Don't be seduced by "multi-tier sales plans"; this is just another name for illegal pyramid sales plans.  If you recieve email promoting one of these plans, and it contains mailing addresses, it should be reported to the US Postal Inspector at fraud@uspis.gov.  Read on for details on why pyramid sales plans are illegal.

© Copyright 1988, 1998 by Ralph E. Kenyon, Jr.

I have begun to receive pyramid sales promotion letters on the average of once a week. These letters suggest that participants use the classified ads for sources of names to use. One letter even suggested this paper as a good source of names.

Each promotion is supported with testimonials proclaiming the success of the plan. Promotion letters even proclaim that the plan is legal according to Postal Regulations.

What the letters don't tell you is that these plans have been declared illegal in most states. Moreover, according to the Postal Inspector, these letters are, in fact, illegal, and should be sent to:

The plan has the same structure as "Dare to be Great", the Airplane Game, and many other illegal pyramid sales schemes. Each new participant buys one report or service from each of four or five names on a list. The new participant then shifts the names on the list, dropping the name which had been in the last position, and inserting his or her own name in the first position.

The new participant is instructed to mail the revised list to his or her own mailing list, supplementing the list with names taken from the classified ads of major publications.

The directions are simple to follow, but the results are not.

Why are they un-ethical? Early participants profit at the expense of late participants who are left holding the bag.

To see how it works, take an example with 4 levels and limit each mailing to only two other persons. Further, limit the play to a small town with only 31 people. I shall follow the play through the first 5 tiers.

• The first person mails it to two other people.
  • (There are now only 28 persons left to participate.)
  • From them he gets 2 units of income.
• The second tier participants have paid 1 unit of cost each.
• The second two people mail it to 4 other persons.
  • (This leaves 24 remaining persons.)
  • The originator gets 4 additional units of income,
  • and each second tier participant get 2 units.
• The third tier participants have paid 2 units of cost each.
• These four third tier participants mail it to 8 others.
  • (This leaves 16 remaining persons.)
  • The originator gets an additional 8 units of income and each
  • second tier participant gets an additional 4 units of income.
  • Each third tier participant gets two units of income.
• The 8 fourth tier participants expend 3 units of cost each.
• These 8 forth tier participants mail it to 16 persons.
  • (This leaves no one else to participate!)
  • The originator gets an additional 16 units of income and each
  • second tier participant gets an additional 8 units of income.
  • Each third tier participant gets 4 units of income and each
  • fourth tier participant gets 2 units of income.
• The 16 fifth tier participants expend 4 units of cost each.

The last 16 persons are left holding the bag with no possibility of any return because there is no one left to participate in the plan.

If this seems complicated, here is a table of results.

If there were an unlimited number of people, each participant would stand to expend 4 units and get a return of 30 units and make a net profit of 26 units.

The mathematics of 4 levels, with large mailing lists, and with a reduced percentage of response do not change the result. Sooner or later a large number of people are left with no possibility of return because the willing participants are 'saturated'. The mathematics works out so that the total number of people who lose is always more than the total number of people who come out ahead.

Here is a chart for a few numbers. The response column is the number of responses returned from a mailing; "result" is what a winner could expect; "losers" is the number of losers in the plan; "winners" is the number of winners in the plan; "prob" is the probability of winning, and "odds" is the odds against winning.

If you have no information about the plan, then your chances of winning decrease with the size of the mailing. With only 4 levels, a return of 125 uses up the population of the U.S. Even though I have never participated, I have begun to receive pyramid sales promotion letters on the average of once a week. Clearly the market is reaching the point of no return. Moreover, the odds against winning are even greater for late participants.

These plans amount to implicit conspiracies among the fewer number of winners to 'rip-off' the large number of losers. The name of such a plan should be "Lots of Last Players Lose".