YTB Considers switching to a Franchise Business ModelIn a surprising and controversial move that could end the era of multilevel marketing, Scott Tomer, CEO of YTB International, Inc. said the company is “contemplating the replacement of its referring travel agent (RTA) business model with the implementation of a franchise operating system, potentially in 2009.” YTB has been at the center of travel agents' concerns with the proliferation of multilevel marketing.
In a filing with the Securities and Exchange Commission (SEC), Tomer said the company “expects that a franchising model, if adopted, would facilitate the company's expansion into additional markets by providing more comprehensive training and a new proprietary e-commerce platform.
“Details regarding price, product offerings and the conversion plan are all under consideration, but the company anticipates that its existing RTA base would be treated favorably under its forthcoming proposal," Tomer's statement continued. "If a franchising model is adopted, its distribution is expected to be managed by subsidiary and current marketing arm of the company, YourTravelBiz.com, also known as YTB.com.”
YTB International, Inc. is a publicly owned company. It provides Internet-based travel booking services for travel agencies and home-based independent representatives in the United States and Canada. It operates through three subsidiaries: YourTravelBiz.com, Inc., YTB Travel Network, Inc., and REZconnect Technologies.
YourTravelBiz.com, Inc. conducts business through the recruitment, enrollment, training, and support of its sales force.
YTB Travel Network, Inc.’s business is comprised of arrangements to sell airline tickets, cruise packages and other services, plus travel sales, from the approximately 138,814 (as of 3/31/08) RTAs’ websites which it hosts.
John Frenaye, president of the JVE Group and a critic of YTB, said the move should be watched carefully and may mean the end of the multilevel marketing approach in favor of the franchise model.
In a move that will be welcomed by many professional travel agents, California Attorney General Edmund G. Brown Jr. has sued YourTravelBiz.com for operating a gigantic pyramid scheme. The state alleges that YTB “recruited tens of thousands of members with deceptive claims that members could earn huge sums of money through its online travel agencies.” If found guilty, YTB could face fines and restitution as high as $25 million.
“YourTravelBiz.com operates a gigantic pyramid scheme that is immensely profitable to a few individuals on top and a complete rip-off for most everyone else,” Attorney General Brown charged. “Today's lawsuit seeks to shut down the company's unlawful operation before more people are exploited by the scam.”
Brown charges the company, its affiliates and the company's founders J. Lloyd Tomer , J. Scott Tomer , J. Kim Sorensen and Andrew Cauthen with operating an “endless chain scheme,” an unlawful pyramid in which a person pays money for the chance to receive money by recruiting new members to join the pyramid.
Brown also charges the company with unfair business practices and false advertising practices including deceptive claims that members can earn millions of dollars with the company, operating without filing legally mandated documents with the attorney general and the Department of Corporations and selling an illegal travel discount program.
John Frenaye , a veteran agent and critic of YTB, said the state's move was a “decisive win for travel agents and the travel industry” and could go a “long way to end the multilevel marketing challenge to the industry.” Last year, Frenaye collected more than 2,700 signatures from agents and suppliers opposing multilevel marketing.
In a statement, the attorney general said YourTravelBiz.com and its affiliates operate an illegal pyramid scheme that only benefits members if and when they find enough new members to join the scam. “Once enrolled, members who join the pyramid scheme earn compensation for each new person they enlist, regardless of whether they sell any travel. The company lures new members by offering huge income opportunities through online travel agencies, yet the typical person actually makes nothing selling travel.
“According to company records, there were over 200,000 members in 2007 who typically pay more than $1,000 per year—$449.95 to set up an 'online travel agency' with a monthly fee of $49.95. In 2007, only 38 percent of the company's members made any travel commissions. For the minority of members who made any travel commission in 2007, the median income was $39—less than one month's cost to keep the website. There are at least 139,000 of the company's travel websites, all virtually identical, on the Internet.”
YourTravelBiz's extensive marketing materials include videos of people driving Porsches and other luxury cars, holding $10,000 checks and claiming to be raking in millions of dollars in profits. The company advertises through its Website, www.ytb.com, and at conventions, workshops and nationwide sales meetings that have been held in California locations such as Los Angeles, Sacramento, San Francisco and San Diego.
Under California's unfair business practices statute, the company is liable for $2,500 per violation of law, the statement said. “Attorney General Brown is suing YourTravelBiz.com to get a court order that: Bars the company from making false or misleading statements and assesses a civil penalty of at least $15,000,000 and at least $10,000,000 in restitution for Californians who were ripped off by the company.”
The Attorney General's statement also noted that from August 6 through 10, “thousands of members are preparing to travel to St. Louis for a national convention to learn new techniques to recruit more victims into the illegal pyramid scheme. Last year at least 10,000 people attended a similar national conference.”
