Apr 10, 2009
Just Some Thoughts On the Past Week
I had a long conversation tonight with a gentleman that had been involved in MLM for many years. At one point with SkyBiz, he earned a documented (yes he documented it to me) income of $65,000 per week from his downline. He was involved with them when they collapsed and had some unique insights. He too agreed that a settlement was an admission of guilt to a degree. He also said that now that YTB has shown a willingness to negotiate a settlement, the other states who are actively investigating them (I have heard IL, LA, PA, OH, NY, MD and FL all have some sort of investigation or inquiry in progress.) will likely file suit as well. They will not be looking to take it to trial, but to negotiate a settlement with YTB as they too have consumers that need protection. Multiple suits may indeed spark the interest of the FTC as well.
YTB has lost two major directors (Hoffmann and McLaughlin) and two minor directors (Bush and Belleville) in the last three weeks. If these directors are successful in taking their downline to their new MLM (ViSalus and MonaVie) this can represent in excess of 50,000 RTAs. And remember, the bulk of YTB's income is derived from the fees generated by the monthly RTA fees. The most recent number I have seen regarding RTAs is just shy of 75,000--and this does not include any that may have left in April as they will be carried as active until the end of the month.
I asked my MLM expert if there was a formula to figure if the downline would go with the director. He said there was not any formula or any rule of thumb. However, he said the key is if anyone is making money. If an RTA or a Rep is making money, they will likely stay. If not, there is very little risk for them to leave and much to gain if the next MLM is better. The secret to success in MLM (as was told by YTB many times) is to get in early--the right place at the right time. So if a departed director can communicate that ViSalus or MonaVie is indeed a better place at a better time, they will leave. I suspect there will be a large exodus based on the apparent success of the Bushes in ViSalus and their upline director who just made National Director--she was in their downline at YTB.
I will reiterate my position that I feel YTB may be guilty of insider trading. It may not have been deliberate, but judging from the volume of shares traded between the leak of the memo to their hand selected individuals and the public release tot he SEC, it seems likely. If I were a shareholder, I would be furious that senior management is paying favorites like that. I called the SEC today and spoke with John Heine in the Press Office and specifically asked if there was an active investigation on YTB and he replied that "We cannot comment on any active investigations." Of course this is not a yes or a no and you can draw your own conclusions.
Another interesting event occured last night at 710pm. In late February, YTB filed a RTA stock option plan that was scheduled to be released on May 1, 2009. Well, last night, a memo went out advising that it was open for participation immediately. This struck me as odd to release something in the middle of the month like this. It went on to say that the timeframe to buy shares (min $1,000 max $10,000) was April 15, 2009. Why not a full month? Why only 5 days when two of them are weekend days when the markets are closed and one of them is a holiday? Could it be a move to hopefully increase volume so that the five times normal volume experienced after the leak does not look so out of place? I also question how many RTAs, in this economy, have $1,000 to $10,000 to invest in YTB in the next 5 days. We won't even discuss the merits of the program which vest your options over a 10 year period.
Over the past few days, some of my old nemeses have resurfaced. I am not naming any names, because they asked me not to, but there have been four individuals that were VERY vocal on this blog and in direct emails to me about their passion and love for YTB. Well, now, they seem to be fans of this blog, and have said that in hindsight, YTB was a loser.
It is quite possible that the leak may have caused a change of hear for the AG. Well, the leak or the flurry of emails that went around from the Directors citing "Open Season on California" and "California Gold", and the emergency conference call instructing Reps on how to "Use California to explode your business." But regardless of the outcome, this does not reflect on YTB's acceptance in the travel industry. IATAN is not taking them back (and before the comments come about not needing IATAN, if they were so insignificant, why did YTB hire Al Anolik to appeal the decision?), RCCL is not taking the back, NCL is not taking them back, A Plus Tours is not taking them back, Perillo Tours is not taking them back, Fare Buzz is not taking them back, Qantas Vacations is not taking them back, and the others that have quietly dumped them are likely not taking them back either. They are still ineligible for membership in ASTA, OSSN, NACTA or ARTA.
With this settlement, it gets one monkey off their back--it may have opened the door for three or four monkeys to jump on, but time will tell. Now they need to address the other items state by their accountants. The management needs to stop using the company as a personal piggy bank and learn how to take direction from the Board and be accountable to the other shareholders. They need to figure out how to improve their finances--a difficult task with a looming settlement/fine and a mass exodus of RTAs and Directors. They also need to see if they will have to re-state their financials yet again. The auditors stated they felt the information provided was not accurate and the veracity of the financials could not be guaranteed. So, they do have a lot on their plate.
And to put some numbers in perspective, with 138,000 RTAs (as they claimed in June 2008) YTB would bring in $6.9 million a month. With 75,000, the income is $3.75 million a month. And for a year in which they saw their fastest growth, they saw a loss close to $5 million. So now, in a down economy, with large fixed payments looming, with a settlement looming, with almost half as many RTAs providing them income, how does one pull this out?
And a great big shout out to my friend Travelin Moms...she's been busy commenting on older posts so likely they are hard to find, but entertaining nonetheless!
Posted by John at 4:34 AM