, what does that tell you?

The fact is that when you add in all the sources of system income, it requires no stretch of the imagination to conclude that upper level distributors do indeed earn more from the business of selling hope than soap. If you read on, I'll prove it to you.

The fact is that unless an emerald or above is willing to show you their Schedule C and the supporting 1099's from the tax returns they file with the U.S. Internal Revenue Service, you don't know if they are telling you the whole truth, lying, or just revealing a portion of what they are making from their motivation business to deflect questions.

So what about the information on my site and all the other Amway-info sites? The fact is most of the information on these sites about system income came from people who have shared what they know about system income. We haven't made them up! They come from people who were particpating in the system income -- not being told about it from someone who probably has a vested interest in not revealing everything.

One fact does become very clear when you read all the email we have received and posted from directs and above...there isn't just one way that tools profits are shared. They will vary with each organization. Gosh, I've even heard of tape costs varying between organizations (maybe this is one reason why they don't want you crosslining?) There are no written contracts and no written "tools" plan which specifies how much a bonus a distributor will receive at any level.

So instead of trying to pinpoint the exact percentage that every organization uses, a feat that would be impossible, I am going to provide a summary of articles and books written on this subject and some of the lawsuits that have been filed from 1980 all the way through 1998.

Some distributors will tell you the information that follows doesn't prove anything. If I only had one or two sources listed, they could be right. But many, many different sources have come to the same conclusion and too many upper level distributors have revealed far too much to sweep all of this information under the rug.

Forbes magazine 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. I don't know anything about the Donahue show, but I have read a transcript of the 60 Minutes show "Soap and Hope" broadcast in 1982. It was certainly a little bit more devasting than a "slap on the wrist" which is what the fact/fiction site calls it. Here is an unoffical transcript of the Soap & Hope broadcast

On Oct 26, 1982, the Detroit Free Press published an article called "Motivation Has A Price At Amway." This article gives example after example of distributors who made more money from the system business than the soap business. Here's just one example: A distributor who made $20,000 a month was making $6,000 from products and $14,000 from tapes and rallies (obviously only 25% of his income right?). You can find the complete text of this article on the Tools Scam page at any of the AUS mirror sites.

There may have other contributing factors, but the year after these "slaps on the wrist" came out, Amway's sales figures plummented from $1.5 billion in 1982 to $1.13 billion in 1983. It took four years for Amway's sales to get back up to $1.5 billion. Plus they expanded into eight new foreign markets in those four years (Source -- Amway documentation. If you have doubts, please ask Amway to verify the sales figures).

In 1984 a lawsuit, Cairns vs Amway, was initiated by a group of 79 Amway distributors in five states (you can find this lawsuit at -- where else -- any of the AUS mirror sites). This lawsuit charges the Yager, Britt, and Renfrow lines of sponsorship with restraint of trade and corrupt organization.

This lawsuit further alleges that the defendants made false statements and claims when saying their large incomes were the result of the sale of Amway products. The plaintiffs argued that the "Defendants were not making such profits from the marketing of Amway products but, in fact, the profits they derived were from the forced and coerced sales of motivational materials.

There were also documents entered into the court records which includes memos from the Amway corporation that indicates at some point in the late '70's or early '80's, Amway became concerned at the increasing attention being focused on them by the FTC and various state attorneys general, and in response conducted one or more internal investigations. If you go to the AUS mirror sites and review these documents and the memos generated by Amway, you will see that they seemed to be very concerned about what it found, and various courses of action were recommended.

One of the responses to the findings of the investigations was the "Directly Speaking" tape (VA-2160) made by Rich DeVos in 1983, in which he addresses a whole laundry list of problems, including the motivation business, and asks for the help of the Direct Distributors in eliminating them. DeVos even went so far as to suggest that the Corporation take over distribution of the tools. No point values (PV) would be assigned, but business volume would be assigned to the books and tapes so that everyone could share in the volume (similar to the product video and audio cassettes that Amway does provide). A distributor could only have 20% of their total volume in tools. It never happened. Only Amway and the ADA board knows for sure why.

A transcript of this tape is available on all the AUS mirror sites. I highly encourage you to read it.

On March 25, 1985, Forbes magazine published an article called "Cleaning Up?" Dexter Yager was interviewed for this article and was quoted as saying "He guesses his non-Amway tape-book-rally business brings two-thirds of his annual income--roughly $1.5 million." I wonder if it was this kind of statement that Brigg Hart was referring to in the lawsuit he filed in 1997 (more on this later) where he stated that approximately 70% of Yager's income came from the motivation business. The fact/fiction author has made the claim that Hart was "guessing" or was referring to Yager's income from restaraunts and hotels (more on this later also).

Also in 1985, Steven Butterfield published a book called "Amway - The Cult of Free Enterprise." (South End Press, ISBN #0-89608-253-9). This book is still in print and you should be able to find it in book stores (or have them order it). Like Kern's "Fake It Till You Make It", Butterfield identifies the same problems with the tools business.

Also in 1985, Dr. Carol Juth-Gavasso, Ph.d. (sociology) published a Doctoral Dissertation called "Organizational Deviance in the Direct Selling Industry: A Case Study of the Amway Corporation," 1985, published by University Microfilms International, 1-800-521-0600, #1416. Excepts of this study can be found at the AUS mirror sites.

Let me pause here and ask you a question -- Have I proven to you that in the early 80's upper level distributors were making most of their money from the motivation business? If the answer is no, then there is no reason for you to continue. You might as well go to the Amway Facts/Fiction site and dwell on Jerry Falwell's endorsement of Amway.

If your answer is yes, then consider what has changed since the 70's/early 80's. The secret to success back then was "books, tapes, and functions." What is the secret to success today? "Books, tapes, and functions!" Has the price of the books, tapes, functions decreased? NO...they have increased, just like every other good and service. In fact, these AMO's have actually increased the number of tools being sold to lower-level distributors.

So let's look at the evidence we have that upper-level distributors are making a ton of money from the motivation business today.

In July 1994, the Hanrahan's filed a class action suit. The list of allegations included:

• Misrepresentations concerning potential incomes.
• Misrepresentations concerning Amway's affiliations ("joint ventures").
• The coerced sale of motivational materials.
• Customer allocation and price fixing in connection with defendant's motivational materials

In March, 1995, the Charlotte Observer ran a 3-part article, available in it's entirety on my website. Part 2--"Yager Motivational Tapes Reel In Cash" goes into specifics as to how much it costs to reproduce tapes, which was around 55 cents. This can also be independently verified if you just ask ICCA how much it charges to reproduce tapes. In 1997 ICCA even had their prices posted on their web-site. They took the prices down when they found out we had linked to their site :( They would charge 65 cents a tape to reproduce 5,000 tapes. Now they wouldn't sell these tapes to me at a loss would they? That doesn't make good business sense. And it should come as no suprise that the more tapes made per run, the less it costs per tape.

This article goes on to say that the tapes were being sold to diamonds for between $1 and $2. Now if the tape costs a distributor $6 (this price does vary between organizations), where is the money going? Now start adding in the video tapes, which appear to be even more profitable, CD's and the whole range of tools, do you think it would be a safe assumption that someone is making a lot of money here?

Part 1 of this series also has a little information about Yager's investments in other businesses. It quotes Jody Victor as stating

We learned that we should stick with the goose that laid the golden eggs. I think we found that our area of expertise was the Amway business, not the banking business.

He was referring to the interests that Yager, and other distributors had acquired in an Ohio hotel, a bank, a travel agency, a Miami-area resort hotel and a chain of "Dexter's" sub shops. All were eventually dumped.

In 1996, the Touchton's filed a lawsuit that alleges that high level Amway distributors were engaging in fraud and racketeering related to their highly profitable motivational "tools" businesses. It is my understanding that this lawsuit will see it's day in court sometime this year.

In April, 1997, Brig Hart, a double-diamond (has 12 qualified direct legs) filed a lawsuit in Florida that states, and I quote:

In addition to the profits distributors earn from sales of Amway's products, certain mid-level and high-level distributors obtain revenue (and profits) from the sale of Amway-related products -- books, cassette tapes, selling aids, videotapes, flip-charts, etc. -- called "business support materials". These materials are used by distributors to help train and motivate their down-line distributors. Although the great majority of these materials are not manufactured or distributed by Amway, Amway has recognized the existence of this aspect of the business and has promulgated various rules regulating the manufacture, sale and distribution of these business support materials. These rules require the sale of these materials to follow a distribution system that is parallel to the lines of sponsorship used to sell Amway products. For some distributors, including Plaintiffs, the sale of business support materials produces revenues far exceeding the revenues generated from the sale of Amway's consumer goods.

Hart also made the statement in this lawsuit that approximately 70% of Yagers income came from the motivation business. Remember that Forbes interview of Yager back in 1985? Remember what Yager said? 2/3 of his income came from his motivational business. And it's only grown since then. It is my understanding that this lawsuit has been settled out of court, details are of course, unknown.

In July, 1997, the Haydens filed a lawsuit in Conneticut with numerous allegations, all dealing with system income.

In Jan, 1998, a group of emeralds and a diamond filed a $200 million lawsuit in Houston, Texas. Here is a quote from the lawsuit:

Defendants derive the majority of their incomes from the sale of non-Amway motivational materials such as tapes to persons in their downlines and from the money earned through motivational rallies and seminars.

Gee..doesn't that sound exactly like the Cairns lawsuit filed back in 1984?

And finally, in April, 1998, Greg Garland at the Advocate in Baton Rouge, LA, published a three part article (links are available on my website). Here you will find interviews with several distributors, including diamonds and above and also with the Federal Trade Commission, and even Amway Corporate officials.

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