Damage Control On Franchising

As with so many MLM companies, both the legitimate ones and those that are less than legitimate, the leadership creates a fervor and a cult like following. The continued success of this model is reliant on new people coming into the program and funding the paychecks of those that entered the program earlier. Some call it a pyramid scheme or a Ponzi scheme. While partially true, this is not the case, becasue in those two schemes, there is nothing involved but a money trade.  In order to "legitimize" the scheme, there must be a product. And in the case of YTB, the product is travel stores and travel. But please make no mistake, travel is merely a means to an end and a byproduct.

This comment was made on the Yahoo Finance Boards last week. Take it for what it is worth:

I worked for the corporate office for two years as a senior level programmer. I am the one who set up the systems that now run the company and I had access to the top. I was there when the stocks went skyhigh and heard the comments with my own ears from Lloyd and Scott about what they were going to buy when the stocks reached a certain level. They have no intention, nor ever had any intention, of making this a serious company. All of the programmers (very talented programmers who have since left due to the company bull@#$%) always talked about why the hell they didn't let us build a true booking engine if they were truly serious about making the company into something real.

I can tell you without a doubt that they don't want a real booking engine because there never was and never will be any intention of the company being anything other than an empty shell that funnels money into the top tier that will be used up and thrown away.

They are amateurs that only know how to scam people.

The YTB cheerleaders will call me a naysayer or a disgruntled employee but that's ok because I have seen the wizard behind the curtain.

It is funny,he references the Wizard of Oz; because I feel the curtain is about to be pulled open on YTB very shortly and there will be a lot of exposure that will not be pretty. The saddest part is that virtually everyone in the program except for 1000 or so early adopters will lost what they have invested. They will have been promised a dream and it will turn into a nightmare.

At this point in time, I believe YTB is working a new money grab with the announcement they will be franchising in 2009. While they still have a receptive audience (recruiting is tanking and more on that later) they are pumping up the benefits of franchising--a concept they derided as third rate for years. I have suggested that a new franchise (with all the bells and whistles they claim) will sell (if they can sell it) for $5000. But to the RTAs that want to switch, they can do it for $2500 and YTB will finance it over a year interest free. Of course most RTAs are not making money as it is, but this promise, this carrot, will be enough to have many make the switch. This is potentially a $325M windfall for YTB. And then you add the other accessories that will be needed to "insure" your success like manuals, support, training, collateral--all at a price!

Once established as a franchise, the pressure is off of YTB to perform in the realm of travel. It is all put on the back of the individual franchisee  who will likely see lower commissions because they are based on INDIVIDUAL production. The franchisee will pay a monthly franchise fee or a royalty or both. But they will not realize this until they have bought into the franchise and are likely locked into a multi year contract.

They say that the existing program will remain. Probably. They cite the Bill of Rights and the copyrighted compensation plan. Can anyone tell me what the plan is tied to? Recruiting. So if the recruiting falls off like it is, there will be less and less compensation. They pay per the plan and the BOR, but once it dwindles to nothing, the Reps will leave. YTB will not have violated the plan in any way. All they have done is say I will guarantee you a commission as long as there is a sale. No sale no commission. It is simple really. The existing Reps will be able to continue to sell the Busiess Opportunity but not the franchises. There are a lot of legal issues with franchising that are not a part of a Business Opportunity. Is it an odd coincidence that YTB has been quietly hiring Business Development Managers with franchise sales experience for the last six months?

I mentioned the decline in recruiting. YTB is on the verge of losing more people than they are bringing on. I suspect that we will not see this in the financial reports until the third quarter of 2008. When Coach could not sell out his two cruises he opened them up to military and pastors for free--of course they all received a sales pitch and if given a free cruise, I might be inclined to cut a check for $500 to join and "repay" him.  2Q is safe, but 3Q might show a different tale.

Meanwhile, the senior management has been filtering  money to a privately held sister companies. Take for example this foam stage prop. Depending on whihch report you believe, YTB is paying $6 million or $8 million dollars to have this produced. Seems extreme to me. But what you don't know is that the manufacturer of this monstrosity is a privately held sister company owned by Coach, Scott and Kim. So, they have effectively transfered up to $8 million dollars to a very small company controlled by three insiders. Sure there is cost, but $8 million? I recently heard that Reps and RTAs were required to buy paper collateral from this same company. Do you want to venture who will be preparing all the training manuals and collateral for the franchise? Would anyone care to venture if the prices might be inflated? Do you think the private company, absent an investigation, is out of reach of the SEC?

Right now, the existing Reps are scrambling. and the blogs are alive with fear and trepidation. One in Michigan even went so far as to say he was selling the franchises (tough to do since it is not a done deal yet) for $449 and he portrayed the site as an official YTB site. He issued a press release that indicated he was speaking on behalf of YTB and only disclosed he was not in the "about us" paragraph at the bottom.  Although I am not sure he fooled anyone--while YTB may be a scam they do put on a good face and I have never seen "registerd By Go Daddy" on the bottom of one of their sites. But YTB never claimed to have the brightest bulbs in the pack.

So there you have it--my take on the YTB debacle. In terms of travel, the numbers are down, they will try some more smoke and mirrors with the franchise allowing them to filter money into a private company and prepare to move on to the next thing. I believe that they realize travel may have been a mistake. There is not a lot of margin, they have essentially failed in their expansions (not to mention the other programs like Olympics, 2 Fly Free, Cruise With Coach, etc.) and are positioning to move on. A recording of the Coach indicated that with franchising he wanted to be the biggest supplier of "products" and to take on Walmart and Sam's Club. There was no mention of travel. I have said for a long time that I felt they woudl use travel as long as they could, and tht time may be here!

Interested in reading some of the fearful blogs? Check it out here, here, here, here, here and here!