Butler's Cinema Scene

Bill Ackman

“BETTING ON ZERO” My rating: B

99 minutes | No MPAA rating

Capitalism is a system designed to produce a few big winners and many more losers. Hopefully the majority will find themselves holding their own somewhere in the middle.

As an illustration of that principle in action, we have “Betting on Zero,” Ted Braun’s documentary about Herbalife, the international health food/vitamin supplement company.

The real business of Herbalife, the doc makes clear, is less selling goods and services — which are not available through conventional retail outlets –than recruiting new participants who pony up thousands of dollars to start their own Herbalite distribution operations. That money, and any they earn from selling products, flows upward to the person who recruited them, and then to that person’s recruiter, and so on.

The only way for a late arrival to the system to flourish is to recruit dozens more participants from a shrinking pool of possibilities.

It is, one economist says in the film, a textbook definition of a pyramid scheme.

Several years ago hedge fund whiz Bill Ackman concluded that the Herbalite system was due to collapse as fewer and fewer people were recruited into its ranks. So he took a short position on Herbalite stock, making a billion-dollar bet that the company’s stock would go belly up.

If that happened, Ackman would make a huge killing.  At the same time he attempted to seize the high moral ground, saying that only a couple of times has he come across a company doing so much harm that taking it down is a public service.

He will learn that the high moral ground and high finance operate in mutually independent worlds.

Braun’s film alternates between Ackman’s high-profile campaign and the stories of individuals who lost nearly everything by getting involved with Herbalife. Many of them are recent immigrants who saw the company’s slick sales approach as a gateway to riches in America.  Even after concluding they were being ripped off, most declined to take their case to court — many were in the country illegally and weren’t about to draw unwanted attention by turning to the courts for redress.

Carl Icahn

We meet a biz-school grad in Oklahoma who got into Herbalife and concluded after a few months that it was a no-win proposition, and that the only way to even break even was to lie to the people he was trying to recruit. He was smart enough to turn his Herbalife clubs (storefronts where recruiting takes place) into vaping parlors.

Herbalife’s side of the argument is represented in TV interviews by its officers (none of whom appear to have talked to filmmaker Braun) and through the company’s incessantly upbeat promotional films.

For a while it looked like Ackman was on the right track.

And then his arch rival, Carl Icahn, threw a monkey wrench into the works by buying as much Herbalife stock as he could get his hands on.  Icahn’s hatred of Ackman appears to have been a primary motive…as the stock price rose, Ackman’s financial position became ever more tenuous.

Finally the FCC agreed to investigate charges that Herbalife was a pyramid scheme employing shady business practices. Those from both sides looking for a clear-cut victory were doomed to disappointment.

It’s an old saw but a truthful one:  Let the buyer beware.

| Robert W. Butler