Herbalife, Part 1

Hi everyone, I’m Becca.

S: & I’m Sarah! And you’re listening to Unsavory. 

Today we are going to cover one of the most notorious nutrition-related multi-level-marketing companies, and how it has harmed at least 1.55 million of its distributors, either financially or physically (and in one instance, how the products have resulted in death). We’re talking about Herbalife today!

S: I am so excited - this company has been around for a very long time and a lot scandal can happen in that time. And this is actually going to be our first ever 2 part episode! This story was so huge we had to split it into two parts. 

YEP - as I was going through the research I realized how much scandal this company has been involved in…and the stories are just too dang interesting to cut. So in Part 2 we’re going to talk about how Herbalife has targeted lower-income Hispanic communities by using manipulative “American Dream”-like marketing propaganda; as well as how one business tycoon bet $1 billion dollars that the company would fail and then tried to make that happen using some less than savory tactics. And part 2 will be released in two weeks.

Okay, are you ready for part 1? 

S: Oh I’m ready! Let’s do it.

Intro music

A huge thank you to Caitlin Carbine who sent us this idea. This story is so much more than I was expecting.

Shout out to my sources for today’s episode which are all listed in the show notes at unsavory.com. And they include information from various new sources, William Cohan in Vanity Fair, the YouTube channel Iilluminaughtii and the documentary Betting on Zero, which is moreso Bill Ackman’s story - and he’s the hedge fund manager who tries to take down Herbalife - so I did use some other sources to corroborate his story but also to balance some potential bias.

It’s important to note that everything in this episode does have a source - so if you have any questions, feel free to check them out in our show notes. And I feel like I should preface that this is NOT intended to attack or shame anyone involved with Herbalife as a distributor or employee - or any other MLM for that matter - but rather an exposé to use for educational purposes.

We have talked about MLMs on the podcast before - in our gifting tables episode from season one. And it’s a great episode if you are looking for another one to binge after this one. In it we get into some detail about the pros and cons of multi-level marketing companies, also called MLMs, and the difference between MLMs and pyramid schemes. I’ll give you a quick rundown here, but if you’re interested in learning more, I highly suggest checking out the gifting tables episode.

S: Ooo yes that was such a good one! The dinner party themed pyramid scheme that honestly, sounded pretty tempting! We were definitely critical of MLMs in that episode, but since recording that episode I watched LulaRich and learned even more about how people are drawn into the MLM business model under the promise of having a fun side hustle that offers them time and financial freedom - often young women who want to support their family while raising kids. So I just want to say that if you’re in a MLM and it’s working well for you, that’s amazing! I think there are people that are aware of the downsides of MLMs and still choose to join one for a variety of reasons - including just to get discounts on products they want - and we don’t want you to feel like we’re judging your choice.  

B: Ya - MLMs can also be a flexible business opportunity with a fairly low initial investment when compared to starting your own company. Over 75% of MLM distributors are women, and this is because it can offer a decent side income from the comfort of one’s home - so if she is raising children, looking for a second source of income, or even if she is saving up to get out of a precarious situation (Marshall, 2017). It’s when an MLM is set up to manipulate distributors that we have a problem. And it’s also good to keep in mind that very few distributors will end up making a profit. But if it works for you, all the power to ya.
MLMs vs Pyramid Schemes
The main difference between an MLM and a Pyramid Scheme is that an MLM is a legal, legitimate business structure that sells products or services using person-to-person sales. The sales people are often called “distributors”. In an MLM you can either make money by selling the product or service, or by recruiting other distributors and earning commissions on what they buy and sell. With Herbalife, this is called the “downline” - so your downline consists of the people that you bring in, as well as the people they bring in, and so on and so forth. And you can make A LOT of money on these downlines - IF you have the social network to bring in other well-connected distributors and the financial capital to buy the initial inventory. 

A Pyramid Scheme, on the other hand, is illegal. The structure may be similar to that of an MLM, but its earning potential is not based on the product or service you are selling, but rather the number of people you recruit into the company. So income is almost exclusively dependent on bringing in other distributors. And distributors are often required to continuously purchase recurring inventory or training materials - usually monthly or quarterly. So it costs the distributor a lot of time and money before they ever see a profit, if they ever make a profit. These are illegal because they take advantage of people by putting pressure on recruits to join and purchase inventory using extravagant, but empty, promises (Federal Trade Commission, 2019).

S:

But if you’re thinking - hmm MLMs and Pyramid Schemes sound kind of similar - you’re right. But that’s not really the fault of the MLM. When the first business of this type came to be in the late 1800’s, the business structure and marketing practices were pretty good. But where there is opportunity and income potential, fraud often follows.

Even today the Canadian and US governments have a hard time identifying if an MLM has crossed the line to Pyramid Scheme without opening a full-blown investigation around the tactics and intent of the company. And for this to happen, they often need victims, plaintiffs or at least some formal complaints.

And on that note, let’s now talk about Herbalife. 
Mark Hughes & Herbalife
Alright, so Herbalife was founded by Mark Reynolds Hughes who was born in 1956 in La Mirada, California to his parents Stuard Hartman and Jo Ann Hughes. Stuard and Jo Ann divorced in 1970 and Mark was sent to live with his mother full time. Mark later claimed that his mother suffered from some mental health issues, as well as a pretty intense obsession with dieting and weight loss drugs. When Mark was only 18, his mother died of an accidental overdose from prescription diet pills mixed with painkillers and/or alcohol - the toxicology report results online were a bit contradictory here. But her death really made an impact on Hughes and fueled his passion for quote-unquote “natural” health products.

Rewind two years prior to his mother’s death, when 16-year old Hughes was sent to a private school for troubled youth, where part of the rehabilitation program required students to sell raffle tickets. He picked up on the sales and marketing tactics and quickly became the top seller among his peers. Despite his clear intellect and charisma, he was never motivated to surpass a 9th grade education.

Ironically and unfortunately, about a year after his mother’s death, Hughes began selling weight loss products for a company called Slender Now that used stupid slogans like “slender is for starting Monday to look great on Saturday” - so basically encouraging rapid unsustainable weigh loss in incredibly unhealthy ways. 

S: That is such a cruel twist, that he ends up going on to sell pretty much the exact same products that killed his mother. Our parents' relationship with food can have such a strong impact on our own relationship with food, it makes me wonder if Hughes was struggling himself. 

Ya - this is the part I struggled with too. If she was his only parent, his only influence, it would be very challenging to develop thought patterns about yourself or about weight that were much different from what you were exposed to.

So Slender Now is where Hughes was first introduced to the MLM business structure, since he and his colleagues were all independent sales reps who would buy the Slender Now products at discounted rates and then sell them to the public, earning royalties on each sale. 

When the company tanked after a few years, Hughes was one of its top distributors. He then began working for a similar weight-loss company until 1980 when he partnered with Richard Marconi who was the former Slender Now product manufacturer. And together they founded Herbalife (Copage, 2000). And you won’t hear Marconi’s name again by the way - at least not in this episode. Hughes was the face of the company and because of that almost all the articles, documentaries, and podcasts about Herbalife - they’re all about him.

Anyways, during the 1980’s in North America, the weight loss industry was booming - that wafer thin model look became “trendy” and more and more people, mainly women, began buying into new dieting methods and products, which consisted of A LOT of laxatives. S: and amphetamines. Of course, this type of weight loss is never healthy or sustainable, so it basically acted as a continuous funnel - or cycle - of returning customers for these companies. 

Herbalife products were very similar to other diet products already on the market, but they distinguished themselves by adding herbs to make them seem healthier - hence the name 
“Herbal-life”. S: Classic green-washing. Exactly! The first product was a meal replacement shake, and Hughes, who was only 24 at the time, sold the shakes from the back of his car. The company quickly picked up traction, making 2 million dollars in its first year. And with this they grew their products list to include powders, supplements, protein bars, and weight loss tablets - with most of them making misleading health claims or promising specific results. For example, the slogan at this time was “Lose weight now; Ask me how” - basically promising rapid weight loss; and even today they still sell a hormone balancing supplement called Women’s Choice, as if you get to choose what happens to your hormones as you age.

So right out the gates, Heralife uses some pretty questionable sales tactics. But most notably, Hughes used his mothers overdose to promote the products. He is even recorded saying that if Herbalife had been around when she was dieting, that she would probably still be alive. So he uses this awful/traumatic experience where he lost someone because of their fixation on weight loss…to sell his own diet products - and this gives me the ickiest of icks.

S: Major ick. And I wonder if he actually believed that on some level, or if it was just pure marketing. Also - a 24 year old with a grade 9 education and certainly no nutrition education making and selling products - the 80s were the wild west.  

Oh I know. His one saving grace here was his girlfriend - who was in university studying science at the time. And I wonder if we actually have her to credit for some of these initial products. Otherwise, he didn't seem to have any health professionals on his team at this point.

Anyways, Hughes claims that he lost 16 lbs in two weeks using his Herbalife products and that his grandmother lost 25 lbs in a month. His grandmother then recruited some of her friends to try the products and encouraged them to begin selling them. And with that the MLM structure within the company was born. This allowed for Herbalife to really expand and to expand quite quickly across global markets. Within the first decade, the company was already in 10 different countries, and at present day they are in 94 countries. 

Herbalife products were only ever available through Herbalife distributors - so you couldn’t pick them up at like a health food store. You either needed to know someone who was selling them or you needed to sell them yourself. In fact, many Herbalife customers would become distributors because they were given a 25% discount on the products. And from the beginning, the products weren’t cheap. In the 80’s, the basic weight-loss program was about $30 a month - which in today’s money is about $100 a month. And this doesn’t include any of the additional supplements or add-on products - this is just the basic package.

So some people would join for the discounts, but an even larger number of people would join for the income - or at least the income potential they were promised. Hughes would host these large Herbalife conventions where he would pitch the brand to new distributors and then he’d have select distributors go up and discuss their financial success with the company. Hughes would also make these grandiose promises that as a distributor you would make $50k in your first year and $125k in your second year, with the potential to make $42k per month with multiple downlines - and remember a downline is made up of the distributors you have working under you. So already you can see that the big money isn’t in selling the product, but rather in getting more people to join the company.

But here’s the issue: you have to start at the bottom of the pyramid and work your way up by bringing other people in. But, hypothetically, let’s say you’re at the tip of your own pyramid - we’ll call that level 1- and you bring in 6 distributors at level 2 (right below you), and those 6 distributors all bring in another 6 distributors at level 3…and so on and so forth. The problem here is that there’s no way you will EVER surpass level 13 because the number of distributors required would surpass the population of the world. So it’s a flawed system. Only those who are well connected to a network of affluent like-minded people will ever see success.

S: Those numbers seem outrageous…

I know. I even did the calculation because I was thinking there’s no way, but it’s true…you would need over 13 billion people below you to get to level 13 if each distributor brought in 6 people. And the world doesn’t have that many people, period. But even of the 7 or 8 billion people we have, not everyone can afford Herbalife, nor would everyone even want to participate in the MLM. 

S: I will certainly never join Herbalife, so there’s one spot that will never be filled! 

So the income potential actually decreases as more people join - since they will be less likely to find willing recruits - and when this happens, any income will be coming from distributors in the downline buying their inventory. The documentary stated that in the 2000’s you needed to have at least $3,000 in inventory to become a supervisor, which is where you start to get more bonuses and prestige within the company.

S: So a minimum $3000 buy-in to become a supervisor… do those people ever get that money back?

Good question. It depends. So only the top 17% of distributors are even eligible to make ANY money - because you need to purchase products and have a downline in order to qualify. Then about 30% of these qualified distributors will make NO money at all and 48% will make $1000 or less in earnings…but when you consider the investments they’re required to make on inventory, this ends up being $300 or less in net income. So only 22% of that 17% - which is less than 4% of all distributors - make more than $300 in income. And then you have very few people at the tippy-top making a few million dollars a year off Herbalife - and they call this like the “Founder’s Circle”. But it’s these people at the top who are recruited for the public speaking gigs and marketing efforts…so you can see how that’s a bit manipulative.

S: WOOOW. How do these people sleep at night?

Considering they are hopped up on caffeine and amphetamines, I doubt they do!
The Lawsuits

Let’s get a bit more into the products now.

So by 1982, the FDA had received a number of complaints about Herbalife. They were apparently using very high amounts of laxatives and caffeine in their formulas - which were clearly the magic ingredients causing weight loss…but this also led to a number of digestive issues among consumers. Herbalife had previously stated that about 25% of users would experience adverse reactions from the products, including nausea, diarrhea, headaches, and heart palpitations. But upon testing the products, the FDA found that closer to 40% of users actually experienced these effects. Which isn’t really all that surprising considering consumers are being pumped with laxatives and caffeine.

S: It's not surprising but extremely concerning. My stomach’s cramping just thinking about it! 

One other ingredient of concern was ephedra, which was found in three of the main Herbalife products. Now ephedra is an herb that contains the stimulant ephedrine, which is most commonly used to treat low blood pressure and breathing disorders, like asthma…but it also increases energy expenditure and suppresses appetite (Astrup, Breum, & Toubro, 1995). It’s actually sometimes used in the creation of methamphetamine aka meth for its stimulating properties. So basically ephedra increases heart rate and respiratory rate, but Herbalife essentially concluded that its weight loss benefits outweighed the risk of heart attack or stroke.

But then, in the 90’s, a woman died of an ephedra-induced heart attack after taking Herbalife products. And another woman had to be resuscitated four times after having a similar experience during a softball game - at 28-years-old. Thankfully she lived, but doctors had to insert a defibrillator into her chest to regulate her heartbeat. I couldn’t find any more Herbalife-specific deaths or incidents associated with the ingredient, but in 2004, the FDA banned the sale of ephedra after linking it to at least 39 deaths that could all be traced back to diet products. Keep in mind though that this ingredient was used in some other diet products at this time - so not just Herbalife (Gugliotta, 2000).

S: It’s insane to think of how deeply so many women’s lives have been impacted or ruined by diet culture. That is so sad…and ironically, very similar to what happened to Hughes’ mother. 

Almost exactly the same. And Herbalife had the nerve to state that they had "absolutely no knowledge" of the issues and that they had "never been contacted by the FDA". But if they had anyone with any formal pharmacology education on their team, they would have known the risks and possible outcomes of using ephedra in their products. Yet they just deny any responsibility, claiming that they are naive I guess - and I call BS on this. 

Around the same time that the FDA started their investigation - so in the early 80’s - Herbalife was also sued by three separate agencies in California, including the Attorney General. Here they were sued for their false claims and lack of adherence to labeling standards. One of their formulas was actually marketed as being able to help with over 80 ailments including arthritis, gout, herpes, and Addison’s disease. And another claimed it was a “natural energy booster” without indicating that a key ingredient in it was caffeine. They settled for $850k without admitting wrongdoing and discontinued two of their products or product formulas (Chicago Tribune, 1985).

S: That’s the problem with these mega-successful companies is that they can just pay away their problems and keep on conducting their shady, dangerous business. 

NUTRITIONAL VALUE?

What is your sense of the company so far?

S: I find their business model repulsive, preying on insecurities and making false promises to sell people products that not only don’t work, but are actually dangers. 

Ya, they promote unsustainable and consequential weight loss using these predatory tactics, including a get-rich-quick pyramid scheme. It’s an absolute mess.
(Braun et al., 2017; Illuminaughtii, 2020)
Mark Hughes’ Death
Despite all the drama, Herbalife was still making bank. By the early 90’s they had surpassed $1 billion in revenue and things seemed to be going really well for the company. But that came to a tragic halt on May 21st, 2000, when Mark Hughes was found dead of an accidental overdose. The coroner reported that the overdose was caused by a combination of antidepressants and alcohol, likely following a drinking binge. And he was only 44 at this time.

This is sad because you find out that this man creating and promoting these “natural” healing methods suffered from some pretty severe addiction, similar to his mother’s. And he had been seeing a psychiatrist for his drinking, but unfortunately it wasn’t enough (Bloomberg News, 2000). 

And that really concludes part 1 of the story. After Hughes' death, there’s even more scandal, if you can believe it.

S: Oh my gosh, that was amazing and I can’t believe you still have 10 pages of research to cover in part 2!