An Analysis of the Skybiz.com Pay Plan
Peter VanderNat, PhD, is an Economist with the Federal Trade Commission His testimony helped to shut down Equinox, International in April, 2000. In an analysis filed with the Federal District Court, North Oklahoma District, VanderNat describes the Skybiz compensation scheme as an illegal pyramid.
According to VanderNat's analysis:
- The losses of the majority of participants are not accidental, but are built into the structure of the company's compensation plan.
- Failure by the majority to obtain the promised rewards occurs long before market saturation.
- In a pyramid scheme the number of people who lose money increases exponentially for as long as a successful recruitment pattern is maintained.
- Under an optimal scenario constructed entirely on the company's terms, some 94% of Sky Biz participants either earn nothing or fail to recoup $100.
- Aggregate harm is very substantial and is likely to run into $125 million or more.
VanderNat's analysis makes it painfully clear that "a second critical characteristic of the Sky Biz Compensation Plan is that the vast majority of participants will not receive any monetary rewards. . ." and that this predicament "cannot be resolved by adding more layers of enrollment."
VanderNat also points out the irrelevance of promoting "average" participant earnings from the program.
If, hypothetically, an organization has 10 people, nine of whom make nothing and one person makes $100,000, the 'average earnings' (as the arithmetic ratio of total earnings over all members) comes to $10,000 per person! This 'average' stands in stark contrast to the far more relevant information -if it were known- that the typical members in this example (90%) make nothing at all.
VanderNat also addresses the smokescreen that is used by product-based pyramid scheme promoters, namely that "if there are products involved, it must be a legitimate opportunity, and not a pyramid scheme. According to VanderNat,
If a pyramid uses a product that is generally worth what the company claims, it may seem all the more plausible to general participants that the operation is a legitimate business and that, ostensibly, the rewards are being funded from the sale of the product. But such a view misunderstands the funding mechanism that a pyramid uses. Unbeknownst to general participants -and whatever the product may or may not be worth- the terms of the pyramid compensation plan secure the result that the vast majority will fail to obtain monetary rewards, so that the company can use the net monies paid by those who are not entitled to rewards and give that money to those who are entitled under the same plan. If, in addition, the pyramid promoters also misrepresent the value of the product and can thereby extract additional funds from the participants, the net transfer becomes all the greater for the 'winners,' while the losses for others increase correspondingly. In my opinion, the value of the product addresses the extent of harm, not whether a pyramid exists. [Emphasis mine]