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In the past month, four people have contacted me or a family member to pitch YTB–”Your Travel Business Inc”. What is YTB? If you want the two words or less answer: YTB is a pyramid scheme. If you’ve never heard of YTB and have never considered buying into it, that is pretty much all you will ever need to know about YTB. You can skip the rest of this post.

But if someone has recently tried to sell you YTB and you are wondering how true their sales pitch was, you’ve found the right article to read. When asked about YTB, I didn’t find many authoritative sources online that stuck to the facts and omitted bias, so I had to do my own research to understand the business.

My research included:

* Sitting through an hour+ sales meeting with two current YTB’ers.
* Posing direct questions to current YTB’ers.
* Thoroughly browsing the company’s websites.
* Going through the materials and website of a recent YTB buyer.
* Analyzing the company’s SEC & other reports. The bulk of my research time was spent here.
* Perusing media articles and forums about YTB
* Staring at the YTB income disclosure statement for an hour. If you do one bit of research on YTB, THIS is the document you should look at.

First, a basic primer. YTB is a midsized company with 315 full time employees. The company is technically in the online travel industry. Customers can buy a YTB website (yourwebsite.com) that sells travel products. Have you heard of Travelocity? YTB basically will sell you your own Travelocity website(so I could buy breckstravel.com and the site would work a lot like Travelocity). Now, you aren’t really buying much–you don’t have any control of the website, you don’t build it, you don’t maintain it, you don’t get any of the code, and in fact Travelocity actually powers your site because YTB and Travelocity are partners. But you do get a commission from travel booked through your website. When someone goes to Travelocity.com and books a JetBlue flight, JetBlue pays Travelocity a commission. If someone were to go to BrecksTravel.com and book a JetBlue flight, I would get a commission(however, the prices on BrecksTravel.com would actually be slightly higher than the price on Travelocity for the exact same flight–which is why I would get a commission).

These websites that YTB sells aren’t really competitive travel websites. Like I said, they offer the exact same (or less) functionality than Travelocity, and the prices are slightly higher. Also, there are over 100,000 of these pretty much identical websites (BrecksTravel, JoesTravel, JillsTrips, etc. etc.). So no one is going to get a whole lot of travel business by buying a YTB site. I don’t care how clever your name is or how many friends you have, not many people are going to prefer your website over something like Travelocity, Expedia, or Orbitz. So the product that YTB sells–your own travel website–isn’t a very good product.

YTB also tells you that by buying in, you’ll become a real, bona fide Travel Agent. They even tell you that you’ll become an RTA. The first thing you think when you hear “RTA” probably is “Registered Travel Agent”. However, it really stands for “Referral Travel Agent”, which is a thing YTB made up and really has no credo with anyone in the travel industry.

YTB charges a $500 initiation fee and $50 a month for this product, which I just told you isn’t anything special. So there’s got to be something more to it, right? There is. The secret sauce to YTB has nothing to do with travel or websites and everything to do with a Multi-Level-Marketing system, otherwise known as a Pyramid scheme.

In a nutshell, the $500 you pay to become a YTB RTA is divvied up among the levels above you on the pyramid. The person who directly sold you into YTB gets a cut, the person above him gets a cut, the person above him gets a cut, all the way up to the lucky guys at the top of the whole pyramid, who started YTB and get a cut of hundreds of thousands of people who buy in. So, YTB isn’t really selling a travel website. The real thing you buy is the opportunity to make money by getting other people to pay the $500 fee, which you will get a cut of, and to hope they will get their friends to buy in, which you will also get a cut of. If you want to learn more about pyramid schemes, I refer you to Wikipedia.

In a pyramid scheme, its great to be at the top, significantly worse but still good to be in the middle and, if you are at the bottom, you can kiss your money goodbye. The crux of my whole warning against YTB is that not only does it not create any real value anywhere(it merely transfers wealth up the pyramid scheme), but I believe the pyramid will soon reach the bottom and everyone who buys in when it does won’t even have the slightest chance of making any money. A pyramid scheme, by definition, is an unsustainable business model, so at some point (soon) there will be no more buyers into the YTB craze and the last ones in will have lost their money.

The best feature of YTB is that you can claim the money you spend on the initiation and monthly fees as a business expense. So, if you buy in at worse you’ll lose $500+monthly fees - your tax savings. In that regard, buying into YTB is less risky, especially if you find 6 others who can also lose $500 without blinking so that you both eliminate the monthly fees and increase your odds of realizing profits. The YTB sales reps will also tell you that you can write off your travel expenses too, but I highly doubt that. I don’t think the IRS will consider your “travel business” very highly if all you did was buy a website.

I’m going to setup the rest of this post as a Q & A, which I think will better answer the questions some people have about YTB:

Q: Can I make money from YTB?
A: Yes, but you can also make money if you win the lottery. Unfortunately, the odds of making money through YTB aren’t much better than making money off the lottery. Don’t take my word for it, read the YTB Income Disclosure Statement. If you were one of the early founders of YTB about 6 years ago yes–and you could make a ton of it. There are over 300,000 YTB RTAs. 81% of those, made $0 in 2007. They spent hundreds remember. 96% of those 300,000+ averaged less than $90 in income. Over 99% of the people averaged significantly less than the $500+ it would take to break even. In reality, there are about 1500-2000 people making decent money off YTB. That means about half of one percent make alright money. I bet your sales rep didn’t tell you this, did they? Your odds are even less if you haven’t been in YTB long. In fact, expect it to take 12-20 months before you even have a shot at making good money from YTB. Are they going to be around in 12-20 months? I don’t think so.

Q: I know for a fact that my friend John Doe is making $100,000 a year and has only been in YTB for 6 months. What do you say to this?
A: I know people who have won the lottery. I believe that there are people who are new to YTB and are making really good money. However, the odds are overwhelmingly against you. It also takes a lot of hard work and sales calls to even have a chance of having a chance. Do you want to spend that time pitching a product that is basically useless to your friends and family?

Q: Is YTB’s stock a good investment?
A: Absolutely not. I had trouble not laughing when the YTB reps I met told me the stock was going to go through the roof. Currently it is hoping to get recognized on the OTCBB (the stock exchange where usually NASDAQ and NYSE stocks go to die). It used to be on the OTCBB, but was booted off that because of failures to comply with reporting requirements. The truth is while YTB business is currently booming–the income from their business is fueled nearly entirely by the pyramid aspect which is reaching its peak. After the peak hits, the cash flow is going to drop dramatically at YTB. Which is why I was surprised to read in their annual reports about how much YTB is investing in their lavish new headquarters.

Q: But I’ve heard YTB is booming and they’ve been reporting their financials in a timely and accurate finding lately?
A: True. But that is because their business is doing great right now–there are plenty of people buying into the MLM.Once that slows, it will drop fast, and YTB will be back below the OTCBB if it doesn’t go bankrupt. Analyzing their income statements I figured that about 50% of their profits come from the MLM part of the business. The rest of their income is directly related to the success of the MLM part(training seminars and materials, commissions from websites,etc.). So as soon as the MLM business declines, it will take the whole ship with it

I don’t think if you buy into YTB it makes you a fool. The sales reps are very persuasive(and may even believe the crap they say, although the fact of the matter is it’s crap). The tax writeoff lowers the risk. And some people do get lucky. I just advise against it and I wouldn’t recommend YTB to a single person. It’s a wealth transfer company meant that redistributes the money from many to few, and keeps a slice for the effort. Very much like the lottery, which I also wouldn’t recommend.