Direct Selling Association drops the ball..

DSA lets pyramid scheme in the door (my opinion)

The compensation scheme is outlined in this youtube video.   The compensation package appears to me to be the classic pyramid scheme where the members get paid bonuses for recruiting other members, or in this case "selling online travel agencies".   The video shows how you earn money by   signing up "new travel agencies", and little emphasis is shown about actually selling travel.    The cost to buy a YTB agency (aka website) is $499 and the cost to maintain the website is $49.95/month.  The majority of revenues come from the YTB agents themselves and not from retail customers of travel. 

For the first quarter of 2008, only 12.5 percent of YTB's revenue came from online travel sale commissions, while almost 80 percent came from recruitment of new members, the BBB said. Based on the number of members listed in regulatory filings, the average amount made by each RTA through the sale of travel through their Web sites for the first quarter was $27.75. That means the members are on pace for an average yearly income of $111, according to filings with the Security and Exchange Commission.

From the SEC filings for the year ending 2007 YTB, reported sales of travel stores and monthly fees of almost $104 million and travel commissions of just $20.5 million. Of this almost $69.5 million was from the sale (recruiting) of new "agencies".  Sales of new "agencies" was about 49% of the companies total revenue.   Training and marketing materials netted YTB $14 million, or just about as much as YTB paid out in actual travel based commission.  .  YTB paid out $80.5 million in "marketing commissions" and $13.4 million in commissions on actual travel.   The ratio of income from the "travel agencies" themselves to travel commissions is 5:1 and the actual pay-out on travel commissions is 67%.  No doubt it pays to sell the travel agencies and the support rather than the actual travel itself!  

The SEC data stated that marketing commissions increased by $50,641,522 or 169.3% in 2007 to $80,550,029 from $29,908,507 in 2006. "This increase was due to the significant increase in the number of active RTAs recruited by our Reps", according to the SEC report!

It appears to me that the DSA is not even taking their own "code of ethics" seriously.   They have Item A 10 in their conduct concerning "fees".    The $499 sign up fee should have been an obvious signal for them    

According to one article on the web YTB only had a 5 day cancellation period.  I did not see anything in the DSA's codes of ethics referring to refunds or their duration.  If the YTD online travel agency is the "good or service" then DSA code of ethics requires repurchase within 12 months and with at least a 90% refund.   If the online travel agency is not the good or service, then the $499 sign up fee in conjunction with the bonus paying scheme should have been a clear signal of a illegal pyramid scheme. 

The CA AG complaint stated "In short, Defendants sell an illegal pyramid scheme that uses the minor, incidental sale of travel as a front for their scheme."

For what it is worth, I agree with the CA Attorney General.

This scam reminds me of Skybiz intenet website and the "Internet Mall" schemes that got closed down by the FTC in 2001.  The state of Michigan also closed down another pyramid scheme disquised as a MLM called  KM.NET.  Here buyers plunked down $300 to buy an "internet mall".

If I were the DSA, I'd save face and jetison YTB Travel from DSA membership before it becomes more of a drag on their reputation. 

"Pyramid" Definition from FTC vs. Equinox April 2000, is the same as FTC vs. Trek Alliance June, 2003