The Federal Trade Commission announced Wednesday that multi-level marketer AdvoCare International and its former CEO have agreed to pay $150 million and be banned from the multi-level marketing industry to resolve charges that the company "operated an illegal pyramid scheme that deceived consumers."
Two top promoters also settled charges with the FTC that they promoted the "scheme" and "misled consumers about their income potential ...," according to the FTC. They agreed to an industry ban and face a judgment of $4 million. Two other promoters also face FTC charges.
"We strongly disagree with the FTC allegations, but we are committed to abiding by this agreement and moving forward. The strength of AdvoCare is and always has been our highly-valued health and wellness products, which remain in great demand by our hundreds of thousands of loyal customers," says AdvoCare CEO Patrick Wright. "We will continue to stand behind our distributors, employees and customers and to uphold our values of integrity and transparency, as we have for over 25 years."
AdvoCare has deep ties to sports figures -- its national spokesperson is New Orleans Saints quarterback Drew Brees, who signed on the with firm in 2010. But dozens of other athletes, from pro football to basketball, chess to wrestling, are listed by AdvoCare as endorsers, including Kansas City Chiefs quarterback Patrick Mahomes and Becky Sauerbrunn, a defender on the U.S. Women's National Team. No sports figures were charged in the FTC complaint.
The FTC began an investigation after ESPN's Outside the Lines and ESPN The Magazine published and aired stories in 2016 that raised questions about the business operations of AdvoCare, which sells nutritional, weight-management and sports-performance products.
A story authored by ESPN reporter Mina Kimes noted that as AdvoCare grew, it signed dozens of high-profile athletes as endorsers. "But no spokesman matters more -- to the company, its distributors or its prospective recruits -- than Brees," Kimes wrote. "In one commercial [like several AdvoCare spots, the ad ran on ESPN], Brees appeared on-screen in a suit, talking to the camera as pictures of families flash behind him. 'I've seen product results, and so have thousands of people who trust AdvoCare,' he said in the ad. 'And the financial benefits can be just as rewarding for those who want more and decide to build their own AdvoCare business.'"
The promise that if you signed up for AdvoCare, you could reap "rewarding" financial results -- drew tens of thousands of new distributors every year.
But the ESPN investigation found that few of those salespeople would ever achieve that vision: "In reality, only a tiny fraction of AdvoCare members earn anything close to a modest income, even as they're pressured by higher-ranking distributors to keep buying inventory."
ESPN interviewed more than 30 current and former salespeople for the story, the vast majority of whom said their focus, and the focus of their superiors, was on recruiting other distributors. Kimes wrote that, in 2014, AdvoCare had 517,666 distributors, and just 1,209 of them -- 0.2% -- earned more than $25,000 that year; 95% earned $1,000 or less. Those figures don't include profits from members' product sales, but they also don't include expenses, which several distributors say outweigh retail profits."
In its ruling, the FTC alleged that AdvoCare "falsely claimed to offer a life-changing financial solution that would allow any ordinary person to earn unlimited income, attain financial freedom, and quit their regular job. In reality, the vast majority of AdvoCare distributors have earned no money or lost money."
The FTC found that in 2016, "72.3% of distributors did not earn any compensation from AdvoCare; another 18% earned between one cent and $250; and another 6% earned between $250 and $1,000. The annual earnings distribution was nearly identical for 2012 through 2015."
"Legitimate businesses make money selling products and services, not by recruiting," said Andrew Smith, director of the federal Bureau of Consumer Protection, on Wednesday. "The drive to recruit, especially when coupled with deceptive and inflated income claims, is the hallmark of an illegal pyramid. The FTC is committed to shutting down illegal pyramid schemes like this and getting money back for consumers whenever possible."
In addition to the $150 million judgment and ban, AdvoCare must notify all distributors about the FTC's lawsuit and settlement, and to advise them that they will no longer earn compensation based on purchases of distributors in their downline; if they had significant losses pursuing their AdvoCare business, they may get some of their money back from the FTC; and if they decide to discontinue their participation in the business opportunity, AdvoCare offers a 100% refund on unused products under existing refund policies.
AdvoCare, which has denied it operated a pyramid scheme, could not be reached for immediate comment Wednesday. In May, it announced a change in its business model from MLM to a direct-to-consumer and single-level marketing compensation plan, saying "AdvoCare has been in confidential talks with the Federal Trade Commission (FTC) about the AdvoCare business model and how AdvoCare compensates its Distributors. Based on more recent discussions, it became clear that this change is the only viable option."
Brees could not be reached immediately for comment. In the 2016 ESPN article, he vigorously defended the company and his involvement: "I have literally NEVER had a single person come up to me and say anything negative about AdvoCare products or the business model." He added, "I see the lives that it changes, not only as a direct result of taking the products but the financial independence it gives many of its distributors.
"Why are all these people involved in AdvoCare?" he continued. "Because it's a viable business, and they believe in the products, what they are selling and in AdvoCare. And so do I."